Financial Statements Flashcards

A comprehensive set of flashcards covering key concepts related to financial statements, including the income statement, statement of shareholders’ equity, balance sheet, and cash flow statement.

What does the income statement measure?

Profitability over a period of time.

What is the basic structure of the income statement?

Sales → COGS → Gross Profit → Operating Income → Income Before Tax → Net Income

What is the formula for Gross Profit?

Sales – Cost of Goods Sold

What is the formula for Operating Income?

Gross Profit – Operating Expenses

What are gains and losses?

Non-core income or expenses from peripheral or unusual events.

Where are discontinued operations reported?

Separately after continuing operations, net of tax.

What is the EPS formula?

(Net Income – Preferred Dividends) ÷ Average Common Shares

What does the statement of shareholders’ equity show?

Changes in equity accounts over time.

What increases equity?

Net income and stock issuance.

What decreases equity?

Dividends and treasury stock purchases.

What is retained earnings?

Accumulated net income minus dividends.

What is the balance sheet equation?

Assets = Liabilities + Equity

What is the balance sheet?

A snapshot of financial position at a point in time.

What are current assets?

Assets expected to be used or converted within 1 year.

What are noncurrent assets?

Long-term assets like PPE, investments, and intangibles.

What are current liabilities?

Obligations due within 1 year.

What are long-term liabilities?

Debts due after 1 year.

What does the cash flow statement show?

Cash inflows and outflows during a period.

What are the three sections of cash flow?

Operating, Investing, Financing.

What are operating activities?

Day-to-day business transactions affecting net income.

What are investing activities?

Buying and selling long-term assets.

What are financing activities?

Debt and equity transactions.

What does the indirect method start with?

Net income.

What is added back in the indirect method?

Depreciation, amortization, losses.

What is subtracted in the indirect method?

Gains.

How do increases in current assets affect cash?

They decrease cash.

How do increases in current liabilities affect cash?

They increase cash.

What is a memory trick for working capital changes?

Assets ↑ = Cash ↓, Liabilities ↑ = Cash ↑.

Dividends belong in what section?

Financing activities.

Purchase of equipment belongs in what section?

Investing activities.

Issuing stock belongs in what section?

Financing activities.

Depreciation belongs in what section?

Operating activities (non-cash add-back).

Sale of equipment belongs in what section?

Investing activities.

What does the income statement measure?

Profitability.

What does the balance sheet measure?

Financial position.

What does the cash flow statement measure?

Actual cash movement.