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

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Published on 23 Dec 2015
School
Course
Professor
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
Partnership
Corporation
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
accounts)
Investing (look for items in LT Assets)
Financing (look for items in LT Liab +
Equity)
2Balance Sheet
Types of Accounts & Definition:
Assets
Liabilities
Equity (Share Capital + RE)
Revenue
Expense
GAAPs
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
GAAPs:
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
ADE
+ -
LCR
- +
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Document Summary

To close temporary accounts (revenues, expenses, dividends) First: determine if there is a change in cash due to a transaction. Operating (look for items in i/s + wc. Investing (look for items in lt assets) Financing (look for items in lt liab + accounts) These 3 accounts use debit to record an increase in the account, and use credit to record a decrease in the account. These 3 accounts use credit to record an increase in the account, and use debit to record a decrease in the account. Use trial balance to prepare fs (every account can only be used 1x in 1 fs) Capital assets need to use a contra account to record the decrease in value. Prepare an adjusted trial balance fs . Direct write off not consistent with ifrs/gaap principles. Merchandise purchases and sales using periodic & perpetual inventory. Perpetual: 2 steps (1. customer + 2. inventory adjustments) Fifo last purchased inventory stays closely matches replacement value.

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