Accoutning 212 Exam ch. 12,13,1 & 2

Liberty Univeristy Exam

cash equivalents must meet two criteria

1. be readily convertible into cash

2. and be sufficiently close to maturity so that. market value is unaffected by interest rate changes

classifications of cash flows

1. operating activities

2. investing activities

3. financing activities

non-cash accounts

cash= liabialites + equity- noncash assets

Cash flows from operating- indirect

operating activties: genrally include transaction and events that affect net income

cash flows from operating- indirect

operating cash inflows, for example: Cash sales to customers, collections of credit sales, receipt of dividend revenue, and receipt of interest revenue.

Cash flows from operating- indirect

operating cash outflows, for example: Cash to pay operating expenses, including that to pay salaries and wages, pay suppliers for goods and services, pay for rent, pay interest owed, pay taxes

cash flows from operating- indirect

indirect method: reports net income and then adjusts it for items that do not affect cash. indirect method only affects the presentation of operating cash flows, not investing or financing sections

Summary of adjustments for indirect method

Net income (or loss)

• noncash expenses and losses

  example: expenses for deprecation, depletion, amortization; losses for disposal of long-term assets and from retirement of debt

• Non-cash revenue and gains

  examples: gains from the disposal of long-term assets and from retirement if debts

  ADJUSTMENT FOR CHANGES CURRENT ASSETS AND CURRENT LIABILITIES

  1. + decrease in noncash current operating assets

  2. - increase in noncash current operating assets

  3. + increase in current operating liabilities

  4. - decrease in current operating liabilities

= NET CASH PROVIDED (USED) BY OPER. ACT.

Cash flows from investing

Investing activities: generally include transactions and events that come from the purchase and sale of long-term assets

2. investing cash inflow example: cash from selling plant assets, selling intangible assets, selling investments, collecting principal (but not interest) on notes receivable

3. investing cash outflows examples: cash to buy plant assets, buy intangible assets, buy investment, loan money in return for notes receivable

4. cash flows from investing activities:

   • cash provided from the sale of plant assets 2,000

   • net cash provided by investing activities 2,000

cash flows from financing

financing activities: generally include transactions and events that affect long-term liabilities and equity.

cash flows from financing

financing cash inflow example: cash from issuing common and preferred stock, issuing long-term debt (notes payable and bonds payable), reissuing treasury stock

financing cash outflow examples:

cash to pay dividends to shareholders, pay off long-term debts (notes payable and bonds payable), and purchase treasury stock.

financing section format

cash flows from financing activities

1. cash received from issuing stock (debit)

2. cash paid to retire notes (debit)

3. cash paid for dividends (debit)

4. net cash used in financing activities (credit)

cash flows from operating- direct

direct method: separately lists cash receipts and operating cash payments.

1. cash payments are subtracted from cash receipts

adjustments for direct method

receipts:

1. from sales—- sales revenue

2. from rent—— rent revenue

3. from interest—- interest revenue

4. from dividends—— dividend revenues

payments

1. to suppliers —— cost of goods sold

2. for operating —- operating expense

3. ton employees —— wages (salaries ) expense

4. for interest —- interest expense

5. for taxes—— income tax expense

liquidity and efficiency

ability to meet short-term obligations and efficiently generate revenues.

solvency

ability to meet long-term, obligations and generate future revenues

profibality

ability to provide financial rewards to attract and retain financing

market prospects

ability to generate positive market expectations

general-purpose financial statements

1. income statement

2. balance sheet

3. statement of stockholders equity ( or RE)

4. statement of cash flows

5. notes of these statements

horizontal analysis

comparative financial statements: show financial amounts in side-by-side columns on a single statement

horizontal analysis—- analysis period

the financial statements under analysis

horizontal analysis— base period

the financial statements used for comparison. The prior year is commonly used as a base period

dollar change

dollar change= analysis period amount- base period amount

percent change

percent change (%)= analysis amount- base period amount / base period amount *100

trend analysis

computing trend percents that shows patterns in data across periods.

trend percent forumla

trend percent (%)= analysis period amount / base period amount *100

vertical analysis—- common-size statements

show changes in the relative importance of each financial statement item. All individuals amounts in common-size statements are shown in common size percents

common-size percent formula

common size percent = analysis amount/ base amount *100

base amount

comparative balance sheets use total assets, and comparative income statements use net sales

current ratio

current assets/ current liabilities

acid-test ratio

cash + short-term investments + current receivables / current liabilities

accounts receivable turnover

net sales/ average accounts receivable, ent

inventory turnover

cost of goods sold / average inventory

days sales uncollected

accounts receivable, net / cost of goods sold *365

day sales inventory

ending inventory/cost of goods sold _{* 365}

total asset turnover

net sales / average total assets

debt ratio

total liabilities / total assets

equity ratio

total equity/ total assets

debt- to- equity ratio

total liabilities / total equity

times interest earned

income before interest expense and income tax expense/interest expense

profit margin ratio

net income/ net sales

gross margin ratio

net sales- cost of goods sold/ net sales

return on total assets

net income / average total assets

return on equity

net income / average total equity

basic earnings per share

net income- preferred dividends / weighted average common shares outstanding

price-earnings ratio

market price per common share/ earnings per share

dividends yield

annual cash dividends per share / market price per share

planning

process of setting goals and making plans to achieve them

control

process of monitoring and evaluating an organizations activities and employees

managerial accoutning

focused on the needs of internal managerial and executive employees

financial accouting

focused on the needs of external users including investors and creditors

direct cost

costs that can be cost-effectively traced to a cost object

factory overhead

all manufacturing costs that are not direct material or direct labor. costs include manufacturing costs that cannot be cost-effectively traced to finished goods.

1. includes indirect materials, indirect labor, other indirect costs

prime costs

direct materias costs + direct labor costs

conversion costs

overhead costs + direct labor costs

product costs

consists of direct materials, direct labor, and factory overhead.

period costs

nonproduction costs linked to a time period rather than to completed products.

raw materials inventory

materials a company acquires to use in making products

work in process inventory

products in the process of being manufactured but yet not complete

finished goods inventory

completed products ready for sale

costs of goods solds

Beg, merchandise inventory + cost of merchandise inventory - ending merchandise inventory = cost of goods sold

Costs of goods solds

beg, finsished goods inventory + cost of goods manufcatured - ending finished goods inventory = cost of goods sold

costs of goods manufactrued

total of direct materials used, direct labor, and factory overhead costs for finished goods manufactured

job

production of a custom product

job lot

producing more than one unit of an custom product

job cost sheet

cost record kept for each job or job lot

direct materials

used in manufacturing and clearly identified with one job

direct labor

is the employee effort on one specific job

Overhead

costs support production of more than one job

direct materials

+ direct labor

+ overhead applied = total job cost

raw materials inventory

beg. balance (debit)

purcashes (debit)

dm used (credit)

work in process inventroy

beg bala.

DM used

DL used

FOH used

COGM (credit)

finished goods inventory

beg balance

COGM

COGS (credit)

general purpose financial statements

1. income statements

2. balance sheet

3. statement of RE

4. Statement of cash flows

5. Note Statements

balance sheet (2nd statement)

1. assets

2. current assets

3. long term assets

4. total assets

liabilities

1. current liabialiteis

2. long term liab

3. total liab

equity

1. common stock

2. pref stock

3. treasury stock

4. retained earnings

5. total equity

purpose of statement of cash flow

1. how does a company receive its cash?

2. what explains the change in cash balance?

3. How do income and cash flow differ?

4. where does a company spend its cash?

Raw Material

1. beg balance

2. purchases

3. dm used (credit)

finished goods inventory

1. beg balance

2. COGM

3. COGS (credit)