IB Essentials - Accounting

Financial Statements

Gross Profit formula?

Revenue - Cost of Goods Sold

Operating Income formula?

Gross Profit - Operating Expenses

Net Other Income formula?

Other Income - Other Expenses

Pretax Income formula?

Operating Income + Net Other Income - Interest Expenses

Net Income formula?

(Operating Income + Net Other Income) * (1 - Tax Rate)

What is Accounts Receivable?

I. O. U account customers to business

Accounts Receivable formula?

Beginning Balance - New Invoices + Amount Collected

Quantifies Accts. Rec.

What is Turnover Ratio?

Receivables health metric measuring # of times company can liquidate accts. rec. in period

Net Sales on Receivables / Avg. Accts. Rec.

What is Days Sales Outstanding (DSO)?

Receivables health metric measuring how long it takes to collect receivables.

Accounts Receivable / (Net Sales on Receivables * # of Days)

Inventory formula?

Beginning Inventory + New Purchases - COGS = Ending Inventory

What are Raw Materials, Work in Process, Finished Goods?

The three main components of inventory.

What is FIFO?

First in first out (Inv. Val. Metric) - cost of inventory valued at price of oldest inventory purchase

What is LIFO?

Last in first out (Inv. Val. Metric) - inventory valued at most recent inventory purchase

Mean Inventory Cost

Inventory valued on mean price of all inventory

Specific Inventory Identification

Inventory valued on exact cost at purchase

What are Prepaid Expenses?

Balance Sheet: Current assets that are paid for but haven’t been used up yet.

What are Fixed/Intangible Assets?

Balance Sheet: Assets that are in operation for more than a year and always depreciated/amortized.

What are Capital Expenditures (Capex)?

Balance Sheet: The purchase of fixed and intangible assets.

Tangible Asset Examples

PP&E, Machinery, Computers, Buildings

Intangible Asset Examples

Trademarks, Copyrights, Patents, Software, Goodwill

What are Current Liabilities?

Balance Sheet: Debt due to be repaid within 1 year.

What are Accounts Payable?

Balance Sheet: Amount owed to creditors.

What is an Accounts Payable Summary Aging Report?

Overview of groups of payables by set time periods.

What is an Accounts Payable Detailed Aging Report?

Listed overview of each individual payable item.

What is Defered Revenue?

Balance Sheet: Products/Services owed to customers.

Deferred Revenue formula?

(Beginning Deferred Revenue + Invoices Sent) / (Money Collected - Revenue Recognized)

What are Accrued Expenses?

Balance Sheet: Things that have been used up (expensed) but not paid for yet.

What are long term liabilities?

Balance Sheet: Debt due to be repaid fully after 1 year.

What is a Line of Credit?

Balance Sheet: Flexible loan allowing unlimited withdrawals, but has withdrawable ceiling.

What is a Secured Line of Credit?

Balance Sheet: Line of Credit backed by collateral.

What is an Unsecured Line of Credit?

Balance Sheet: Line of Credit not backed by collateral.

What are Convertible Notes?

Balance Sheet: A note investors get with discount rate, maturity date, conversion terms, etc, in exchange for financing that can be converted to equity after terms are fulfilled by startup.

What is the Income or P/L Statement?

Incrementally tracks profits by period.

What is the Balance Sheet?

A progressive rather than incremental snapshot of a company’s net worth.

Cash Flow Statement

Incrementally tracks the flow of cash by period between different line items.

What is Preferred Stock?

Balance Sheet: Gives investors liquidation preference on assets and early dividend payouts.

What is Common Stock?

Balance Sheet: Gives investors voting rights and dividends are variable, not guaranteed.

Retained Earnings formula?

Beginning Retained Earnings + Net Income - Dividends

What are Retained Earnings?

Balance Sheet: It’s the portion of profits reinvested into business after dividend payout. 

What is Owner’s Draw?

Balance Sheet: Owner’s withdrawal account for personal use.

What is Additional Paid in Capital (APIC)?

Balance Sheet: The amount of excess paid by investors over par value of stock. 

What is Cash from Operating Activities

Cash Flow Statement: tracks movement related to Net Income and current Assets/Liabilities

What is Cash from Investing Activities?

Cash Flow Statement: tracks movement related to long term investments.

What is Cash from Financing Activities?

Cash Flow Statement: tracks capital invested into or lent to the company.

Deferred Tax Asset (DTA)

Prepaid taxes to date to reduce future tax bills.

Deferred Tax Liability (DTL)

Underpaid taxes to date less than GAAP net income would suggest.

Treasury Stock

Owner’s Equity: Total value of stock repurchased from investors.

Accumulated Other Comprehensive Income (AOCI)

Owner’s Equity: Miscellaneous saved income—unrealized gains losses on assets, but not sold yet