1. Income Statement and Earnings Analysis

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Last updated 11:07 PM on 7/21/26
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11 Terms

1
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Deferred revenue

Advance payment for goods or services not yet delivered

2
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Credit

Accounts receivable - if its 30 days credit then that means customers need to pay you

3
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Prepaid expense

advance payments made for goods or services that will be received

4
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formula for operating working capital

Inventory + AR - AP

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negative owc

providing a source of cash to the company

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owc becoming more negative

this is a cash inflow

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base calculation for inventory

Beginning Inventory + Purchases - COGS

make sure to use year 2 purchases!

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days calcs

inventory days = inventory/cogs *365

payableCOGS

recievable days are over sales RS

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working capital

currnet asset - current liabilities

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operating cycle/cash cycle

CASH CYCLE is rd+id-pd

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accrued expenses vs AP

  • The goods have been delivered, so inventory increases by $50,000.

  • The supplier bill for that period has not yet been received at year-end, so the amount owed is not yet a formal trade payable.

  • Because the amount is estimated at year-end, the liability is recorded as an accrued expense, not accounts payable.

Key distinction

  • Accounts payable = invoice received / amount specifically billed by supplier.

  • Accrued expense = obligation exists, but the bill is not yet received, so it is estimated.

<ul><li><p>The goods have been <strong>delivered</strong>, so <strong>inventory increases</strong> by <strong>$50,000</strong>.</p></li><li><p>The supplier bill for that period has <strong>not yet been received</strong> at year-end, so the amount owed is not yet a formal trade payable.</p></li><li><p>Because the amount is <strong>estimated</strong> at year-end, the liability is recorded as an <strong>accrued expense</strong>, not <strong>accounts payable</strong>.</p></li></ul><p> Key distinction </p><ul><li><p><strong>Accounts payable</strong> = invoice received / amount specifically billed by supplier.</p></li><li><p><strong>Accrued expense</strong> = obligation exists, but the bill is not yet received, so it is estimated.</p></li></ul><p></p>