1102AFE Lecture 6: Week 6 Accounting for Decision making Lecture Notes

74 views4 pages

harlequingnat161

30 May 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Week 6 Accounting for Decision making Lecture Notes

Statement of cash flows

1. Importance of cash and cash flow

• Need cash to pay bills

o A common cause of business failure is that they do not have enough

cash to pay bills

o Cash is the most important asset of a business and one that investors

and analysts watch closely

• Because the balance sheet and income statement are prepared using accrual

aoutig, they do ot gie you ifoatio aout the fis ash positio

• The balance sheet and income statement show changes in wealth, not cash

• A statement of cash flows is needed because it shows liquidity, change in

cash flow

2. Cash and cash equivalents define

• Examples include:

o Cash at bank

o Bank overdraft

o Short-term Money Market deposits

o Bank Bills

• Cash epesets ash o had, ash at ak, ad dead deposits

• Cash equivalents represent short-term, highly liquid investments that can

readily be converted to a fixed amount of cash

3. Roles of the three external financial reports

• Balance sheet

o Measure the financial position at a given point in time

o Pesets alaes i assets A, liailities L ad oes euity OE

accounts

o Based on accrual transactions

• Income statement

o Measures the financial performance over a period of time

o Presents only revenues ® earned less expenses (E) incurred in earning

revenue (whether cash received or paid or not)

o Based on accrual transactions

• Cash flow statement

o Identifies all cash receipts and cash payments for the period

o All account types included (A, L, OE, R, E). in other words, it does not

matter what the receipt of payment is for, it is included

o Based on cash, not accrual transactions

• Cash flows statement is classified into three main sections reflecting the

major cash flow activities

o Operating activities→ income statement, revenue and expenses;

current assets and current liabilities in the balance sheet

o Investing activities→ non-current assets in the balance sheet

o Financing activities→ Non-current liabilities and equity in the balance

sheet

4. The cash flow statement: overview

• Cash flow statement required by the accounting standards since 1991

find more resources at oneclass.com

Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Related Questions

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.

sangriaporpoise636

Profit and Loss Statement 2018

Revenue	34,290
percent of growth	0.0%
Gross Profit	34,290
Gross Margin	100%
SGA Costs	(2,500)
EBITDA	31,790
EBITDA Margin	92.7%
Depreciation	(7,500)
% of Sales	-21.9%
EBIT	24,290
EBIT Margin	70.8%
Interest	(2,500)
% of Sales	-7.3%
EBIT	21,790
EBIT Margin	63.5%
Net Income	21,790
Net Income Margin	63.5%

Balance Sheet 2017	2018
Cash 9,000	12,000
Inventory 0	0
A/R 0	3,179
Current Assets 9,000	15,179
Fixed Assets 747,300	763,800
Total Assets 756,300	778,979
Liabilities
A/P 16,800	14,460
Current Liabilities 16,800	16,800
Long Term Debt 499,652	468,000
Total Liabilities 516,452	482,460
Total Equity 239,848	296,519
Total Liabilities and Equity 756,300	778,979

Cash Flows	2018
EBIT	24,290
Depreciation	7,500
Interest	(2,500)
Working Capital	(2,500)
Operating Cash Flow	26,790
Capex	(50,000)
Investing Cash Flows	(50,000)
Long Term Debt	50,000
Financing Cash Flows	50,000
Cash Flow	26,790
Cash Overdraft	26,790

1. Question is to identify gaps in funding for my propertyrental business of10 years, using my financial statements 2.Whatarea(s) do you notice a gap in funding (a shortfall in capitalneeded to fund future operations or projects)? Really evaluate,even if itâs $1,000 or $10,000; identify it. Evaluate those gaps todetermine the cause of those gaps. Prioritize your funding needs.Priority for Funding Gap in Funding Example 1. Initial inventoryUnsure ,Have not fully identified the amount of initial inventoryneeded. Example 2 Computer system $5,000 ,Do not have funding tocover this expense. 3 Submit matrix and a 2-page explanation foryour prioritization. HOW DO I IDENTIFY FUNDING GAPS, ( A SHORTFALLIN CAPITAL TO FUND FUTURE OPERATIONS Larry I assume they aretalking about gaps in working capital whn funding business cashflows.Larry

magentapig232

35.A corporation has 50,000 shares of $100 par value stockoutstanding. If the corporation issues a 4-for-1 stock split, thenumber of shares outstanding after the split will be (Points :3)

200,000 shares.
50,000 shares.
250,000 shares.
12,500 shares.

1102AFE Lecture 6: Week 6 Accounting for Decision making Lecture Notes

Get access

Related Documents

1102AFE Lecture Notes - Lecture 1: General Insurance, Listing Rules, Consumer Protection

1102AFE Lecture Notes - Lecture 4: Share Capital, Accounting Period, Historical Cost

1102AFE Lecture Notes - Lecture 4: Balance Sheet, Asset, Current Asset

Related Questions