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Accounting Midterm

  1. Fundemental Characteristics of Financial Reporting (RF)
    1.) Relevance

    2.) Faithful Representation
  2. Fundemental Characteristic #1:
    2 Aspects of Characteristic (PC)
    • Relevance: Can make a difference in a decision
    • Predictive Value
    • Confirmatory Value
  3. Fundemental Characteristic #2:
    3 Aspects of Characteristic (NFC)
    • Faithful Representation: Describes events purported to represent
    • Neutrality
    • Free of errors
    • Completeness
  4. Enhancing Charaacteristics (CUTV):
    • Comparability
    • Understandability
    • Timeliness
    • Verifiability
  5. Constraints (CM)
    • Cost Effective
    • Materiality
  6. 2 Components of Discontinued Operations:
    • Gain/Loss from discontinued segment
    • Gain/Loss on sale disposal of segment
  7. Accting for Discontinued Operations:
    Insert after 'Income from Continued Operations (post-tax)' - NET TAX
  8. 2 components of Extraordinary Events:
    Example:
    Unual AND Infrequent

    Example: Disasters
  9. Accting for Extraordinary Events:
    Below 'Income from Cont'd Ops' and below 'Discnt'd Ops' (if applicable)
  10. "Other Items" affecting N/I
    Example:
    Unusual OR Infrequent (not both)

    Example: Restructing Costs
  11. Accting for Other Items
    Included at end of calc of 'Income from Cont'd Ops (pre-tax)'
  12. Treatment of corrections or errors in filings
    Applied RETROACTIVELY
  13. Treatment of changes in Accouting Principles (Mandatory & Voluntary)
    • Mandatory: Per Standard
    • Voluntary: Retroactively
  14. Treatment of changes in estimates
    Applied PROSPECTIVELY - use new method going forward, no adjustment to previous years.
  15. Compehensive Income =
    N/I [Rev - Exps +Gains - Losses] + OCI
  16. Examples of OCI:
    • Foreign Currency Transactions Gains/Losses
    • Unrealized Gains/Losses on marketable securities
    • Exercise of stock options
  17. Why OCI items are not included in N/I
    Volatility of earnings from FV accting.
  18. Most common presentation of Comprehensive Income:
    S/E Statement, difficult to read and hidden from income statement
  19. Scaling of Financial Statements
    Puts numbers into %'s of a total
  20. Income Statements Scaling
    Represents all numbers as % of Sales
  21. Balance Sheet Scaling
    Puts all numbers as % of Assets
  22. Benchmarks of Financial Analysis
    • Histrocial Data
    • Industry Performance
    • Analysts Expectations
    • Absolute Benchmarks
  23. Current Ratio (equation and meaning):
    Currents Assets / Current Liabilities

    Shows liquidity of firm to pay debts due within 1 year
  24. Quick Ratio (equation and meaning):
    (Cash+A/R+Short Term Investments) / Current Liabs.

    Ammount of cash that can be generated in short time
  25. Debt to Equity (equation and meaning):
    Total Liab / Total S.E.

    • Proportion of assets borrowed vs. assets owned.
    • Higher Ratio = Higher Leverage = Higher Risk
  26. Times Interest Earned (equation and meaning):
    (N/I + Int Exp + Tax) / Int Exp

    # of times Interest owed could be paid with current earnings
  27. A/R Turnover Ratio (equation and meaning):
    Sales / Avg. A/R

    # of times A/R was filled and collected in a year
  28. Inventory Turnover Ratios (equation and meaning):
    COGS / Avg Inv.

    # of times Inventory was filled and emptied in year
  29. Days To Collect (equation and meaning):
    365 / A/R turnover Ratio

    Avg. # of days to collect accounts
  30. Days In Inventory (equation and meaning):
    365 / Inv. Turn. Ratio

    # of days inventory on hand
  31. Assets Turnover (equation and meaning):
    Sales / Avg. Tot. Assets

    How much sales are generated from assets owned
  32. Profit Margin (equation and meaning):
    N/I / Sales

    How much of each $1 in sales is kept as profit
  33. Return on Assets (equation and meaning):
    N/I / Avg. Tot. Assets

    FIRM PROFITABILITY

    How much every dollar of assets contributes to profits
  34. Return on Equity (equation and meaning):
    N/I / Avg. Tot. S.E.

    • SHAREHOLDERS PROFITABILITY
    • Share of profits from owners contributions
  35. Leverage (Equation and Meanings):
    Avg. Tot. Assets / Avg. Tot. S.E.

    Proportion of total asets owned by firm
  36. Dupont Analysis
    ROE = Profit Margin X Asset Turn X (1+Leverage)
  37. Income Statement:
    Sales
    (COGS)
    ___________
    (Operating Expenses)
    +/- Other Items
    ___________
    +/- Other Rev & Exps
    ___________
    (Tax Expense)
    Income From Cont'd Ops (post-tax)
    +/- ___________
    +/- ___________
    = Net Income
    • Sales - COGS = Gross Margin
    • - Oper Exps - Other Items = Operating Income
    • +/- Other Rev & Exp = Income from Con't Ops
    • - Tax Expense = Inc from Cont'd Ops (post-tax)
    • +/- Discontiued Operations
    • +/- Extraordiary Events = Net Income
  38. Firm Value =
    NPV of future Cash Flows
  39. Cash Flow (Operating)
    • Cash Recieved From Customers
    • (Cash Paid for Expenses)
    • = Cash Flow From Operations
  40. Cash Flow (Investing)
    • ( Cash paid for Long Term Assets)
    • = Cash Flow From Investing Activities
  41. Cash Flow (Financing)
    • Cash contributed by owners
    • Cash Received from Loans
    • = Cash Flow from Financing Activities
  42. Cash Flow Statements
    __________
    .
    .
    Cash Flow From ___________ Activies
    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
    _______
    .
    .
    Cash Flow From ______________ Activies
    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
    _____________
    .
    .
    Cash Flow From ______________ Activies
    xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
    Total Cash Flow XX
    ____Bal XX
    ______ Bal XX
    • Operating
    • Investing
    • Financing
    • Total Cash Flow
    • Beg Bal
    • Ending Bal
Author
rjfisher
ID
112639
Card Set
Accounting Midterm
Description
ACCT 301 Midterm I Exam Prep
Updated

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