FABM RECIT 1

What are the primary objectives of preparing a Statement of Comprehensive Income?

• to show the company’s financial performance for a specific period by reporting revenues, expenses, gains, and losses, resulting in net income or net loss, and to provide a complete picture of how these affect owners’ equity.

What are the primary components of a Statement of Financial Position and how are they defined?

• Assets, liabilities, equity (retained earnings, capital)

What is an Asset? Give examples.

An - is a resource owned and controlled by a business that is expected to provide future economic benefits.

• Exp. cash, accounts receivable, Land

What are the essential elements of a Statement of Comprehensive Income in a single-step format, and how do they contribute to financial reporting?

Revenues, Expenses, Net Income/Net Loss -  all revenues are grouped together, all expenses are grouped together, and the net result shows whether the business was profitable

What is the distinction between revenues and gains in financial reporting?

• - = regular business income (service fees, sales of goods) 

• - = incidental or non-operating income. (selling on old asset)

Normal balances of different accounts.

• DEAD CLIC

• (DEBIT: EXPENCES, ASSESTS, DRAWINGS) (CREDIT: LIABILITIES,INCOME,CAPITAL)

What is the Statement of Cash Flows, and what are its primary objectives in financial reporting?

• The Statement of Cash Flows (SCF) is a financial report that shows the cash inflows and outflows of a business during a specific period, classified into operating, investing, and financing activities

What is depreciation, and how does it impact assets?

• - is the gradual decrease in value of assets like buildings, vehicles, or equipment as they are used.

• reduces the value of the asset in the balance sheet and is recorded as an expense in the income statement.

What is the key difference between sales returns and purchase returns in accounting?

• - – Goods returned by customers back to the business; reduces the company’s sales/revenue.

• - – Goods returned by the business to its suppliers; reduces 

the company’s purchases/inventory cost

What is the key difference between sales discount and purchase discounts in accounting?

• - – A reduction in the selling price given by the business to customers for early payment

• - – A reduction in the price given by suppliers to the business for early payment

Discuss. Report Form vs. Account Form

• - – The Statement of Financial Position is presented vertically (top to bottom). Assets are listed first, followed by Liabilities, then Equity.

• - – The Statement of Financial Position is presented horizontally (side by side). Assets are on the left side, while Liabilities and Equity are on the right side, similar to a T-account

Give three examples of cash inflows and outflows and what are the effects on cash flows?

Examples of Cash Inflows (increase cash):

• Cash received from sales of goods/services (Operating Activity).

• Cash received from owner’s investment (Financing Activity).

• Cash received from selling equipment (Investing Activity).

Examples of Cash Outflows (decrease cash):

• Cash paid for expenses like rent and utilities (Operating Activity).

• Cash paid to buy new equipment (Investing Activity).

• Cash paid to settle loans or drawings (Financing Activity)

Effect:  Inflows increase cash balance, while outflows decrease cash balance.

Explain the accounting equation.

• Assets = Liabilities + Equity

• (what you own = what you owe + owners claim)

What role do headings play in financial statements?

• Headings name of the company, the type of statement and the period or date covered.

• to provide clarity, proper identification, and context

What are the key differences between the direct and indirect methods in preparing a Statement of Cash Flow?

• - : Show each major class of gross cash receipts and gross cash payments

• - : Presents the activities starting with the pre-tax income

Identification of transactions that fall under operating, investing and financing activities.

• Operating = daily operations, Investing = assets, Financing = owners/loans.

• OA: Cash received from sales, paid to salaries, rent, etc. IA: Buying or selling long-term assets. FA: Loan repayments, Owners Investment.)

Effects of decreases and increases in business transactions. 

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How are assets and liabilities presented in a Statement of Financial Position?

• Assets are shown on one side (or at the top, if report form), usually arranged as current assets first (cash, receivables, inventory) then non-current assets (land, building, equipment, intangibles).

• Liabilities are shown on the other side (or below assets), starting with current liabilities (accounts payable, salaries payable) then non-current liabilities (loans payable, mortgage).

Identification of investing activities in terms of business transactions.

• - are transactions where a business buys or sells big/long-term things it uses to earn money.

• Purchase of property, plant, and equipment (PPE) like land, buildings, or vehicles.

Identification of operating activities in terms of business transactions

• - s are the daily business transactions that happen in running the company.

• Cash received from customer, Cash paid for utilities, rent

Identification of financing activities in terms of business transactions.

• - are transactions that involve the owner’s money and loans used to fund the business.

• Cash Investment, Cash repayments

Differentiate nominal and real accounts. Give examples.

• Nominal accounts are temporary (reset to zero each period. (revenues,espences, gainss & losses, drawings)

• Real accounts are permanent (balances continue). (assets, liabilities, equity)

Differentiate temporary and permanent accounts. Give examples. 

• - – Also called nominal accounts. They are closed at the end of each accounting period and start with a zero balance in the next period 

Exp. Revenues, Expenses, Capital

• - – Also called real accounts. Their balances are carried forward to the next accounting period and are not closed.

Exp. Assets, Liabilities, Equity

What are non-operating activities? Cite examples.

• - are transactions not related to the main business operations. They come from side activities of the business.

• Examples: Interest income, Interest expense, Gains or losses from selling assets
  Investment income

What are selling expenses? Give examples

• - are the costs a business pays to sell its products.

• Examples: Advertising expenses, delivery costs, and sales commissions, Freight in

What are general and administrative expenses? Give examples.

• - are costs needed to run the business office but not directly for selling. 

• Examples: Office rent, utilities, office salaries, and office supplies

What are the important components of a simpler form of SCI? 

• Net Sales – Sales after deducting returns and discounts.

• Cost of Goods Sold (COGS) – The cost of products sold.

• Gross Profit – Net Sales minus COGS.

• Operating Expenses – Selling and administrative expenses.

• Net Income (or Net Loss) – Final result after deducting expenses
  
  

 In short: Net Sales – COGS – Expenses = Net Income.

Define unearned income and give examples.

• - is money received in advance before giving the product or service. It is a liability.

• Examples: Down payments, advance rent, and prepaid subscriptions.

Define prepaid expenses. Give examples.

• - are payments made in advance for goods or services that will be used in the future

• Examples: Prepaid rent, prepaid insurance, and prepaid subscriptions.

Enumerate and define the elements of statement of financial position.

• Assets: what you own

• Liabilities: what you owe

• Equity: owner’s claim on the business after liabilities are paid

What types of assets exist, and how do they impact a company's financial position?

• Current Assets – Easily turned into cash within a year. Examples: cash, accounts receivable, inventory.

• Non-current Assets – Used for a long time in business. Examples: land, buildings, equipment

• Effect:  The overall impact of assets is that they show what a company owns and can use to generate money.

What types of liabilities exist, and how do they impact a company's financial obligations?

• Current Liabilities: Obligations the company must pay within one year. Examples: Accounts payable, short-term loans

• Non-Current Liabilities:: Obligations due after one year. Examples: Long-term loans, bonds payable