AFM101 Study Guide - Midterm Guide: Cash Flow Statement, Cash Cash, Retained Earnings

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Published on 14 Nov 2011
School
University of Waterloo
Department
Accounting & Financial Management
Course
AFM101
Professor
AFM$101$Midterm$Exam$Aid$
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The!company’s!financial!position!at!a!point!in!time!
!
ABC!Co.!
Balance!Sheet!
December!31,!2009!
Assets!
!! ! (list!all!assets)!!!!$XX!
;7%#/(<22&%2((((((((==(
!
Liabilities!
!! ! (list!all!liabilities)!!!!!$XX!
Owner’s!Equity/Shareholder’s!Equity!
!!(list!owner’s!equity!components)! ! !!XX!
;7%#/(>,#?,/,%,&2(#-3(@A-&'B2(CD5,%E( ( ((==(
!
!
Assets!
Economic!resources!of!the!company,!listed!in!order!of!liquidity!i.e.!what!the!company!owns!!
!
Liabilities!
The!company’s!obligations,!listed!in!order!of!when!the!liabilities!come!due!i.e.!what!the!company!owes!
!
Owner’s!Equity/Shareholder’s!Equity!
Two!parts:!
o The!amount!of!financing!provided!by!the!owners!of!the!company!through!share&capital!
o The!earnings!from!the!business!operations!from!retained&earnings&!
!
F: G-.71&(0%#%&1&-%(
How!the!company!operated!during!the!accounting!period!
!
ABC!Co.!
Income!Statement!
For!the!Period!Ended!December!31,!2009!
Revenue!!
!! ! (List!all!sources!of!revenue)!!!$XX!
Total!Revenue!!!!!!!!XX!
!
Expenses!!
!! ! (List!all!Expenses)!!!!!$XX!
Total!Expenses!!!!!!!XX!
H&%(G-.71&((((((((==(
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AFM$101$Midterm$Exam$Aid$
!
Revenue!
Money!received!from!sale!of!goods,!or!providing!a!service!
!
Expenses!
Resources!used!up!by!the!entity!to!run!the!business!and!generate!revenue!
!
!
I: 0%#%&1&-%(7J(K&%#,-&3(C#'-,-L2(M0%#%&1&-%(7J(0"#'&"7/3&'2B(CD5,%E:(
Used!to!calculate!the!ending!retained!earnings!number!for!the!balance!sheet!
!
ABC!Co.!
Statement!of!Retained!Earnings!
For!the!Period!Ended!December!31,!2009!
!
Beginning!Retained!Earnings!!!!!$XX!
!! ! Add!Net!Income!for!period! ! !!!XX!
!!Subtract!Dividends!paid!to!owners! ! !!!XX!
C-3,-L(K&%#,-&3(C#'-,-L2((((((((==(
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When!net!income!is!earned!every!year,!the!company!can!choose!to:!
o Distribute!all!(or!a!portion)!to!shareholders!in!the!form!of!dividends!
o Retain!all!(or!a!portion)!to!continue!to!run!the!day!to!day!business!
Retained!Earnings:!the!accumulation!of!all!net!income!H@;!distributed!as!dividends!since!the!first!year!of!
business!!
(
N: 0%#%&1&-%(7J(!#2"(+/7A2(
Used!to!show!all!inflows!and!outflows!of!company!cash!during!the!year!
Used!to!calculate!the!cash!balance!on!the!balance!sheet!
!
!
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!
!
!
!
O: H7%&2(%7(%"&(+,-#-.,#/(0%#%&1&-%2(
Required!by!accounting!standards!(GAAP)!
Further!explain!the!numbers!in!the!financial!statements!
Explain!accounting!policies!used!by!the!management!of!the!company!!
Contain!supporting!schedules!and!calculations!
Additional!important!nonZquantitative!disclosures!!
!
!
!
!
!
ABC!Co.!
Statement!of!Cash!Flow!
For!the!Period!Ended!December!31,!2009!
Cash!flows!from!Operating!Activities!
!(List!details)!!!!!!$XX!
Cash!flows!from!Investing!Activities!
!(List!details)!!!!!!$XX!
Cash!flows!from!Financing!Activities!
!(List!details)!!!!!!$XX!
Net!Increase/Decrease!in!Cash!!!!!XX!
Cash!balance!beginning!of!period!(Jan!1,!2009)!!!XX!
!#2"(4#/#-.&(&-3(7J($&',73(M6&.(I)P(FQQR:( ( ((==(
!
!
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AFM$101$Midterm$Exam$Aid$
!
K#%,7(<-#/E2,2(
𝑃𝑟𝑖𝑐𝑒!𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠!𝑅𝑎𝑡𝑖𝑜 =
𝑀𝑎𝑟𝑘𝑒𝑡!!𝑃𝑟𝑖𝑐𝑒
𝑁𝑒𝑡!𝐼𝑛𝑐𝑜𝑚𝑒 !
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Represents!the!“value”!an!investor!thinks!this!company!is!worth!!
Investors!will!multiply!the!P/E!ratio!by!the!company’s!net!income!to!determine!a!price!one!would!pay!for!
the!company!
The!higher!the!P/E!ratio,!the!greater!confidence!investors!have!in!this!company’s!abilities!to!generate!
income!
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The!conceptual!framework!is!used!to!make!connections!to!lead!us!from!the!purpose!of!financial!statements!to!the!
components!and!characteristics!of!Financial!Statements!and!the!methods!and!assumptions!management!use!to!
create!the!Financial!Statements.!
!
Objectives!of!Financial!Reporting!(creating!financial!statements)!
To!provide!useful!information!to!external!users!of!the!financial!statements!so!they!can!make!business!
decisions!
!
Elements!of!the!financial!statements!
Assets,!liabilities,!shareholder’s!equity,!revenue,!expenses,!etc.!
!
Qualitative!Characteristics!of!good!financial!statements!
Understandability,!relevance,!reliability,!comparability!
!
Underlying!Assumptions!of!accounting!information!
0&$#'#%&(&-%,%E*!each!business!is!accounted!for!as!an!individual!organization!
U-,%V7JV1&#25'&*!a!business!accounts!for!its!operations!and!reports!the!results!using!the!monetary!unit!of!
the!country!in!which!it!is!operating!
@-VW7,-L(.7-.&'-:!a!business!is!expected!to!continue!to!operate!in!the!foreseeable!future;!there!is!
nothing!to!suggest!it!will!go!out!of!business!soon!
!
Basic!Accounting!Principles!(GAAP)!
Cost!Principle!
Revenue!Recognition!
Matching!
Full!Disclosure!!
!
Constraints!of!financial!reporting!
!72%V?&-&J,%:!sometimes!we!want!to!collect!as!much!information!as!possible,!but!we!need!to!view!it!on!a!
costZbenefit!basis;!is!it!worth!the!costs!to!collect!the!extra!information?!
8#%&',#/,%E:!information!from!the!financial!statements!that!will!affect/influence!a!user’s!decision!is!
considered!material!in!nature!
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