Financial Accounting

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Balance Sheet

Presents assets, liabilities, and owner's equity at a particular point in time.

Income Statement

Summarizes the transactions that produce revenue and expenses for a business during a period.

Statement of Owners’ Equity

Summarizes major transactions affecting owners’ interests, including net income and earnings distributed.

Statement of Cash Flows

Summarizes the sources and uses of a company's cash funds during a period.

Assets

Tangible or intangible resources that can be measured in dollars and are expected to provide future economic benefits.

Liabilities

Dollar measures of a company’s obligations including monies loaned, goods/services received, or commitments made.

Owners’ Equity

Dollar measure of the owner's investment in the company, either directly or indirectly.

Basic Accounting Equation

A = L + OE

Balance Sheet Equation Meaning

Assets of a company will always equal the sum of its liabilities and owners’ equity.

Balance Sheet Reports

Assets, liabilities, and owners’ equity as of a specific date.

Balance Sheet Listing Order

Assets and liabilities are listed in order of their liquidity.

Cash on a Balance Sheet

Balances on deposit at the company’s banks and short-term, secure investments.

Due from Customers (Accounts Receivable)

Amounts owed to the company by customers who purchased merchandise on credit.

Inventory

Aggregate cost of raw materials, work-in-process, and finished goods owned by the company.

Investments

Represents the company's partial ownership of other firms.

Plant and Equipment

Unallocated cost of the land, buildings, equipment, and construction in progress.

Goodwill

Premium over the value of assets and liabilities paid when acquiring other companies.

Payable to Suppliers (Accounts Payable)

Amounts owed to suppliers for merchandise purchased on credit.

Payable to Employees and Others

Amounts owed by the firm for services rendered but not yet paid.

Payable to Debt Holders (Current Debt)

Debt that must be repaid to lenders over the next 12 months.

Payable to Shareholders

Dividends on stock that were promised or declared by the company but have yet to be paid.

Long-Term Debt

Outstanding principal of the amount borrowed from a financial institution.

Current Liabilities

Liabilities requiring the disbursement of cash within the next year.

Current Assets

Assets expected to be used in the business and converted to cash during the next year.

Net Current Assets (Working Capital)

Difference between current assets and current liabilities.

Current Ratio

Current assets/current liabilities.

Owners’ Equity Components

Amounts received from stockholders in exchange for shares of stock, retained profit, and stock buybacks.

Owners’ Equity Equation

OE = A – L

Net Assets/Net Worth

Assets of the business that might be available for stockholders after creditors are paid.

Transactions That Affect Owners’ Equity

Transactions between the company and its owners (equity transactions) or third parties (income transactions).

Income Statement Definition

Results of a flow of transactions over a period of time; lists revenues and expenses.

$48,047 million

Merck's Sales in 2011

Net assets (A - L)

Revenues result in an increase in owner's equity, which results in an increase in what?

commitment

Revenues are recognized when the selling company has completed its requirements under its agreement with the buyer and has received a _ for payment from the buyer

pay

Costs represent something the selling company had to _ in order to provide the product or service.

gross margin

The cost of merchandise sold is matched against its sales price, and the difference is called .

True

True or False: Operating expenses are recognized at the time that the company incurs the obligation to pay them, regardless of when cash payment is required.

Depreciation

The periodic reduction in the cost of long-lived assets is commonly referred to as __.

affiliates

Income from partially owned companies is called .

expense

Taxes that a company becomes liable for during a reporting period but not payable until sometime after the end of the reporting period must still be recorded as a(n) __.

False

True or False: Income taxes are usually reported as a separate line-item expense because the amount of taxes a company incurs is always subject to management control.

Net income

Which is the final after-tax measure of a company's performance that reflects the differences between all revenues and all costs and expenses?

net income for the year

Earnings per share (EPS) is calculated by dividing __ by the weighted-average number of shares outstanding during the period.

All changes in owner’s equity accounts resulting from transactions between the company and its owners

What does the statement of changes in owner's equity detail?

Retained Earnings

What is the result of any income not distributed as dividends?

Analyze Relationship of One Number to Another and Compare Results from Year to Year

What are two ways to analyze a financial statement?

evaluate the financial performance and condition of a business enterprise

What is financial ratio analysis used for?

earn a satisfactory return on investment, maintenance of a sound financial position

What are the broad objectives that provide the basis for a financial analyst’s evaluation?

return on investment

What are profitability and investment utilization associated with?

financial position

What are liquidity and stability the key elements of?

earnings, investment

Return on investment is the ratio of to .

the use of capital and the riskiness of the investment

What does a satisfactory return on investment compensate for?

return obtained from sales activities and return generated on capital invested in the business

What are the two ways financial analysts view profitability as?

effective use of assets

What does investment utilization refer to?

statement of financial position

Financial position is a financial analyst’s term for the quality of the __.

pay its current debts as they fall due

A sound financial position is indicated when the statement of financial position shows that the business can __.

short-term obligations

Liquidity refers to a firm’s ability to meet __.

stability

What does

Cash Equivalents

Short term highly liquid investments that are both readily convertible to cash and have original maturities of 3 months or less

Firm's ability to meet its debts, firm's needs for external financing, analysis of credit proposals, valuation of firms, bankruptcy assessments, firm's ability to generate cash

What is the Statement of Cash Flows Helpful for assessing?

Cash from Operating Activities, Cash from Investing Activities, Cash from Financing Activities

What are the major sections of a cash flow statement?

Accrual accounting

What is the Primary difference between net income and CFO?

get added back to, or subtracted from net income.

Expenses and Losses that did not use cash or revenues and gains that did not produce cash get what treatment under the indirect method?

get added back to

Decreases in operating current assets and increases in operating current liabilities added back or subtracted from Net income?

get subtracted from

Increases in operating current assets and decreases in operating current liabilities added back or subtracted from Net income?

Money Invested in Inventory

What is the main difference between current and acid test ratios?

1903

When did Henry Ford found Ford Motor Company?

Dearborn, Michigan

Where is Ford Motor Company headquartered?

assessment of quantitative data

What does financial ratio analysis deal primarily with?

to identify the types of financial ratio analysis that would be useful

During a financial investigation, what is the first task of the financial analyst?

draw conclusions and implications which will aid in better decisions

When undertaking a financial investigation, what should the analyst do after the quantitative analysis?

Profitability, investment utilization, liquidity, stability, growth

What are the five financial goals to analyze a progress

Income statement

Which financial statement show expenses, including interest?

Continue use MRP, increase to more smaller quantities with LFL strategy

What is the key element to implement the JIT

Inventory management

What is used by most of retailer to avoid being in under of overstocked inventory?

Ability to interpret financial statements and draw some conclusions from the numbers

What is considered a primary objective of the financial note to helping you develop

Financing

The statement highlights whether The cash came from, operating activities, investing activities or _ activity

Goodwill

what is the best description of a term a premium over the value of assets and liabilities paid when Merck acquired a company

when requirements have been completed under agreement with the buyer and has received has commitment for payment

When are revenues recognized?

Relationship between earning and cash flow from operation

What is the key element to assess a company’s quality of earnings

Cash

An attractive characteristic of this financial statement is that it works with a tangible variable

Financial ratio analysis

is used to evaluate the financial performance and condition of a business enterprise

Liquidity

It refers to a firm’s ability to meet its short-term obligations

the balance sheet, the income statement, the statement of changes in owners’ equity

What are the three financial statement using by basic accounting

Net worth to total asset ratio

In general, what type of amount higher the prospective lenders will be more interested in advancing

Net worth to total asset ratio

Which ratio indicates the amount of the assets which have been financed by the owner

A Business

Profitability ratios are used to assess the operating efficiency and overall financial performance of what?

Net sales

A vertical analysis is the restatement of the income statement in percentages, using what as its base?

The fact that percentages are calculated on the vertical axis

What does the term "vertical" arise from in vertical analysis?

The amount spent to provide the products which were sold

What does The Cost of Goods Sold to Sales ratio indicate?

increase in the level of selling prices

What is the result of a decreasing trend in gross profit to sales?

Earnings Before Interest & Taxes to Sales

The residual after deducting total operating expenses from gross profit is?

Income Taxes

Which Ratio measures management’s success in pricing products and controlling costs?

Net Income

Which ratio measures management’s success in pricing product?

how much the firm has earned on the total investment in the company

What does the Return on Assets Ratio Indicate?

Fixed asset

which type of Turnover, is affected by age of the assets

can be at work affectively

If there is more money kept in Cash or inventory

Inventory

What can influence a Quick Ratio?

stability

What kind of Ratio measures Risk and how quick creditors can meet

Comparison between Past and Present performance

What action will tell the analyst whether the company’s position is better or worse, or whether the trend in the relationship is upward or downward.