Accounting Crash Course Exam V4 Latest Update |Wall Street Exam Review|Brand New Exam Questions And Correct Answersall Graded A+|Guaranteed Success|

ACCOUNTING CRASH COURSE EXAM V4 LATEST UPDATE |WALL STREET EXAM REVIEW|BRAND NEW EXAM QUESTIONS AND CORRECT ANSWERS ALL GRADED A+|GUARANTEED SUCCESS| Income statement & why its important - ANSWER-financial report that depicts the operating performance of a company over a specific period of time Its important because it facilitates the analysis of a company's growth prospects, cost structure and profitability Analysts an use the IS to identify the components and sources (drivers) of net earnings ****also referred to as consolidated statement of earnings, the profits and loss statement, statement of revenues and expenses Revenue (top line on IS) - ANSWER-Revenue represents proceeds from the sale of goods and services produced or offered by a company; revenue is referred to company top line. A company can have other income not tied to core operations (income for legal settlements, cash collected, etc) Accrual basis is revenue must be recorded only when it is earned and measurable - ANSWER-According to the revenue recognition principle, a company cannot record revenue until it is earned -- that is, until that order is shipped to a customer and collection from that customer, who used a CC, is reasonably assured Revenue Recognition Method 1: Multiple deliverables - ANSWER-Fo sales of bundles products, companies should assign individual values to each of the bundled components → this is especially relevant in the software industry ex: apple selling iphone that has price of hardware + software rights -- recognize revenue of hardware immediately, but recognize software revenue evenly over several yrs Revenue Recognition Method 2: Long-term projects - ANSWER-Multiple methods: 1: percentage of completion method: revenues are recognized on the basis of the % of total work completed during the accounting period (eg Boeing plan example) 2: completed contract method: rarely used in US, this method allows for revenue recognition only once the entire project has been completed Recall matching principle in relation to revenue and expense recognition - ANSWER-States that expenses should be matched to revenues Revenues are recognized and recorded when an economic exchange occurs, while expenses are recognized when the associated revenues are recognized, not necessarily when cash is exchanged Accrual vs cash accounting - ANSWER-Cash accounting objectively recognizes revenues when cash is received and records costs when cash is paid out; accrual accounting involves subjectivity in regards to the allocation of revenues and expenses to different periods Cash accounting is not allowed under GAAP, but for tax reporting certain businesses are allowed to use cash basis Non operating vs operating income and expenses on the IS - ANSWER-operating: income and expenses generated and incurred from a company's core operations nonoperating: income and expenses that are not tied to core operations of business Everything below operating profit (income) is not directly related to operations of the business; everything above is tied to core ops Cost of Goods Sold (COGS)/Cost of Sales (line item on IS) - ANSWER-represents a company's DIRECT cost of manufacture (for manufacturers) or procurement (for merchandisers) of a good or service that the company sells to GENERATE REVENUE COGS is a direct operating costs Examples and nonexamples of COGS - ANSWER-Example of COGS: merchandise inventory, raw material costs, direct labor costs, factory overhead), shipping and delivery costs, any other costs directly associated with the generation of revenue, depreciation of fixed assets Costs such as corporate overhead, marketing and admin expenses, R&D, and salaries of employees NOT directly associated with manufacture or procurement of a good or service are not included in COGS These costs are included under Selling, General & Administrative (SG&A) or other line items Gross Profit (line item on IS) - ANSWER-Net Revenues - COGS Represents profit after only direct expenses (COGS) has been accounted for SG&A (line item on IS) - ANSWER-SG&A represents the operating expenses not directly associated with the production/manufacturing or procurement of the product or service that the company sells to generate revenue Examples include: store lease expense for a retail business, salaries, legal expenses, marketing and advertising expenses Depreciation + where it is on Income statement/impact - ANSWER-quantifies the wear and tear of the physical asset (most types of tangible assets) through a systemic decrease (depreciation) of the assets' book (historical) value ****LAND is considered a fixed asset but is NOT depreciated (land never really affects the income statement) Where: It is NOT a line item on IS; rather it is included within COGS or SG&A. Impact: is non-cash expense and can make up significant portion of total expenses on company's IS -- adds to justification that IS is poor tool for tracking company cash position. Depr. reduces IS profits every year Research and Development (R&D) + location on IS - ANSWER-expenses that stem from company activities that are directed at developing new products or procedures R&D expenses include compensation for employees, equipment and facilities engaged in the R&D process it may be a seperate line item if a large expense (ie for health care, energy, tech) or just aggregated with SG&A straight-line depreciation method - ANSWER-annual depreciation expense = original cost - salvage value / useful life (total yrs asset expected to remain in service) method that depreciate assets evenly over their useful lives, and this approach is called the "straight-line method" *There are other accelerated depreciation methods Amortization - ANSWER-Amortization is the allocation of the cost of intangible assets over the number of years that these assets are expected to help generate revenue for the company (basically depr. but for intangible assets instead of fixed). Is also a non-cash expense --- the expense does not depict any actual cash outflow (payment) Is not a line item on IS Internally-generated intangible assets + amort. - ANSWER-Expenses associated with internally developing intangible assets like patents, customer lists, trademarks are expensed fully as they are incurred (no amortization) Since companies are not allowed to write up the value of intangible assets (historical cost and conservatism), companies with very valuable trademarks and patents (Coke, GE, Apple) do not recognize or amortize these assets What is recognized on the balance sheet is ACQUIRED intangible assets → those are what are amortized Stock Based Compensation Expense - ANSWER-Recall that the expense of employee salaries are embedded within the expense categories based on the employees job function (ex: salary of SWE likely to be embedded in R&D) When a company compensates an employee with stick, the value of that SBC is recognized as an expense in the same expense category as the employee's regular cash compensation--- although SBC is a non-cash expense. Therefore SBC isn't on IS as line item, its included within the operating expenses in which the employee is classied (COGS, RD, SGA) Like depreciation, you will find it in CFS despite it not being in IS Other Operating Expenses + where it is on IS - ANSWER-Companies will sometimes recognize expenses (or income) on the IS that, while still related to operating activities, are a little less typical. Examples include: Gains/losses on sale of fixed assets gains/losses from a legal settlement (ONLY when it is regularly occurring) If one time legal settlement, listed under "other non-operating" Restructuring expenses and severance costs Losses due to inventory spoilage (inventory write-down) unless these expenses are material, will often be embbed within larger operating expense categories like SG&A, or in a seperate line item called "other operating expenses" Other non-operating items / "other income (expense), net" - ANSWER-Items that are peripheral to the core operations (like interest income, interest expense, etc) → is non-operating Other examples of non-operating income include increases in value and gains on sale on certain financial investments Other example of non-operating expenses include decreases in value and losses on sale on certain investments and debt Other income and expenses can be netted on IS as "other income (expense), net" Interest Expense - ANSWER-Interest expense are payments the company makes for its outstanding debt just like the interest we pay on credit cards, corporations must make regular interest payments (expense) in debt owed to banks/other lenders Interest Income - ANSWER-A company's income from its cash holdings and investments (stocks, bonds, and savings accounts) Net interest expense (income) - ANSWER-sometimes, interest income and expense are netted against one another (since they are the inverse of each other, and usually one is bigger than the other) it is presented on the IS Tax Expense (line item) + what does it equal - ANSWER-Under US GAAP and IFRS, companies report tax expense as a separate line item usually right below a line item called "Pretax Income" or "Income before provision for income taxes" Why doesn't Tax expense equal the actual cash taxes paid - ANSWER-Two different accounting rules when handling the calculation of the tax expense on the IS (GAAP, IFRS book rules) and the calculation of cash taxes (country tax code rules) → primarily differences around how depreciation is calculated, when revenues are recognized, and how losses are treated