WSP ACCOUNTING STUDY GUIDE | EXAM
QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT|
Walk me through the balance sheet - ✔✔Shows a companys assets, liabilities, and
equity sections at a specific point in time.
Assets section
- Organized by liquidity, with current assets being assets that can be converted into cash
within a year, such as accounts receivable, prepaid expenses, and inventory
- Longer term assets - PPE, Intangible assets, goodwill, and LT investments
Liabilites section
- Listed in order of how close they are to coming due.
- Current liabilties = accounts payable, accrued expenses, and short term debt
- Long term liabilties - include items such as long term debt, deferred revenue, and
deferred income taxes
Shareholders equity section
- Consists of common stock, APIC, treasury stock, and retained earnings
Walk me through the cash flow statement - ✔✔1. Cash from Operations: The cash
from operations section starts with net income and adds back non-cash expenses such
as depreciation & amortization and stock-
based compensation, and then makes adjustments for changes in working capital.
, 2. Cash from Investing: Next, the cash from investing section accounts for capital
expenditures (typically the largest outflow), followed by any business acquisitions or
divestitures.
3. Cash from Financing: In the third section, cash from financing shows the net cash
impact of raising capital from issuances of equity or debt, net of cash used for share
repurchases, and repayments
Together, the sum of the three sections will be the net change in cash for the period.
This figure will then be added to the beginning of period cash balance to arrive at the
ending cash balance.
How are the three financial statements connected? - ✔✔IS ↔ CFS: The cash flow
statement is connected to the income statement through net income, as net income is
the starting line on the cash flow statement.
CFS ↔ BS: Next, the cash flow statement is linked to the balance sheet because it tracks
the changes in the balance sheet's working capital (current assets and liabilities). The
impact from capital expenditures (PP&E), debt or equity issuances, and share buybacks
(treasury stock) are also reflected on the balance sheet. In addition, the ending cash
balance from the bottom of the cash flow statement will flow to the balance sheet as
the cash balance for the current period.
IS ↔ BS: The income statement is connected to the balance sheet through retained
earnings. Net income minus dividends issued during the period will be added to the
prior period's retained earnings balance to calculate the current period's retained
earnings. Interest expense on the income statement is also calculated off the beginning
and ending debt balances on the balance sheet, and PP&E on the balance sheet is
reduced by depreciation, which is an expense on the income statement.
Why is the cash flow statement more important than the income statement? - ✔✔- It
reconciles net income income - the accrual based bottom line on the income statment,
to what is actually occuring to cash
QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT|
Walk me through the balance sheet - ✔✔Shows a companys assets, liabilities, and
equity sections at a specific point in time.
Assets section
- Organized by liquidity, with current assets being assets that can be converted into cash
within a year, such as accounts receivable, prepaid expenses, and inventory
- Longer term assets - PPE, Intangible assets, goodwill, and LT investments
Liabilites section
- Listed in order of how close they are to coming due.
- Current liabilties = accounts payable, accrued expenses, and short term debt
- Long term liabilties - include items such as long term debt, deferred revenue, and
deferred income taxes
Shareholders equity section
- Consists of common stock, APIC, treasury stock, and retained earnings
Walk me through the cash flow statement - ✔✔1. Cash from Operations: The cash
from operations section starts with net income and adds back non-cash expenses such
as depreciation & amortization and stock-
based compensation, and then makes adjustments for changes in working capital.
, 2. Cash from Investing: Next, the cash from investing section accounts for capital
expenditures (typically the largest outflow), followed by any business acquisitions or
divestitures.
3. Cash from Financing: In the third section, cash from financing shows the net cash
impact of raising capital from issuances of equity or debt, net of cash used for share
repurchases, and repayments
Together, the sum of the three sections will be the net change in cash for the period.
This figure will then be added to the beginning of period cash balance to arrive at the
ending cash balance.
How are the three financial statements connected? - ✔✔IS ↔ CFS: The cash flow
statement is connected to the income statement through net income, as net income is
the starting line on the cash flow statement.
CFS ↔ BS: Next, the cash flow statement is linked to the balance sheet because it tracks
the changes in the balance sheet's working capital (current assets and liabilities). The
impact from capital expenditures (PP&E), debt or equity issuances, and share buybacks
(treasury stock) are also reflected on the balance sheet. In addition, the ending cash
balance from the bottom of the cash flow statement will flow to the balance sheet as
the cash balance for the current period.
IS ↔ BS: The income statement is connected to the balance sheet through retained
earnings. Net income minus dividends issued during the period will be added to the
prior period's retained earnings balance to calculate the current period's retained
earnings. Interest expense on the income statement is also calculated off the beginning
and ending debt balances on the balance sheet, and PP&E on the balance sheet is
reduced by depreciation, which is an expense on the income statement.
Why is the cash flow statement more important than the income statement? - ✔✔- It
reconciles net income income - the accrual based bottom line on the income statment,
to what is actually occuring to cash
