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AFM123 Study Guide - Final Guide: Net Present Value, Capital Budgeting, Cash Flow

Accounting & Financial Management
Course Code
Peter Blake
Study Guide

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ARBUS 102/AFM 123 Accounting Information for Managers
Review for Final Exam
Financial Accounting know the objective of financial accounting and the role accountants play in an
Financial Statements - know the format of a multi-step income statement, classified balance sheet, statement of
retained earnings or shareholders’ equity and statement of cash flows; be able to prepare each; know order of
preparation and why; know math for each (A=L+SE; R-E=NI, etc.) and elements for each (assets, liabilities,
equity, revenues, expenses, dividends); know difference between direct and indirect method for Statement of
Cash Flows; be able to calculate cash flow from operating activities given the required components (e.g. Net
Income plus depreciation…)
Accounts Receivable know the cost of selling on credit; know how to estimate bad debts expense using both
% of sales and aged A/R methods; know how allowance for doubtful accounts is calculated and what happens to
the accounts for A/R write-offs or recovery of amounts previously written off; know Balance Sheet presentation
(Gross A/R vs. Net)
Inventory know how inventory and cost of goods sold are recorded under both a perpetual and periodic
inventory system; know cost of goods sold equation (CGS = OI+P-EI); know how to calculate inventory values
using FIFO, weighted average and specific identification methods; know LCNRV rule; know impact of
inventory errors on income or R/E; know Balance Sheet presentation
P. P & E. know what gets included in cost; be able to calculate depreciation using straight line, double
declining balance and units of production methods for full year and partial year (assume round to nearest
month); know what the impact is on the various accounts and what happens when an asset is disposed of (i.e.
gain (loss) = Cash NBV); know effect of normal repairs versus capital expenditures that extend useful life;
know Balance Sheet presentation of P. P. & E.
Liabilities know difference between current and long-term liabilities; know common types of liabilities and
their accounting treatment (incl. unearned revenues); know how some liabilities need to be adjusted at reporting
dates; know what a bond is and how they are reported on the balance sheet (incl. premium, discount)
Shareholders’ Equity know components and how presented on the Balance Sheet; know how dividends are
distributed between cumulative and non-cumulative preferred shares and common shares; know what happens
on 3 different dividend dates
Ratio analysis given any ratio discussed in class or referenced in any assignment, know what it is measuring
and how to interpret values; be able to calculate ratios (if required, a formula sheet will be provided)
Managerial Accounting vs. Financial Accounting: know differences
Cost Concepts: know cost classification by behaviour (fixed, variable), by traceability (direct, indirect),
relevance (differential, opportunity, sunk) and by function (manufacturing vs. non-manufacturing; product vs.
period); know how to compute cost of goods sold, cost of goods manufactured, total manufacturing costs for a
period, direct materials used in production (and to manipulate formulas to solve for unknowns)
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