Accounting 2 Exam Notes

Managerial Accounting

Earnings Per Share (EPS)

Net Income-preferred dividends/ Weighted Average of shares outstanding

P/E

Share Price/Earnings Per Share

Dividend Yield Ratio

Dividends Per Share/ Market Price Per Share

Dividends Payout Ratio

Dividends Per Share (DPS) / Earnings Per Share (EPS) x 100

Average Sale Period

365/ Inventory Turnover

Average Collection Period

365/ accounts receivable turnover

Accounts Receivable Turnover

Sales on Account / Average AR balance

Inventory Turnover Ratio

Costs of goods sold / Average Inventory balance

Main revenue generating activities of the business (selling goods/services)

Operating Activities

Outside business core operations (Buying or selling investments or other long-term assets)

Investing Activities

Funding the business through raising or repaying cash to third-party banks or owners if the business

Financing Activities

What is the impact of an increase in accounts receivable of $7,000 in the statement of cash flows under the indirect method?

Deduct from NI

What is the impact of a decrease in accounts receivable of $7,000 in the statement of cash flows under the indirect method?

Add to NI

Company issues its own stock to shareholders

Cash provided – financing activities

Company reacquires its own stock from shareholders

Cash used – financing activities

Proceeds from sale of debt securities of another company

Cash provided – investing activities

Proceeds from sale of the company’s own debt securities (such as issue of bonds payable).

Cash provided – financing activities

Purchase of debt securities of another company

Cash used - investing activities

Dividends paid to a company’s own shareholders

Cash used – financing activities

How would a gain on the sale of a noncurrent assets be reflected on the statement of cash flows prepared using the indirect method?

Subtract gain from net income, Cash used – operating activities

How would a loss on the sale of a noncurrent assets be reflected on the statement of cash flows prepared using the indirect method?

Add loss to net income, Cash provided – operating activities

Most common cash transaction: purchase and sale of plant assets

Investing Activities

Issuing Stock and paying dividends

Financing Activities

Revenue/Expenses, transactions that make up net income

Operating Activities

Cash Provided

Cash inflows from business operating

Cash Used

Cash outflows from expenses