ACC 100 Chapter Notes - Chapter 4: Cash Flow Statement, Financial Statement, Income Statement

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13 Jun 2018

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ACC 100- Week 4

Financial Statements

^^ this hart is ol used i a opa’s first ear of usiess

Financial Statements

- must be completed in the following order-

1. Income Statement

2. Statement of Retained Earnings

3. Balance Sheet

4. Statement of cash flows

Income Statements (revenue/expenses to find profit)

- shows the business's profitability, whether the revenues are higher than the expenses and by

how much to show if there is profit or loss

- the survival of any business is dependent on the profit, because it is the only sustainable

source of cash over the long term

- profit on the income statement is never the same as the cash in the cash account because not

all money in the business is coming from revenue

Income Statement Format

- Header must include business name, title of financial statement (income statement) and the

time period covered

- different types of revenues must be separate followed by total revenues (revenues are

ordered from highest to lowest)

- expenses come after revenues with the title operatig epeses, also ordered fro highest

to lowest

- alulate profit efore ioe ta by subtracting expensed from revenue

- next is income tax expense

- subtract that from profit before to get total profit

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Statement of Retained Earnings (profit-dividends to find retained earnings)

- shows how much of the profit is kept in the business and how much is paid out to the owners

It answers the questions:

- Did the business pay dividends to the owners?

- Given the profit were the dividend payments high enough? Or were they too high?

- How much of the profit was retained (kept) in the business for future growth and

expansion?

-Could the business pay out additional dividends in the future? (This can be assessed by

reviewing how high the retained earnings from the past is.)

Structure of Retained Earnings Statement

- heading is the business name, title of financial statement and time period covered

- begins with the balance of the previous time periods retained earnings

- next add the profit from income statement then subtract dividends paid to owners

- the total is the balance for retained earnings for the year/month

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Document Summary

^^ this (cid:272)hart is o(cid:374)l(cid:455) used i(cid:374) a (cid:272)o(cid:373)pa(cid:374)(cid:455)"s first (cid:455)ear of (cid:271)usi(cid:374)ess. Must be completed in the following order: income statement, statement of retained earnings, balance sheet, statement of cash flows. Shows the business"s profitability, whether the revenues are higher than the expenses and by how much to show if there is profit or loss. The survival of any business is dependent on the profit, because it is the only sustainable source of cash over the long term. Profit on the income statement is never the same as the cash in the cash account because not all money in the business is coming from revenue. Header must include business name, title of financial statement (income statement) and the time period covered. Different types of revenues must be separate followed by total revenues (revenues are ordered from highest to lowest) Expenses come after revenues with the title (cid:862)operati(cid:374)g e(cid:454)pe(cid:374)ses(cid:863), also ordered fro(cid:373) highest to lowest.

Related Questions

Multiple Choice:

21. All the following are true regarding Quotesexcept:

a. Quotes post entries to general ledger accounts

b. Quotes can be transferred to create an invoice

c. Quotes can be linked to customer jobs

d. Quotes can be linked to items

22. If a customer was overcharged for theservices, the customer's invoice can be reduced by posting a:

a. Sales invoice

b. Customer receipt

c. Debit memo

d. Credit memo

23. On the statement of cash flows, the cashflows from operating activities section would include:

a. Receipts from the issuance of capital stock

b. Receipts from the sale of investments

c. Payments for the acquisition of investments

d. Net income

24.The Income Statement will include thefollowing accounts:

a. Revenues less Expenses (ordered largest to smallest amount)with Other Expenses listed last
b. Revenues less Expenses (ordered smallest to largest amounts.With Miscellaneous Expenses listed last

c. Revenues less Expenses (ordered in alphabetical order) withOther Expenses listed last

d. Revenues less Expenses (order is not important)

25. The Statement of Cash Flows answers all ofthe following except:

a. Where the receipts come from

b. Where the cash payments were used for

c. What the overall change in cash was

d. If there will be enough cash to pay the currentliabilities

26. On the Navigation Bar, make the followingselections to enter a sales invoice:

a. Customers & Sales Navigation Center, click on theCustomers icon and select View and Edit Customers

b. Customers & Sales Navigation Center, click on the SalesInvoices icon and select Set up Invoice Defaults

c. Tasks; Purchases/Receive Inventory

d. Customers & Sales Navigation Center, click on the SalesInvoices icon and select New Sales Invoice

27. The following would be included in theheading of an income statement:

a. Title of the statement

b. Name of the business

c. Period of time covered by the statement

d. All of the above

. 28. A departmentalized accounting systemprovides information that can be used to:

a. Custom design departmental statements

b. Evaluate profitability and cost effectiveness

c. Evaluate current assets

d. Modify PCA's standard forms

29. In Peachtree, information about a sale isrecorded in the:

a. Purchase window

b. Inventory window

c. Purchases/Receive Inventory window

d. Sales/Invoicing window

30. The sample company, Bellwether GardenSupply, uses which method of posting?

a. Batch posting

b. Real-time posting

c. Cash basis posting

d. Accrual basis posting

jadekoala82

Hands-On Project 10-12

IMPROVING DECISION MAKING: USING SPREADSHEET SOFTWARE TO ANALYZEA DOT- COM BUSINESS

Software skills: Spreadsheet downloading, formatting, andformulas

Business skills: Financial statement analysis 10- 12

Pick one e- commerce company on the Internetâ for example,Ashford, Buy. com, Yahoo, or Priceline. Study the Web pages thatdescribe the company and explain its purpose and structure. Use theWeb to find articles that comment on the company. Then visit theSecurities and Exchange Commissionâs Web site at www. sec.gov to access the companyâs 10- K ( annual report) formshowing income statements and balance sheets. Select only thesections of the 10- K form containing the desired portions offinancial statements that you need to examine, and download theminto your spreadsheet. Instructions below provide more detailedinstructions on how to download this 10- K data into a spreadsheetand information on financial statements. Create simplifiedspreadsheets of the companyâs balance sheets and income statementsfor the past three years.

â¢ Is the company a dot- com success, borderline business, orfailure? What information provides the basis of your decision? Why?When answering these questions, pay special attention to thecompanyâs three- year trends in revenues, costs of sales, grossmargins, operating expenses, and net margins.

â¢ Prepare a PowerPoint overhead presentation (with a minimum offive slides), including appropriate spreadsheets or charts, andpresent your work to your professor and classmates. An examplePowerPoint slide presentation is attached for your review in thislearning module folder in Blackboard.

As needed: Students can find material on understanding financialstatements on financial Web sites such as Ameritrade(www.ameritrade.com) or the Small Business Knowledge Basehttp://www.bizmove.com/finance/m3b2.htm.

Downloading the Data into a Spreadsheet

Use the Convert Text to Columns Wizard in your spreadsheetsoftware to arrange the 10-K data you downloaded into spreadsheetcolumns and rows. From the Excel menu, select Data and then selectthe Text to Columns option. The software brings up a Wizard toconvert the imported text into spreadsheet columns. Although youcan decide to create line breaks, it may be easiest to accept thedefault settings (Fixed Width, General format) and then adjustcolumn widths after the Wizard has arranged the data in spreadsheetcolumns.

Financial Statements

Financial statements are used to evaluate the performance of abusiness and diagnose its strengths and weaknesses. The two primaryfinancial statements are income statements and balance sheets. Theincome statement, also called an operating statement or profit andloss statement, shows the income and expenses of a firm over aperiod of time, such as a year, a quarter, or a month. Gross profitis calculated by subtracting the cost of goods sold from revenues,or sales. The gross margin is calculated by dividing gross profitby revenues (or sales). Net profit (or loss) is calculated bysubtracting all other expenses, including operating expenses andincome taxes from gross profit. Operating expenses are all businesscosts (such as expenditures for sales and marketing, general andadministrative expenditures, and depreciation) other than thoseincluded in the cost of goods sold. Net margins arecalculated by dividing net profit (or loss) by revenues (orsales).

A balance sheet provides a snapshot of a companyâs financialassets and liabilities on a given date, usually the close of anaccounting period. It lists what material andintangible assets the business owns and what money the businessowes either to its creditors (liabilities) or to its owners(shareholdersâ equity, also known as net worth). At any given timea businessâs assets equals the sum of its liabilities plus its networth. Current assets include cash, securities, accountsreceivable, or other investments that are likely to be convertedinto cash within one year. Liabilities are outstanding obligationsof the firm. Current liabilities are debts that are due within oneyear. Long-term debt consists of liabilities that are not due untilafter a year or more. If too much debt has been used to finance thefirmâs operations, problems may arise in meeting future interestpayments and repaying outstanding loans. By examining a series ofbalance sheets, one can identify and analyze trends in thefinancial strength of a business.

erinweasel323

1. Which statement is normally prepared first? (Points : 3) Income statement Balance sheet Statement of cash flows Retained earnings statement2. When a business borrows money, it incurs a(n) (Points : 3) tax. liability. cash payment. all of these.3. More than 70% of businesses are organized as what type of business? (Points : 3) Not-for-profit Corporation Partnership Sole proprietorship4. Brennan, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $40,000 during 2009. Which of the following statements is correct? (Points : 3) Net income for 2009 totaled $19,000. Net income for 2009 totaled $59,000. Total retained earnings increased by $59,000 during 2009. Total retained earnings decreased by $40,000 during 2009.5. The statement of cash flows is integrated with the balance sheet because (Points : 3) the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.6. The basic financial statements do NOT include the (Points : 3) income statement. tax return balance sheet. statement of cash flows.7. A __________ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded. (Points : 3) framework control set of rules transaction8. The payment of a liability (Points : 3) decreases assets and stockholders' equity. increases assets and decreases liabilities. decreases assets and increases liabilities. decreases assets and decreases liabilities. 9. Co. received $1,000 from Newbie as rent for the use of a building owned by UNI. How does this transaction affect UNI's accounts if UNI recognizes a liability? (Points : 3) Cash is increased and revenue is increased. Cash is increased and revenue is decreased. Cash is increased and unearned revenue is increased. It is not recorded.10. Depreciation Expense and Accumulated Depreciation are classified, respectively, as (Points : 3) expense and contra asset. asset and contra liability. revenue and asset. contra asset and expense.11. Deferred expenses (prepaid expenses) are items initially recorded as assets but are expected to become __________ over time. (Points : 3) Liabilities Assets stockholders%u2019 equity Expenses12. A&M Co. provided services of $1,000,000 to clients on account. How does this transaction affect A&M%u2019s accounts? (Points : 3) Increase accounts receivable and cash by $1,000,000 each Increase accounts receivable and revenues by $1,000,000 each Increase accounts receivable and unearned revenues by $1,000,000 each No effect at this time13. Multiple-step income statements show: (Points : 3) gross profit but not income from operations. neither gross profit nor income from operations. both gross profit and income from operations. income from operations but not gross profit.14. Since merchandise inventory is normally sold within a year, how is it reported on the balance sheet? (Points : 3) As a revenue As the cost of merchandise sold It does not appear on the Balance Sheet As a current asset15. The credit terms of a sale are normally indicated on a(n) (Points : 3) purchase order. invoice. bill of lading. account receivable.16. Inventory shortage is recorded when (Points : 3) merchandise is returned by a buyer. merchandise purchased from a seller is incomplete or short. merchandise is returned to a seller. there is a difference between a physical count of inventory and inventory records. 17. The bank reconciliation (Points : 3) should be prepared by an employee who records cash transactions. is part of the internal control system. is for information purposes only. is sent to the bank for verification.18. A special cash fund used to make small payments that occur frequently is called a(n) (Points : 3) operating expenses fund. change fund. market fund. petty cash fund.19. The objectives of internal control are to (Points : 3) control the internal organization of the accounting department personnel and equipment. provide reasonable assurance that assets are safeguarded, information is processed accurately, and laws and regulations are complied with. prevent fraud and promote the social interest of the company. provide control over %u201Cinternal-use only%u201D reports and employee internal conduct.20. When a firm uses internal auditors, it is adhering to which of the following internal control elements? (Points : 3) Risk assessment Proofs and security measures Monitoring Separating responsibilities for related operations21. What type of account is Allowance for Doubtful Accounts? (Points : 3) Contra asset Asset Revenue Expense22. Merchandise inventory is reported on the balance sheet in the section entitled (Points : 3) current assets. fixed assets. current liabilities. stockholders' equity.23. Receivables are usually a significant portion of (Points : 3) total current liabilities. total liabilities. total current assets. total assets.24. The inventory data for an item for November are: Nov.1 Inventory 25 units at $20 10 Purchased 30 units at $21 30 Purchased 10 units at $22 Sold 35 unitsUsing the first-in, first-out method, what is the cost of the merchandise inventory of 30 units on November 30? (Points : 3) $640 $605 $623 $66025. All amounts paid to get an asset in place and ready for use are referred to as (Points : 3) capital expenditures. revenue expenditures. residual value. cost of an asset.26. Fixed assets are ordinarily presented in the balance sheet (Points : 3) at current market values. at replacement costs. at cost less accumulated depreciation. in a separate section along with intangible assets.27. Goodwill is (Points : 3) amortized similar to other intangibles. only written down if an impairment in value occurs. charged to expense immediately. amortized over 40 years or its economic life, whichever is shorter.28. If a capital expenditure is treated as a revenue expenditure, then (Points : 3) expenses are overstated and owners' equity is understated. expenses are overstated and assets are overstated. expenses are understated and owners' equity is overstated. net income is overstated and owners' equity is understated.29. A bond indenture is (Points : 3) a contract between the corporation issuing the bonds and the underwriters selling the bonds. the amount due at the maturity date of the bonds. a contract between the corporation issuing the bonds and the bondholders. the amount for which the corporation can buy back the bonds prior to the maturity date.30. Gross earnings for a payroll period less payroll deductions are referred to as (Points : 3) overtime pay. bonus pay. gross pay. net pay.31. How is treasury stock shown on the balance sheet? (Points : 3) As an asset As a decrease in stockholders' equity As an increase in stockholders' equity Treasury stock is not shown on the balance sheet.32. Current liabilities are (Points : 3) due but not receivable for more than one year. due but not payable for more than one year. due and receivable within one year. due and payable within one year.33. The total earnings of an employee for a payroll period are referred to as (Points : 3) take-home pay. pay net of taxes. net pay. gross pay.34. Where is interest expense listed on the income statement? (Points : 3) Other expense section Cost of merchandise sold Operating expenses Interest expense is on the balance sheet, not the income statement.35. A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be (Points : 3) 200,000 shares. 50,000 shares. 250,000 shares. 12,500 shares.

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ACC 100 Chapter Notes - Chapter 4: Cash Flow Statement, Financial Statement, Income Statement

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