File Name: income statement and balance sheet questions and answers .zip
To prepare an income statement generate a trial balance report, calculate your revenue, determine the cost of goods sold, calculate the gross margin, include operating expenses, calculate your income, include income taxes, calculate net income and lastly finalize your income statement with business details and the reporting period. To prepare an income statement, small businesses need to analyze and report their revenues, expenses and the resulting profits or losses, for a specific reporting period. The income statement, also called a profit and loss statement, is one of the major financial statements issued by businesses, along with the balance sheet and cash flow statement. Income statements show how much profit a business generated during a specific reporting period and the amount of expenses incurred while earning revenue.
One of the key factors for success for those beginning the study of accounting is to understand how the elements of the financial statements relate to each of the financial statements. That is, once the transactions are categorized into the elements, knowing what to do next is vital. This is the beginning of the process to create the financial statements. It is important to note that financial statements are discussed in the order in which the statements are presented. When thinking of the relationship between the elements and the financial statements, we might think of a baking analogy: the elements represent the ingredients, and the financial statements represent the finished product.
As with baking a cake see Figure 2. To help accountants prepare and users better understand financial statements, the profession has outlined what is referred to as elements of the financial statements , which are those categories or accounts that accountants use to record transactions and prepare financial statements.
There are ten elements of the financial statements, and we have already discussed most of them. Now it is time to bake the cake i. This company is a small retail store that makes and sells a variety of gourmet popcorn treats. It is an exciting time because the store opened in the current month, June.
The owner, Chuck, heard that you are studying accounting and could really use the help, because he spends most of his time developing new popcorn flavors. The former employee has done a nice job of keeping track of the accounting records, so you can focus on your first task of creating the June financial statements, which Chuck is eager to see.
Figure 2. We should note that we are oversimplifying some of the things in this example. First, the amounts in the accounting records were given. We did not explain how the amounts would be derived. This process is explained starting in Analyzing and Recording Transactions. Second, we are ignoring the timing of certain cash flows such as hiring, purchases, and other startup costs.
In reality, businesses must invest cash to prepare the store, train employees, and obtain the equipment and inventory necessary to open. These costs will precede the selling of goods and services. The difference in these two values the original cost and the ending value will be allocated over a relevant period of time.
This is called depreciation and is one of the topics that is covered in Long-Term Assets. It is an asset that will be depreciated in the future, but no depreciation expense is allocated in our example. Our first step is to determine the value of goods and services that the organization sold or provided for a given period of time. These are the inflows to the business, and because the inflows relate to the primary purpose of the business making and selling popcorn , we classify those items as Revenues, Sales, or Fees Earned.
For this example, we use Revenue. Financial statements are created using numerous standard conventions or practices. The standard conventions provide consistency and help assure financial statement users the information is presented in a similar manner, regardless of the organization issuing the financial statement. A sales manager is responsible for establishing and attaining sales goals within the company. What conclusions would you make based on this information?
What do you think might be influencing these amounts? What factors do you think would be important to the sales manager in deciding what action, if any, to take? Next, we determine if there were any activities that decreased the value of the business. More specifically, we are accounting for the value of distributions to the owners and net loss, if any. It is important to note that an organization will have either net income or net loss for the period, but not both. Also, small businesses in particular may have periods where there are no investments by, or distributions to, the owner s.
This is a good time to recall the terminology used by accountants based on the legal structure of the particular business. The corporate treatment is more complicated, because corporations may have a few owners up to potentially thousands of owners stockholders. The details of accounting for the interests of corporations are covered in Corporation Accounting. Since this is a brand-new store, the beginning value of the business is zero.
Shown in a formula:. The statement uses the final number from the financial statement previously completed. To begin, we look at the accounting records and determine what assets the business owns and the value of each. As discussed previously, the equipment that was recently purchased will be depreciated in the future, beginning with the next accounting period. Finally, we determine the amount of equity the owner, Cheesy Chuck, has in the business.
Recall that equity is also called net assets assets minus liabilities. The income statement summarizes the financial performance of the business for a given period of time. The income statement reports how the business performed financially each month—the firm earned either net income or net loss.
This is similar to the outcome of a particular game—the team either won or lost. The balance sheet summarizes the financial position of the business on a given date. Meaning, because of the financial performance over the past twelve months, for example, this is the financial position of the business as of December However, because different companies have different sizes, you do not necessarily want to compare the balance sheets of two different companies.
For example, you would not want to compare a local retail store with Walmart. In most cases you want to compare a company with its past balance sheet information. This fourth and final financial statement lists the cash inflows and cash outflows for the business for a period of time.
A full demonstration of the creation of the statement of cash flows is presented in Statement of Cash Flows. We started with the account balances shown in Figure 2. The next step was to create the income statement, which shows the financial performance of the business.
The income statement is shown in Figure 2. In Why It Matters , we pointed out that accounting information from the financial statements can be useful to business owners. The financial statements provide feedback to the owners regarding the financial performance and financial position of the business, helping the owners to make decisions about the business.
Consider this from the perspective of the owner, Chuck. Describe the financial performance of and financial position of the business. What areas of the business would you want to analyze further to get additional information? What changes would you consider making to the business, if any, and why or why not? If accountants and company management fail to do so, they may incur heavy penalties. They employed a multitude of improper accounting practices to achieve this objective.
Because they failed to accurately report the financial results of their company, the top accountants and management of Waste Management, Inc. Thomas C. In addition to reviewing the financial statements in order to make decisions, owners and other stakeholders may also utilize financial ratios to assess the financial health of the organization.
While a more in-depth discussion of financial ratios occurs in Appendix A: Financial Statement Analysis , here we introduce liquidity ratios , a common, easy, and useful way to analyze the financial statements.
Examples of the most liquid assets include accounts receivable and inventory for merchandising or manufacturing businesses. The reason these are among the most liquid assets is that these assets will be turned into cash more quickly than land or buildings, for example. Inventory is less liquid than accounts receivable because the product must first be sold before it generates cash either through a cash sale or sale on account.
Inventory is, however, more liquid than land or buildings because, under most circumstances, it is easier and quicker for a business to find someone to purchase its goods than it is to find a buyer for land or buildings. The starting point for understanding liquidity ratios is to define working capital —current assets minus current liabilities.
Recall that current assets and current liabilities are amounts generally settled in one year or less. Working capital current assets minus current liabilities is used to assess the dollar amount of assets a business has available to meet its short-term liabilities.
A positive working capital amount is desirable and indicates the business has sufficient current assets to meet short-term obligations liabilities and still has financial flexibility.
A negative amount is undesirable and indicates the business should pay particular attention to the composition of the current assets that is, how liquid the current assets are and to the timing of the current liabilities. One limitation of working capital is that it is a dollar amount, which can be misleading because business sizes vary.
Using percentages or ratios allows financial statement users to more easily compare small and large businesses. The current ratio is closely related to working capital; it represents the current assets divided by current liabilities. The current ratio utilizes the same amounts as working capital current assets and current liabilities but presents the amount in ratio, rather than dollar, form. The interpretation of the current ratio is similar to working capital. A ratio of greater than one indicates that the firm has the ability to meet short-term obligations with a buffer, while a ratio of less than one indicates that the firm should pay close attention to the composition of its current assets as well as the timing of the current liabilities.
Assume the Equipment listed on the balance sheet is a noncurrent asset. This is a reasonable assumption as this is the first month of operation and the equipment is expected to last several years.
We also assume the Accounts Payable and Wages Payable will be paid within one year and are, therefore, classified as current liabilities. Working capital is calculated as current assets minus current liabilities. At first Chuck feels his business is not doing so well. How would Chuck compare the liquidity of his new business, opened just one month, with the liquidity of a larger and more-established business in another market?
The answer is by calculating the current ratio, which removes the size differences materiality of the two businesses. We use the same amounts that we used in the working capital calculation, but this time we divide the amounts rather than subtract the amounts. Understanding the elements that make up financial statements, the organization of those elements within the financial statements, and what information each statement relays is important, whether analyzing the financial statements of a US company or one from Honduras.
Since most US companies apply generally accepted accounting principles GAAP 15 as prescribed by the Financial Accounting Standards Board FASB , and most international companies apply some version of the International Financial Reporting Standards IFRS , 16 knowing how these two sets of accounting standards are similar or different regarding the elements of the financial statements will facilitate analysis and decision-making.
For example, income can be in the form of earned income a lawyer providing legal services or in the form of gains interest earned on an investment account. The definition of each of these elements is similar between IFRS and US GAAP, but there are some differences that can influence the value of the account or the placement of the account on the financial statements.
Financial Accounting November Past paper. The difference between sales revenue and net sales is the amount of goods returned by customers because the goods were either unsatisfactory or not. Among other requirements, IFRS 16 required that most leases be capitalized and recorded. The Financial Accounting exam covers skills and concepts that are generally taught in a first-semester undergraduate financial accounting course. Build a strong, basic understanding of accounting through this vocabulary-focused video. Available Now! We created Premium Bonds and you can only get them from us.
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In what respects would you agree with this description? How might you argue that this description is deficient? On what aspect of a business does the balance sheet provide information?
One of the key factors for success for those beginning the study of accounting is to understand how the elements of the financial statements relate to each of the financial statements. That is, once the transactions are categorized into the elements, knowing what to do next is vital. This is the beginning of the process to create the financial statements. It is important to note that financial statements are discussed in the order in which the statements are presented.
Why is the IRS using electronic accounting records instead of continuing to use traditional paper books and records in. Financial accounting is focused on creating financial statements to be shared internal and external stakeholders and the public. A company's is are potentially the most effective instrument of good corporate governance. Do NOT write in pencil except for graphs and diagrams. Identify the users and uses of accounting.
Learn vocabulary, terms and more with flashcards Entry field with correct answer cash, inventories, accounts receivable, prepaid insurance.
Быть может, искусственное дыхание делали санитары. - Да нет, конечно! - Клушар почему-то улыбнулся. - Какой смысл хлестать мертвую кобылу. Парень был уже мертв, когда прибыла скорая. Они пощупали пульс и увезли его, оставив меня один на один с этим идиотом-полицейским. Странно, - подумал Беккер, - интересно, откуда же взялся шрам. Но он тут же выбросил эту мысль из головы и перешел к главному.
ГЛАВА 66 Беккер пересек зал аэропорта и подошел к туалету, с грустью обнаружив, что дверь с надписью CABALLEROS перегорожена оранжевым мусорным баком и тележкой уборщицы, уставленной моющими средствами и щетками. Он перевел взгляд на соседнюю дверь, с табличкой DAMAS, подошел и громко постучал. - Hola? - крикнул он, приоткрыв дверь. - Con permiso. Не дождавшись ответа, он вошел.
Стекла очков блеснули, и его пальцы снова задвигались в воздухе. Он, как обычно, записал имена жертв. Контакты на кончиках пальцев замкнулись, и на линзах очков, подобно бестелесным духам, замелькали буквы. ОБЪЕКТ: РОСИО ЕВА ГРАНАДА - ЛИКВИДИРОВАНА ОБЪЕКТ: ГАНС ХУБЕР - ЛИКВИДИРОВАН Тремя этажами ниже Дэвид Беккер заплатил по счету и со стаканом в руке направился через холл на открытую террасу гостиницы.
Но этого было достаточно. СЛЕДОПЫТ ИЩЕТ… - Следопыт? - произнес. - Что он ищет? - Мгновение он испытывал неловкость, всматриваясь в экран, а потом принял решение. Хейл достаточно понимал язык программирования Лимбо, чтобы знать, что он очень похож на языки Си и Паскаль, которые были его стихией.
Фонтейн ничего не ответил, погруженный в глубокое раздумье. Слова Сьюзан Флетчер о том, что ключ находится в Испании, показались ему обнадеживающими. Он бросил быстрый взгляд на Сьюзан, которая по-прежнему сидела на стуле, обхватив голову руками и целиком уйдя в .
Сотрудник отдела обеспечения системной безопасности Фил Чатрукьян, приникнув лицом к стеклу, отчаянно барабанил по нему, стараясь разглядеть, есть ли кто-нибудь внутри. Он что-то говорил, но сквозь звуконепроницаемую перегородку слов не было слышно. У него был такой вид, словно он только что увидел привидение.
А Смит тем временем безучастно продолжал свои комментарии: - Как вы видите, у Танкадо случился мгновенный сердечный приступ. Сьюзан стало дурно оттого, что она увидела. Танкадо прижал изуродованную руку к груди с выражением недоумения и ужаса на лице. - Вы можете заметить, - продолжал Смит, - что взгляд его устремлен. Он ни разу не посмотрел по сторонам.
- Стратмор практически выгнал Чатрукьяна за то, что тот скрупулезно выполняет свои обязанности.
Фонд электронных границ, воспользовавшись вспыхнувшим скандалом, поносил конгресс за проявленную наивность и назвал АНБ величайшей угрозой свободному миру со времен Гитлера. Новый стандарт шифрования приказал долго жить. Никому не показалось удивительным, что два дня спустя АНБ приняло Грега Хейла на работу. Стратмор решил, что лучше взять его к себе и заставить трудиться на благо АНБ, чем позволить противодействовать агентству извне. Стратмор мужественно перенес разразившийся скандал, горячо защищая свои действия перед конгрессом.
Беккер увидел в ее руке сережку в виде черепа. - Так это клипса. - Да, - сказала девушка.
Более трех тысяч узлов Независимой цифровой сети связывают весь мир с базой данных агентства. Каждый день военные оценивают моментальные спутниковые снимки всех передвижений по территории потенциальных противников. Инженеры компании Локхид скачивают подробные чертежи новых систем вооружения. Оперативные агенты сообщают последние данные о ходе выполнения поставленных перед ними задач. Банк данных АНБ - это основа основ тысяч правительственных операций.
Это не так важно, - горделиво заявил Клушар.
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