Basic Accounting[major
financial statements]
exam withwell verified
correct choices
What are the 3 major financial statements? - ANSWERS-Income Statement, Balance Sheet, Cash
Flow Statement
Walk me through the Income Statement - ANSWERS-Gives the company's revenue and
expenses, and goes down to Net Income, the final line on the statement.
Walk me through the Balance Sheet - ANSWERS-Show the company's Assets (resources - Cash,
Inventory, PP&E), Liabilities (Debt and Accounts Payable) and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity.
Walk me through the Cash Flow Statement - ANSWERS-Begins with Net Income, adjusts for non-
cash expenses and working capital changes, and then lists cash flow from investing and
financing activities; at the end, you see the company's net change in cash.
IS major Line items - ANSWERS-Revenue, COGS, SG&A, Operating Income, Pretax Income, Net
Income
, BS major line items - ANSWERS-Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable,
Accrued Expenses, Debt, Shareholers' Equity
CFS major line items - ANSWERS-Net Income, Depreciation & Amortization, Stock-Based
Compensation, Changes in Operating Assets & Liabilities, Cash Flow From Operations, CapEx,
Cash Flow from Investing, Sale/Purchase of Securities, Dividends Issued, Cash Flow from
Financing
How do the 3 statements link together? - ANSWERS-- Net Income from the IS flows into
Shareholders' Equity on the Balance Sheet, and into the top line of the Cash Flow Statement
- Changes to BS items appear as working capital changes on the CFS. Investing and Financing
activities affect BS items such as PP&E, Debt and Shareholders' Equity
- Cash and Shareholders' Equity items on BS act as plugs, with Cash flowing in from the final line
on the CFS
If I wanted to review the overall health of a company and only had one statement, which
statement would I use and why? - ANSWERS-Use the CFS
- gives the true picture of how much cash the company is generating, independent of non-cash
expenses.
- cash flow is the number one concern when analyzing the overall health of a business
I could only use 2 statements - which 2? - ANSWERS-- Income Statement and Balance Sheet
- Can create the Cash Flow Statement from both (as long as you have a before and after BS for
the period the IS is tracking)
Walk me through how Depreciation going up by $10 would affect the statements. - ANSWERS-
IS: Operating income down by $10, Net Income down by $6 (40% tax rate)
CFS: NI down by $6, but $10 is non-cash and gets added back -> CFO goes up by $4. Overall net
change in cash up by $4.
financial statements]
exam withwell verified
correct choices
What are the 3 major financial statements? - ANSWERS-Income Statement, Balance Sheet, Cash
Flow Statement
Walk me through the Income Statement - ANSWERS-Gives the company's revenue and
expenses, and goes down to Net Income, the final line on the statement.
Walk me through the Balance Sheet - ANSWERS-Show the company's Assets (resources - Cash,
Inventory, PP&E), Liabilities (Debt and Accounts Payable) and Shareholders' Equity.
Assets must equal Liabilities plus Shareholders' Equity.
Walk me through the Cash Flow Statement - ANSWERS-Begins with Net Income, adjusts for non-
cash expenses and working capital changes, and then lists cash flow from investing and
financing activities; at the end, you see the company's net change in cash.
IS major Line items - ANSWERS-Revenue, COGS, SG&A, Operating Income, Pretax Income, Net
Income
, BS major line items - ANSWERS-Cash, Accounts Receivable, Inventory, PP&E, Accounts Payable,
Accrued Expenses, Debt, Shareholers' Equity
CFS major line items - ANSWERS-Net Income, Depreciation & Amortization, Stock-Based
Compensation, Changes in Operating Assets & Liabilities, Cash Flow From Operations, CapEx,
Cash Flow from Investing, Sale/Purchase of Securities, Dividends Issued, Cash Flow from
Financing
How do the 3 statements link together? - ANSWERS-- Net Income from the IS flows into
Shareholders' Equity on the Balance Sheet, and into the top line of the Cash Flow Statement
- Changes to BS items appear as working capital changes on the CFS. Investing and Financing
activities affect BS items such as PP&E, Debt and Shareholders' Equity
- Cash and Shareholders' Equity items on BS act as plugs, with Cash flowing in from the final line
on the CFS
If I wanted to review the overall health of a company and only had one statement, which
statement would I use and why? - ANSWERS-Use the CFS
- gives the true picture of how much cash the company is generating, independent of non-cash
expenses.
- cash flow is the number one concern when analyzing the overall health of a business
I could only use 2 statements - which 2? - ANSWERS-- Income Statement and Balance Sheet
- Can create the Cash Flow Statement from both (as long as you have a before and after BS for
the period the IS is tracking)
Walk me through how Depreciation going up by $10 would affect the statements. - ANSWERS-
IS: Operating income down by $10, Net Income down by $6 (40% tax rate)
CFS: NI down by $6, but $10 is non-cash and gets added back -> CFO goes up by $4. Overall net
change in cash up by $4.
