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Questions and Answers
What type of account is 'Cash' in the trial balance?
What type of account is 'Cash' in the trial balance?
- Asset (correct)
- Expense
- Liability
- Revenue
Which financial statement includes 'Salaries Expense'?
Which financial statement includes 'Salaries Expense'?
- Statement of Financial Position
- Income Statement (correct)
- Statement of Cash Flows
- Statement of Changes in Equity
What is the purpose of the 'Drawing' account?
What is the purpose of the 'Drawing' account?
- To record net income
- To record owner withdrawals (correct)
- To record owner investments
- To record net loss
On which side of the trial balance are expenses typically recorded?
On which side of the trial balance are expenses typically recorded?
Which account is a contra-asset account?
Which account is a contra-asset account?
Which of the following is a liability account?
Which of the following is a liability account?
Where is 'Supplies Unused' reported?
Where is 'Supplies Unused' reported?
What happens to the net income at the end of the period?
What happens to the net income at the end of the period?
What financial statement reveals how much cash a company has at the end of a period?
What financial statement reveals how much cash a company has at the end of a period?
Which of the following is an example of an expense?
Which of the following is an example of an expense?
Which financial statement shows the changes in ownership interest in a company?
Which financial statement shows the changes in ownership interest in a company?
What does the statement of cash flows primarily track?
What does the statement of cash flows primarily track?
What is the net income if total expenses are $100,160 and...
What is the net income if total expenses are $100,160 and...
Which financial statement presents a company's assets, liabilities, and owner's equity at a specific point in time?
Which financial statement presents a company's assets, liabilities, and owner's equity at a specific point in time?
What are the two primary components of the balance sheet?
What are the two primary components of the balance sheet?
What is the fundamental accounting equation?
What is the fundamental accounting equation?
Which financial statement reports a company's financial performance over a period of time?
Which financial statement reports a company's financial performance over a period of time?
What are the main components presented in an income statement?
What are the main components presented in an income statement?
What is the other name of the income statement?
What is the other name of the income statement?
What is the debit balance total in the provided balance sheet?
What is the debit balance total in the provided balance sheet?
What is the total amount of expenses for Mr. Jlo's Modeling Agency?
What is the total amount of expenses for Mr. Jlo's Modeling Agency?
What does financial analysis primarily involve?
What does financial analysis primarily involve?
What is the focus of single-period analysis?
What is the focus of single-period analysis?
What does comparative or trend analysis involve?
What does comparative or trend analysis involve?
Which of the following ratios assesses a company's ability to meet its long-term obligations?
Which of the following ratios assesses a company's ability to meet its long-term obligations?
What is a financial ratio?
What is a financial ratio?
What is another name for the 'Profit to Net Sales ratio'?
What is another name for the 'Profit to Net Sales ratio'?
What does the 'Profit to Net Worth ratio' measure?
What does the 'Profit to Net Worth ratio' measure?
Which of the following is NOT a purpose of financial ratios?
Which of the following is NOT a purpose of financial ratios?
The formula for 'Profit to Net Sales ratio' is:
The formula for 'Profit to Net Sales ratio' is:
What does the liquidity ratio measure?
What does the liquidity ratio measure?
What does the current ratio indicate?
What does the current ratio indicate?
What does 'Debt to Net Worth ratio' show?
What does 'Debt to Net Worth ratio' show?
What does 'Net Worth to Fixed Assets ratio' indicate?
What does 'Net Worth to Fixed Assets ratio' indicate?
What is another name for the acid-test ratio?
What is another name for the acid-test ratio?
The formula for 'Debt to Net Worth ratio' is:
The formula for 'Debt to Net Worth ratio' is:
The formula for 'Net Worth to Fixed Assets ratio' is:
The formula for 'Net Worth to Fixed Assets ratio' is:
What type of account is 'Cash' considered?
What type of account is 'Cash' considered?
Which financial statement includes 'Delivery Revenue'?
Which financial statement includes 'Delivery Revenue'?
What is the purpose of financial analysis?
What is the purpose of financial analysis?
Which of the following is considered a liability?
Which of the following is considered a liability?
Which of the following is the basic accounting equation?
Which of the following is the basic accounting equation?
What is 'Accumulated Depreciation'?
What is 'Accumulated Depreciation'?
In which financial statment would you find 'Notes Payable'?
In which financial statment would you find 'Notes Payable'?
What is the purpose of a trial balance?
What is the purpose of a trial balance?
Which item is classified as a current asset?
Which item is classified as a current asset?
What does 'Owner's Drawings' represent?
What does 'Owner's Drawings' represent?
What section of the balance sheet includes items like 'Common Stock' and 'Paid-in Surplus'?
What section of the balance sheet includes items like 'Common Stock' and 'Paid-in Surplus'?
Which of the following decreases net income?
Which of the following decreases net income?
What is the normal balance of an asset account?
What is the normal balance of an asset account?
Which of the following is a long-term liability?
Which of the following is a long-term liability?
Flashcards
Trial Balance
Trial Balance
A list of all debit and credit balances for each account at a specific point in time.
Balance Sheet
Balance Sheet
A financial statement presenting a company's assets, liabilities, and equity at a specific point in time.
Income Statement
Income Statement
A financial statement reporting a company's financial performance over a period of time.
Assets
Assets
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Liabilities
Liabilities
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Equity
Equity
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Net Income
Net Income
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Depreciation Expense
Depreciation Expense
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Statement of Cash Flows
Statement of Cash Flows
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Interest Expense
Interest Expense
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Statement of Changes in Equity
Statement of Changes in Equity
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Owner's Equity
Owner's Equity
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Revenue
Revenue
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Expenses
Expenses
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Financial Analysis
Financial Analysis
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Single-Period Analysis
Single-Period Analysis
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Trend Analysis
Trend Analysis
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Financial Ratios
Financial Ratios
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Liquidity
Liquidity
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Liquidity Ratios
Liquidity Ratios
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Current Ratio
Current Ratio
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Acid Test Ratio
Acid Test Ratio
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Working Paper
Working Paper
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Depreciation
Depreciation
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Accumulated Depreciation
Accumulated Depreciation
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Accounts Receivable
Accounts Receivable
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Accounts Payable
Accounts Payable
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Delivery Revenue
Delivery Revenue
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Salaries Expense
Salaries Expense
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Profitability Ratio
Profitability Ratio
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Profit to Net Sales Ratio
Profit to Net Sales Ratio
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Utility Expense
Utility Expense
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Profit to Net Worth Ratio
Profit to Net Worth Ratio
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Current Portion of Long-Term Debt
Current Portion of Long-Term Debt
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Debentures
Debentures
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Solvency Ratio
Solvency Ratio
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Debt to Net Worth Ratio
Debt to Net Worth Ratio
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Net Worth to Fixed Assets Ratio
Net Worth to Fixed Assets Ratio
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Profit to Net Sales Ratio Formula
Profit to Net Sales Ratio Formula
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Debt to Net Worth Ratio Formula
Debt to Net Worth Ratio Formula
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Study Notes
- Financial statements are the output of financial accounting and reporting processes.
Trial Balance
- Used to establish equality of debit and credit.
- Extends the double entry bookkeeping rule.
- Ensures debits and credits are equal.
- Lists accounts plus ledger balances.
- Assets, owner's drawings, and expenses normally balance on the debit side.
- Liabilities, owner's capital, and revenue normally balance on the credit side.
Balance Sheet
- Presents a company's assets and how they were paid for.
- Assets are paid for by either borrowing from others (liabilities) or through investments from owners (owner's equity).
- Shows a company's financial position at a specific date in time.
Income Statement
- Shows earnings during a specified period of time.
- Sales (or revenues) and costs (or expenses) are presented separately to arrive at a net income (or profit).
Statement of Cash Flows
- Shows how much cash a company started with, its increases/decreases, and how much remained by period's end.
Statement of Changes in Equity
- Shows the amount of ownership equity a company started with, how much it increased/decreased during the period, and remaining equity at period's end.
Financial Analysis
- Translates a company's financial statement into helpful information.
- Tracks financial performance, can predicts future performance, and makes comparisons to other companies.
- Interprets past, present, and future financial standing.
- Procedures can be categorized into single-period analysis and comparative or trend analysis.
- Single-period analysis refers to comparison and measurements based on single period financial data.
- Comparative or trend analysis compares/measures items from financial statements of two or more fiscal periods.
- Determines the improvement or lack of improvement in financial position and the results of operation.
- Financial ratios show relationship between two financial statement quantities by dividing one quantity by another.
Financial Ratio Purposes
- A starting point for detailed financial analysis
- Diagnoses areas to improve upon
- Monitors performance of the business
- Helps plan ahead
- Reduces the amount of data to workable form
- Makes the data more meaningful
Classes of Financial Ratios
- Includes Liquidity ratio, Activity ratio, Profitability Ratio, and Solvency Ratio.
Liquidity Ratio
- Refers to a firm's ability to pay its bills and meet current obligations on time.
- Measures the ability to pay off all debts with current assets.
- Includes Current Ratio, and Acid-test Ratio.
Current Ratio
- Indicates safety margin by which a firm can meets its obligations that are due within the year using assets convertible to cash.
- Current ratio = Current assets ÷ Current liabilities
- E.g. P 395,600,000 + P 176,500,000 = 2.24
- The business is in sound economic standing when the Current Ratio comes out at 2 or above .
Acid-Test/Quick Ratio
- The cashs assets compared to the amount of liabilities a business has.
- Acid test ratio = (Current assets – Inventories) / Current Liabilities
- E.g. (P 395,600,000 - P129,500,000) / Ð 176,500,000 = 1.51
- Indicates higher percentage liquid assets than liabilities.
- This means the business is prepared for negative or emergency cash flows.
Activity Ratio
- Measures how effectively the firm employs resources.
- May include sales to inventory ratio of Firms.
- Excessive inventories will show a low ratio.
- Sales to inventory ratio can be computed as Sales ÷ Inventory at year end
- E.g. P 872,700,000 / P 129,500,000 = 6.74
- Inventory to net working capital ratio shows the inventory asset values tied up in the business.
- The formula is Inventory /Current assets-Current Liabilities.
- E.g. P 129,500,000 / (P 395,600,000 – Р176,500,000) = 0.59
- Higher the result, the more working capital.
- This means the company is limited in cash flow to grow the business.
- Sales to net worth ratio represents the turn over of owner's equity.
- Net sales /owners equity, the higher the better meaning higher equity value.
Profitability Ratio
- Measures management's effectiveness via returns generated on sales and investment.
- Profit to net sales ratio represents the profit margin of all sales of a business.
- Also called the profit margin on sales. Formula: Net income /Total sales.
- e.g. P 47,000,000 / P 872,700,000 = 5.39%
- This calculates the returns over after expenses and taxes.
Profit to Net Worth ratio
- Is a calculated rate of return to measure owner's investments
- The higher the return indicates investments growing.
- e.g. P 47,000,000 / P 281,400,000 = 16.70%
Solvency Ratio
- Measures the ability of the firm to pay its debt.
- Includes debt to net worth ratio.
- The debt to net worth ratio calculates the overall debt vs assets of the business.
- Total debt /Net Worth = business economic outlook
- e.g. P 282,200,000 / P 281,400,000 = 100.28%
- Net worth to Fixed assets ratio indicates if the fixed assets have been properly invested and what fixed assets have been financed by the contribution of the stockholders.
- Net Worth /Fixed Assets is the formula.
- e.g P 281,400,000 / P 163,800,000 = 171.79%
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Description
Test your knowledge of fundamental accounting principles. This quiz covers topics like trial balances, financial statements, expense tracking and the balance sheet.
