Podcast
Questions and Answers
What fundamental principle guides the estimation of financial figures within a feasibility study's statement of assumptions?
What fundamental principle guides the estimation of financial figures within a feasibility study's statement of assumptions?
- Conservatism Principle (correct)
- Speculative Investment Principle
- Aggressive Growth Principle
- Revenue Maximization Principle
A business is projecting its financials for the next three years. What is the maximum percentage increase that should be conservatively applied to subsequent years' estimates, according to the provided content?
A business is projecting its financials for the next three years. What is the maximum percentage increase that should be conservatively applied to subsequent years' estimates, according to the provided content?
- 5%
- 10%
- 3% (correct)
- 1%
Which financial statement reflects a company's financial position at a specific point in time, detailing its assets, liabilities, and owner's equity?
Which financial statement reflects a company's financial position at a specific point in time, detailing its assets, liabilities, and owner's equity?
- Statement of Comprehensive Income
- Statement of Cash Flows
- Statement of Retained Earnings
- Statement of Financial Position (correct)
In which section of the Statement of Financial Position would 'Advances to Officers and Employees' typically be found?
In which section of the Statement of Financial Position would 'Advances to Officers and Employees' typically be found?
Which financial statement outlines the various sources and uses of a company's cash over a specific period?
Which financial statement outlines the various sources and uses of a company's cash over a specific period?
Under the direct method of preparing the Statement of Cash Flows, how is the net cash flow from operating activities determined?
Under the direct method of preparing the Statement of Cash Flows, how is the net cash flow from operating activities determined?
How does an increase in investment accounts typically affect the Net Cash Flow from Investing Activities?
How does an increase in investment accounts typically affect the Net Cash Flow from Investing Activities?
In the context of the Statement of Cash Flows, what constitutes a cash inflow from financing activities?
In the context of the Statement of Cash Flows, what constitutes a cash inflow from financing activities?
When using the indirect approach to prepare the statement of cash flows, what adjustment is made to the accrual basis net income (loss) to arrive at the Net Cash Flow from Operating Activities?
When using the indirect approach to prepare the statement of cash flows, what adjustment is made to the accrual basis net income (loss) to arrive at the Net Cash Flow from Operating Activities?
Regardless of whether the direct or indirect method is used, what should the net result of the operating, investing, and financing activities equal?
Regardless of whether the direct or indirect method is used, what should the net result of the operating, investing, and financing activities equal?
Flashcards
Statement of assumptions
Statement of assumptions
Estimates made by the business proponent, guiding the understanding of financial statements.
Conservatism Principle
Conservatism Principle
It states expect losses rather than income for safe figures.
Statement of Comprehensive Income (SCI)
Statement of Comprehensive Income (SCI)
A financial statement, which is also known as the accrual basis of determining the income and contains the estimated sales, sales returns and allowances, sales discounts and expenses.
Statement of Financial Position (SFP)
Statement of Financial Position (SFP)
Signup and view all the flashcards
Statement of Cash Flows (SCF)
Statement of Cash Flows (SCF)
Signup and view all the flashcards
Direct approach (Cash Flows)
Direct approach (Cash Flows)
Signup and view all the flashcards
Indirect approach (Cash Flows)
Indirect approach (Cash Flows)
Signup and view all the flashcards
Study Notes
- The financial aspect of a feasibility study includes the statement of assumptions, Statement of Comprehensive Income (SCI), Statement of Financial Position (SFP), and Statement of Cash Flows (SCF).
Statement of Assumptions
- These are estimates made by the business proponent, covering initial sales, purchases, expenses, and subsequent yearly increases.
- It guides readers in understanding the financial statements.
- Estimates should follow the Conservatism Principle, where expecting losses is favored over income.
- A rule of thumb suggests increases should not exceed 3% for subsequent years.
Statement of Comprehensive Income (SCI)
- It is also known as the accrual basis of determining income.
- It includes estimated sales, sales returns and allowances, sales discounts, and expenses.
- It is prepared for a specific date.
- Account increases per year should be at a conservative amount or percentage.
Statement of Financial Condition (SFC)
- It is also known as Balance Sheet.
- It is prepared as of a specific date.
- It comprises three sections: Assets, Liabilities, and Owner's Equity.
- Assets typically include cash, accounts receivable, notes receivable, advances to officers and employees, inventories, fixed assets, and accumulated depreciation.
- Liabilities usually include accounts payable, notes payable, and accrued liabilities.
- Owner's Equity consists of the capital invested by the owner, plus income from previous years, minus operational losses.
Statement of Cash Flows (SCF)
- It shows cash movement across three activities: Operating, Investing, and Financing.
- It can be prepared using the direct or indirect approach.
Direct Approach
- It computes net cash inflow (outflow) from operating activities by deducting actual cash outflows from actual cash inflows.
- Net cash inflow (outflow) from investing activities is determined by the difference between the investment account's beginning and ending balances; an increase indicates inflow, while a decrease indicates outflow.
- Net cash inflow (outflow) from financing activities is computed by netting the increases and decreases in liabilities from borrowing; an increase is considered an inflow, and a decrease is an outflow.
Indirect Approach
- It starts with the accrual basis net income (loss).
- It adds non-cash expenses and deducts cash expenses to arrive at net cash inflow (outflow) from operating activities.
- Handling of investing and financing activities is the same as in the direct method.
- Both approaches yield the same result.
- The net results of the three activities must equal the increase (decrease) of cash on hand and in the bank at the end of the year.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
