Podcast
Questions and Answers
What are operating activities related to?
What are operating activities related to?
- Cash paid to stockholders
- Cash received from issuing stock
- Cash received from customers (correct)
- Cash paid to suppliers (correct)
What are financing activities related to?
What are financing activities related to?
- Cash paid for advertising
- Cash received from investors (correct)
- Cash paid as dividends (correct)
- Cash received from selling office equipment
What is the definition of investing activities?
What is the definition of investing activities?
Cash paid to purchase a new office building
What account title is affected by costs incurred for advertising?
What account title is affected by costs incurred for advertising?
What account title is affected by assets received for services performed?
What account title is affected by assets received for services performed?
What account title is affected by costs incurred for insurance?
What account title is affected by costs incurred for insurance?
What account title is affected by amounts paid to employees?
What account title is affected by amounts paid to employees?
What is the account title affected by cash distributed to stockholders?
What is the account title affected by cash distributed to stockholders?
What account title is affected by assets received in exchange for allowing the use of the company's building?
What account title is affected by assets received in exchange for allowing the use of the company's building?
What account title is affected by costs incurred for utilities used?
What account title is affected by costs incurred for utilities used?
What is the impact of cash purchase of equipment on stockholders' equity?
What is the impact of cash purchase of equipment on stockholders' equity?
What account title is affected by cash received from investors?
What account title is affected by cash received from investors?
What elements are involved in the income statement?
What elements are involved in the income statement?
What elements are included in a balance sheet?
What elements are included in a balance sheet?
What does an auditor's opinion signify?
What does an auditor's opinion signify?
What defines a corporation?
What defines a corporation?
What is common stock?
What is common stock?
What is accounts payable?
What is accounts payable?
What is accounts receivable?
What is accounts receivable?
What is a creditor?
What is a creditor?
What does a stockholder do?
What does a stockholder do?
What defines a partnership?
What defines a partnership?
What is a liability?
What is a liability?
What are assets?
What are assets?
What defines revenue?
What defines revenue?
What defines expense?
What defines expense?
What are financial statements?
What are financial statements?
What do notes to the financial statements indicate?
What do notes to the financial statements indicate?
What is management discussion and analysis?
What is management discussion and analysis?
What does 'not disclosed' refer to?
What does 'not disclosed' refer to?
What are the components of an income statement?
What are the components of an income statement?
What is the formula for the statement of retained earnings?
What is the formula for the statement of retained earnings?
What is indicated by the balance sheet?
What is indicated by the balance sheet?
What is the statement of cash flows?
What is the statement of cash flows?
What does 'assets =' represent in accounting?
What does 'assets =' represent in accounting?
What are considered investing activities?
What are considered investing activities?
What are the components of financing activities?
What are the components of financing activities?
What is the formula for ending retained earnings?
What is the formula for ending retained earnings?
What is the formula for net income?
What is the formula for net income?
What are current assets?
What are current assets?
What defines property, plant & equipment (PP&E)?
What defines property, plant & equipment (PP&E)?
What are intangibles?
What are intangibles?
What defines current liabilities?
What defines current liabilities?
What is defined as long-term liabilities?
What is defined as long-term liabilities?
What are stockholders' (owners) equity components?
What are stockholders' (owners) equity components?
What is profitability?
What is profitability?
What is liquidity?
What is liquidity?
What is solvency?
What is solvency?
Study Notes
Operating Activities
- Involves cash flows from primary business activities.
- Cash received from customers is a core component.
- Cash paid to suppliers represents outflows necessary for operations.
Financing Activities
- Involves cash flows related to funding the business.
- Cash paid to stockholders as dividends reflects returns on investments.
- Cash received from issuing new common stock indicates capital raised from investors.
Investing Activities
- Includes cash transactions for acquiring or disposing of long-term assets.
- Example: cash paid for purchasing a new office building signifies investment in real estate.
Costs and Expenses
- Advertising costs are categorized under advertising expense, impacting net income.
- Insurance costs are classified as insurance expense, reflecting operational risk management.
- Employee salaries and wages are recorded as salaries and wages expense, a significant operating cost.
- Utility costs are logged under utilities expense, another recurring operational expense.
Revenue Recognition
- Assets received in exchange for services performed are classified as service revenue.
- Rental income from allowing others to use company property is recorded as rent revenue.
Financial Statements Overview
- The Income Statement summarizes revenues (sales revenue), expenses (cost of goods sold, operating expenses), and income tax expense over a specified period.
- The Balance Sheet provides a snapshot of company financial position, listing assets (inventory, equipment, accounts receivable) and liabilities (accounts payable, retained earnings).
- Financial Statements give a cumulative overview of stockholders' equity related to common stock issued and revenues from operating activities.
Key Accounting Terms
- Auditor's Opinion assesses financial statements' conformity with accounting principles, ensuring they present a fair view of the company's financial position.
- A Corporation raises funds through issuing shares, while a Partnership involves multiple individuals co-owning a business without stock issuance.
- Common Stock represents cash received from shareholders.
- Accounts Payable refers to obligations owed to suppliers, while Accounts Receivable indicates amounts owed by customers.
Liabilities and Assets
- Liabilities consist of amounts payable, representing financial obligations.
- Assets include various forms like receivables, inventory, and cash, reflecting ownership resources.
Retained Earnings and Profitability
- Retained earnings calculations involve tracking beginning balances, adding net income, and subtracting dividends issued.
- Profitability is assessed via Earnings Per Share to gauge operational success.
Current and Long-term Financial Health
- Current Assets (liquidatable for cash) include cash and accounts receivable; critical for meeting short-term obligations.
- Property, Plant, and Equipment (PP&E) are recorded at historical cost, representing long-term investments.
- Intangible assets lack physical substance but hold value, such as patented logos.
- Current Liabilities encompass short-term obligations like notes and accounts payable.
- Long-Term Liabilities indicate debts with extended repayment periods.
Financial Ratios
- Liquidity is measured through current ratio and working capital to judge short-term financial health.
- Solvency assesses the ability to sustain operations over time, evaluated through debt-to-assets ratio and free cash flow.
Key Calculations
- Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends.
- Net Income is determined by subtracting total expenses from total revenue.
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Description
This quiz covers the essential elements of operating, financing, and investing activities in finance. It highlights cash flows from core business operations, funding avenues like dividends, and investment in long-term assets. Understanding these concepts is crucial for effective financial management and reporting.
