Accruals & Adjustments
A company receives cash for services to be performed next month; before service delivery, this account increases.
What is unearned revenue?
An increase in accounts payable is treated this way in the operating section (indirect method).
What is added to net income?
Issued shares minus treasury shares equals this key figure.
What are outstanding shares?
When bonds are issued at a discount, their carrying value moves in this direction over time.
What is increases toward face value?
A company’s strongest operating cash flows occur during peak seasonal sales; this pattern reflects this business characteristic
What is seasonality?
Failing to record accrued wages at period-end causes this dual misstatement in financial statements
What is net income overstated and liabilities understated?
A company reports high net income but negative operating cash flow; this typically signals this issue.
What is poor earnings quality (non-cash revenue or aggressive accruals)?
A small stock dividend is recorded at this valuation basis rather than par value
What is market value?
Under straight-line amortization, this component of bond expense remains unchanged each period.
What is interest expense?
A firm with consistently negative financing cash flows is most likely doing this.
What is repaying debt or paying dividends?
When a company prepays insurance, the adjusting entry reduces this account and increases expense.
What is prepaid insurance (asset)?
Cash received from issuing stock appears in this section of the statement of cash flows
What are financing activities?
This type of preferred stock feature requires missed dividends to be paid later.
What is cumulative preferred stock?
The difference between face value and issue price of a bond represents this concept.
What is a bond discount?
If liabilities grow faster than assets, this ratio will increase
What is debt-to-assets ratio?
This type of liability arises when expenses are incurred but not yet paid or recorded.
What are accrued liabilities?
Under U.S. GAAP, interest paid is classified under this activity
What are operating activities
A stock split affects share count in this way but leaves total equity unchanged.
What is increase in shares proportionally (no change in total equity)?
This calculation converts future bond payments into today’s dollars.
What is present value?
Net income minus preferred dividends divided by average common shares measures this.
What is earnings per share (EPS)?
A company records cash for future services as revenue immediately; this violates this accounting principle.
What is the revenue recognition principle?
A company sells equipment at a gain; the gain must be treated this way in the operating section.
What is subtracted from net income?
This account captures amounts received above par value when stock is issued.
What is additional paid-in capital?
As an installment loan progresses, the interest portion of each payment behaves this way.
What is decreases over time?
A company minimizes total cost of stockouts and holding by choosing this inventory buffer level
What is optimal safety stock level?