Glossary of Final for ACC240
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- What does the statement of Cash flows (SCF) explain
- It explains the changes in a company's cash balance during the fiscal period and the causes of those changes
- Why is the SCF important?
- -Capacity to meet obligations for cash
-ability to generate cash flows in the future
-effectiveness in implementing investing & financing strategies
-success in productively managing investing activities
-future external financing needs
-helps analyze solvency (NOT PROFITABILITY)
- What statements helps aalyze profitability?
- Income Statement
- What statement helps analyze solvency
- What are the three cash flow activities?
- OPeratin, investing and financing
- What is the indirect format of the SCF
- The indirect format reconciles net incomeon an accrual basis with cash flow from operating activities on a acash basis
(Investing and financing sections are the same on indirect and direct format)
- What is the difference between the direct format and indirect format for the SCF
- The indirect and direct formats have different operatig sections.
- SCF operating section format
- 1. Begins with Net income/Loss
2.Analysis of the Income Statement, non-cash expenses (depreciation and amoritization)
3. Analysis of the balance sheet, (Current Assets AND current liabilities)
- Investing section of the SCF
- Analysis of longterm assets (Buying or selling)
- Financing Section of the SCF
- -Analysis of long-term liabilities and Stockholder's equity
(external financing and debt and equity transactios)
(Interest on debt is a part of the operating activities)
- What financial statement do you need to perepare the SCF
- I/S + SSE + B/S
- Operating activities
- Its primary purpose is to be a source of cash
- Investing activities primary purpose
- To be a use of cash (Buy PP&E, oter investments)
- Financing activities primary purpose
- To be a source of cash (Borrow money, sell stock)
- How can A/R analysis identify earnings quality issues?
- Sales, Gross A/R and Allowance GR not all moving in the same direction or the movement is not proportional
- Earnings Quality Depreciation
- - How long you decide the life of the asset is
- The depreciation method
- Earnings Quality Restructuring
- -Restructuring charges along multiple years
- Reversing the restructuring charges
- Earnings Quality Reserves
- Put money away while times are good, pull when times are bad
- Financial Reporting quality (notes)
- -Lack of disclosure in the notes
-Line item whose amount is "netted"
- Financial Reporting quality (B/S)
- Balance Sheet data that should be assessed
-C/L vs C/A (debt/asset managing)
-Contingencies and Commitments not on the face of the B/S but in the Notes
-Off-balance sheet financing -opeating leases
- Financial Reporting quality (I/S)
- I/S data that is not presented in utli step format
- Financial Reporting quality (SCF)
- Significant changes in CA nad CL
-Sell A/R, get cash, increase CFO
-Delay A/P Payments, increases CFO
- Segment Data (why)
- Identifies areas of strength and weekness
- contributions to revenue and operating profit by segementing
-Business and geographical
- What does a large operating cash flow realtive to NI ususally inidicate
- Good financial performance
- What does the cash flow from operating activities normally apprx. = to
- Cash flow from Investing plus cash flow from financing
- DO you ahve an obligation to repay Equity financing or debt financing
- Equity financing= no
Debt financing= yes
- Is interest expense deductible?
- Yes for net income purposes
- Are dividends deductible?
- What is profitability based on?
- Accrual basis
- What is solvency based on?
- Cash basis
- Outstanding shares
- Shares sold - shares repurchased
- Which of these represents a cash inflow from the investing section fo the Statement of Cash Flows
a. The company sold their own common stock
b. The company borrowed money from a bank
c. The comapy sold securities held for investment
- Answer is C the company sold securities held for investment
- Do publicly held companies have to report BAsic EPS on the Income Statement?
- Does the Statement of Cash Flows include repayment of debt principal?
- How do you calculate RE?
- NI- dividends
- Why is diluted EPS typically higher than Basic EPS?
- Because of the effect of convertible securities, stock options and/or warrants that dillute the diluted EPS
- What does it mean if a companies FL = 1.0
- It means they have afinanced all of their assets with equity
- On a common size income statement how would you calculate provision for taxes common size?
- Provision for taxes over net income BEFORE taxes
- If a new delivery truck was purchased for 18000 and half was paid in cash and half was on credit how is the accounting equation affected?
- Where do you find information about a companies retained earnings?
- Balance Sheet and SSE
- If a sporting goods store sold 36000 worth of merchandise and 70% was collected in cash. The merchandise originally cost the store 20000 how many different accounts were affected?
- The primary accounting principle/assumption associated with preparing financial statements on a regular basis is the matching principle
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