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MGAB01H3 Study Guide - Final Guide: Cash Flow Statement, Price–Earnings Ratio, Balance Sheet

Financial Accounting
Course Code
Liang Chen
Study Guide

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Final Exam Preparation
Chapter Theories Applications (Calculations/Interpretations)
1Financial Statements
Purpose of each statement
How to prepare F/S
Logic/Flow of F/S preparation
3 Types of Business Decisions:
Operating (I/S + WC accounts)
Investing (LT Assets)
Financing (LT Liab + Equity)
3 types of Business Entities
Sole Proprietorship
PE Ratio = Price/NI
Accounting (Balance Sheet) Equation:
Assets = Liabilities + Shareholders’ Equity
Income Statement: Revenues – Expenses
Statement of R.E. = REb+ NI – Dividends
Cash Flow Statement:
First: Determine if there is a change in Cash
due to a transaction
If so, then determine
Operating (look for items in I/S + WC
Investing (look for items in LT Assets)
Financing (look for items in LT Liab +
2Balance Sheet
Types of Accounts & Definition:
Equity (Share Capital + RE)
Rules of Debit & Credit
Financial Leverage Ratio
These 3 accounts use Debit to record an
increase in the account, and use Credit to
record a decrease in the account. Debit
(+) = Normal Balance
These 3 accounts use Credit to record an
increase in the account, and use Debit to
record a decrease in the account. Credit
(+) = Normal Balance
3Income Statement
Revenue Principle
Matching Principle
Periodicity Principle
Accounting Cycle: Journal Entries
Posting (unadjusted) Trial Balance
FS preparation
Total Asset Turnover
Apply rules of debit and credit
Use the account balances (from T-account
/Ledger) to prepare Trial Balance
Use Trial Balance to prepare FS (every account
can only be used 1x in 1 FS)
When calculating ratios:
Balance sheet items: need to average
Income statement: no need to average
4The Adjusting Process:
Assets Expenses
Liabilities Revenues
Revenue Asset
Expenses Liabilities
Closing Entries:
To close temporary accounts
(Revenues, Expenses, Dividends)
Revenue (Dr 0) RE (Cr )
Expenses (Cr 0) RE (Dr )
Earning Per Share & Profit Margin
Capital Assets need to use a Contra Account to
record the decrease in value.
Adjusting entries do not involve Cash
After adjusting entries are done:
Prepare an Adjusted Trial Balance FS
Closing Entries Post-closing Trial Balance
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