Accounting Ch.1-Ch.3
Statement of Cash Flows equation
+/- Cash Flows from Operating Activities +/- Cash Flows from Investing Activities +/- Cash Flows from Financing Activities = Change in Cash + Beginning Cash = Ending Cash
What does a current ratio of .27 mean?
A current ratio of 0.27 indicates that the company has $0.27 of current assets for $1.00 of current liabilities. It does not appear that the company's current assets are sufficient to pay its current liabilities.
What are retained earnings?
Accumulation of all past revenues and expenses minus any income distributed to stockholders as dividends
What things are included on the statement of cash flows?
Amount of cash paid for equipment, amount of cash collected from customers, dividends paid to stockholders, Net Income
What are economic resources controlled/owned by the company called?
Assets
Balance Sheet equation
Assets = Liabilities + Stockholders Equity
What happens to retained earnings when net income has a loss?
Decrease
What happens to retained earnings when net income is positive?
Increase
What is revenue?
Increases in assets or settlements of liabilities from ongoing operations of the business: Results from the sale of goods/services
What side do expenses incurred go on a t chart?
Left (Debit)
What are economic resources that a company owes called?
Liabilities
What is a loss?
Losses are decreases in assets or increases in liabilities from a peripheral transaction Ex) Selling a company car for less than you bought it
How do you find the Net Profit Margin Ratio?
Net Income / Net Sales (or Operating) Revenues
How is the income statement and the balance sheet connected?
Net Income that's reported on the income statement is added to retained earnings on the statement of stockholder's equity. Retained earnings is reported on the balance sheet under shareholder's equity.
How does the income statement tie to the statement of stockholders' equity?
Net income, from the income statement, is a component in determining ending retained earnings on the statement of stockholders' equity.
Is accrued expenses classified as an expense on the income statement?
No
What things are considered liabilities?
Notes Payable, Accounts Payable
What are expenses?
Outflows or the using up of assets or increase in liabilities from ongoing operations incurred to generate revenues during the period
Income Statement purpose
Reports the financial performance of the business during the current accounting period.
Balance Sheet purpose
Reports the financial position of a business at a point in time.
Statement of Cash Flows purpose
Reports the inflows (receipts) and outflows (payments) for a stated period of time.
What are past earnings not distributed to stockholders called?
Retained Earnings
How does the statement of stockholders' equity stockholders' equity tie to the balance sheet?
The amount of ending retained earnings is then reported on the balance sheet.
Statement of Stockholders' Equity equation
Beginning balance + Increases- Decreases = Ending balances
How does the balance sheet tie to the statement of cash flows?
Cash on the balance sheet is equal to the ending cash reported on the statement of cash flows.
What things are considered assets?
Cash, Inventories, Accounts Receivable, PP&E, Land
What things are included on the balance sheet?
Cash, Notes Payable, Common Stock, Inventories, Accounts Receivable, Land, PP&E
What are amounts invested in the business by stockholder's called?
Common Stock
What things are included on the statement of stockholder's equity?
Common Stock, Dividends paid to stockholders, Net Income
What things are considered stockholder's equity?
Common Stock, Retained Earnings
What things are included on the income statement?
Cost of Goods Sold, Marketing Expense, Net Income
How do you find the current ratio?
Current Assets / Current Liabilities
What are economic resources used to earn revenue during the period called?
Expenses
How are expenses linked to stockholder's equity?
Expenses decrease net income, thus decreasing Retained Earnings and stockholder's equity, and therefore have debit balances
Statement of Stockholders' Equity purpose
Explains changes in stockholders' equity accounts (common stock and retained earnings) for a stated period of time.
What is a gain?
Gains result in an increase in assets or a decrease in liabilities from a peripheral transaction Ex) Selling property and making a profit
Income Statement equation
Revenues - Expenses = Net Income
How does accrual accounting work?
Revenues are recognized when they are earned and expenses are recognized when they are paid
How does cash basis accounting work?
Revenues are recorded when cash is received and expenses are recorded when cash is paid, regardless of when the revenues are earned or the expenses incurred
How is revenue linked to stockholder's equity?
Revenues increase stockholder's equity through the account Retained Earnings and therefore have credit balances
What side do liabilities incurred (ex. taking out a bank loan) go on a t chart?
Right (Credit)
What's the most important financial statement?
Statement of Cash Flows
What term is used for owner's of a corporation?
Stockholders / Shareholders
What does a net profit margin ratio of .04 mean?
The net profit margin ratio suggests that the company obtained nearly $0.04 in net income for every $1 in sales revenue. To analyze this result, we would need to calculate the ratio for the company over time to observe the trend in how effectively management is at generating sales and/or controlling expenses. We would also need the industry ratio for the current period to determine how the company is doing in comparison to others in the industry.
