FSA Module 2

Indicate whether increases/decreases in asset/liability items result in a source or use of cash.

Increase in asset: use Decrease in asset: source Increase in liability: source Decrease in liability: use

What 4 items are considered operating expenses? 3 Non-operating expenses?

Operating Expense: Cost of goods sold Selling expenses Depreciation expense R&D expense Non-operating expense: Interest expense Interest or dividend income Gains and losses on sale of securities

What is the difference between profit/net income/earnings and cash flow?

Profit: revenue that remains after expenses Net Income: profit minus taxes Earnings: accumulated net income (profit) that has not been distributed to stockholders as dividends Cash Flow: total amount of cash being transferred in and out of a business, focusing on liquidity

What principles addresses when revenues and expenses should be recognized? These principles are referred to as ____________ accounting.

Revenue recognition principles: recognize revenue when earned Expense recognition: recognize expense when incurred This is known as accrual accounting

List and describe 4 items created when cash is paid/received before/after expenses or revenues are recognized.

Unearned revenue: liability that occurs when the amount is received in advance of the good or service taking place Prepaid expense: future expenses that have been paid in advance Accrued revenue Accrued expense

How is a common size balance sheet calculated? Common size income statement?

Balance Sheet: A common size balance sheet is where each item is recast as a percent of total assets where total assets = 100%. This is to scale each item to a common denominator. It helps us perform: Compare a company's balance sheet across two or more years Compare two or more company's balance sheet Compare balance sheets with an industry average or some other benchmark. Income Statement: common size income statements are prepared as a starting point for analysis. Each statement is expressed as a percent of net sales where net sales= 100%. This facilitates the same comparison as the BS. Common size analysis is also known as a vertical analysis

What are three ways to utilize common size financial statements?

Compare a company's balance sheet across two or more years Compare two or more company's balance sheet Compare balance sheets with an industry average or some other benchmark. Income Statement: common size income statements are prepared as a starting point for analysis. Each statement is expressed as a percent of net sales where net sales= 100%. This facilitates the same comparison as the BS. Common size analysis is also known as a vertical analysis

What 5 items are included in current assets? 3 Long-term assets? 5 Current liabilities? 2 Non-current liabilities? 7 Equity?

Current assets: (5) Cash ST investments AR, net Inventory Prepaid Expenses Long-term assets: (3) PPE LT Investments Intangibles and other assets Current Liabilities: (5) AP Accrued liabilities Unearned revenue ST NP Current maturities on LT debt Non-current liabilities: (2) LT debt Other LT liabilities Equity: (7) Common Stock Additional paid in capital Preferred stock Treasury stock R/E Accumulated other comprehensive income contributed capital

How are assets listed on the balance sheet?

Decreasing liquidity

What are two examples of transitory (one-time) items?

Discontinued operations: extraordinary items