Financial Statements Accounting Questions
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with correct answers
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What |are |the |3 |financial |statements? |- |VERIFIED |ANSWER✔✔-cash |flow |statement, |income |
statement, |and |the |balance |sheet.
How |are |the |3 |financial |statements |linked? |OR |walk |me |through |three |financial |statements |- |VERIFIED
|ANSWER✔✔-"The |three |financial |statements |are |the |income |statement, |balance |sheet, |and |
statement |of |cash |flows. |
The |income |statement |is |a |statement |that |illustrates |the |profitability |of |the |company. |It |begins |with |
the |revenue |line |and |after |subtracting |various |expenses |arrives |at |net |income. |The |income |statement |
covers |a |specified |period |like |quarter |or |year. |
Unlike |the |income |statement, |the |balance |sheet |does |not |account |for |the |entire |period |and |rather |is |
a |snapshot |of |the |company |at |a |specific |point |in |time |such |as |the |end |of |the |quarter |or |year. |The |
balance |sheet |shows |the |company's |resources |(assets) |and |funding |for |those |resources |(liabilities |and
|stockholder's |equity). |Assets |must |always |equal |the |sum |of |liabilities |and |equity. |
Lastly, |the |statement |of |cash |flows |is |a |magnification |of |the |cash |account |on |the |balance |sheet |and |
accounts |for |the |entire |period |reconciling |the |beginning |of |period |to |end |of |period |cash |balance. |It |
typically |begins |with |net |income |and |is |then |adjusted |for |various |non-cash |expenses |and |non-cash |
income |to |arrive |at |cash |from |operating. |Cash |from |investing |and |financing |are |then |added |to |cash |
flow |from |operations |to |arrive |at |net |change |in |cash |for |the |year."
Balance |Sheet |(big |picture) |- |VERIFIED |ANSWER✔✔-financial |condition |at |one |point |in |time
Assets= |Liability |+ |Shareholder's |Equity
Income |Statement |(big |picture) |- |VERIFIED |ANSWER✔✔-profitability |over |time
Net |Income |= |Revenue |- |Expenses
,Relate |Balance |Sheet |to |Income |Statement |- |VERIFIED |ANSWER✔✔--Net |income |comes |from |income |
statement |
-Appears |as |retained |earnings |on |Balance |sheet |in |equity |section
Cash |Flow |Statement |(big |picture) |- |VERIFIED |ANSWER✔✔-changes |in |cash |over |period |of |time
Why |is |the |cash |flow |statement |important |and |how |does |it |compare |to |the |income |statement? |- |
VERIFIED |ANSWER✔✔-- |Income |statement |accounting |uses |what |is |accrual |accounting-- |record |
revenue |when |earned |and |expenses |when |incurred.
Pros: |Accrual |method= |more |accurate |picture |of |the |companies |profitability. |
Cons: |More |easily |to |manipulate |accounting |profits |than |cash |profits.
Cons: |Must |see |amount |of |cash-- |not |having |a |handle |on |cash |can |potentially |make |even |a |healthy |
company |go |bankrupt.
-Solution: |analyze |both, |they |should |corroborate.
What |does |balance |sheet |tell |us? |- |VERIFIED |ANSWER✔✔-dollar |amounts |of |a |company's |assets, |
liabilities, |and |owner's |equity
Diff |b/w |debt |and |equity |- |VERIFIED |ANSWER✔✔-Debt- |take |out |loans, |fixed |payment, |the |owner |of |
debt |has |first |priority |for |repayment
Equity- |shareholder |now |owns |part |of |the |business, |likely |more |expensive |than |debt, |not |first |priority
|of |repayment
Three |sections |of |a |cash |flow |statement |- |VERIFIED |ANSWER✔✔-Operating
Financing
Investing
Working |Capital |assets |examples |- |VERIFIED |ANSWER✔✔-accounts |receivable, |inventory, |prepaid |
expenses, |etc.
, Cash |from |operating |activities |- |VERIFIED |ANSWER✔✔-Determine |from |2 |methods: |direct |and |indirect
Indirect(super |common)- |The |indirect |method |starts |with |net |income |and |includes |the |cash |effects |of |
transactions |involved |in |calculating |net |income. |
Cash |from |operations= |Net |income |(from |income |statement)
|+ |period-on-period |increases |in |working |capital |liabilities |+ |non-cash |expenses |- |non-cash |gains |- |
period-on-period |increases |in |working |capital |assets |
-For |a |stable, |mature |company |a |positive |cash |flow |from |operating |activities |is |desirable
|Essentially, |cash |from |operating |activities |is |a |reconciliation |of |net |income |(from |the |income |
statement) |to |the |amount |of |cash |the |company |actually |generated |during |that |period |as |a |result |of |
operations |(think |cash |profits |vs |accounting |profits). |The |adjustments |to |get |from |accounting |profit |
(net |income) |to |cash |profits |(cash |from |operations) |are |as |follows:
Working |Capital |liabilities |examples |- |VERIFIED |ANSWER✔✔-accounts |payable, |accrued |expenses, |etc.
Walk |me |through |a |cash |flow |statement. |- |VERIFIED |ANSWER✔✔-1. |Start |with |net |income, |go |line |by
|line |through |major |adjustments |(depreciation, |changes |in |working |capital |and |deferred |taxes) |to |
arrive |at |cash |flows |from |operating |activities.
2. |Mention |capital |expenditures, |asset |sales, |purchase |of |intangible |assets, |and |purchase/sale |of |
investment |securities |to |arrive |at |cash |flow |from |investing |activities.
3. |Mention |repurchase/issuance |of |debt |and |equity |and |paying |out |dividends |to |arrive |at |cash |flow |
from |financing |activities.
4. |Adding |cash |flows |from |operations, |cash |flows |from |investments, |and |cash |flows |from |financing |
gets |you |to |total |change |of |cash.
5. |Beginning-of-period |cash |balance |plus |change |in |cash |allows |you |to |arrive |at |end-of-period |cash |
balance.
Cash |from |investment |activities |- |VERIFIED |ANSWER✔✔--Cash |related |to |investments |in |the |business |
(i.e., |additional |capital |expenditures) |or |divesting |businesses |(sale |of |assets). |
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with correct answers
| |
What |are |the |3 |financial |statements? |- |VERIFIED |ANSWER✔✔-cash |flow |statement, |income |
statement, |and |the |balance |sheet.
How |are |the |3 |financial |statements |linked? |OR |walk |me |through |three |financial |statements |- |VERIFIED
|ANSWER✔✔-"The |three |financial |statements |are |the |income |statement, |balance |sheet, |and |
statement |of |cash |flows. |
The |income |statement |is |a |statement |that |illustrates |the |profitability |of |the |company. |It |begins |with |
the |revenue |line |and |after |subtracting |various |expenses |arrives |at |net |income. |The |income |statement |
covers |a |specified |period |like |quarter |or |year. |
Unlike |the |income |statement, |the |balance |sheet |does |not |account |for |the |entire |period |and |rather |is |
a |snapshot |of |the |company |at |a |specific |point |in |time |such |as |the |end |of |the |quarter |or |year. |The |
balance |sheet |shows |the |company's |resources |(assets) |and |funding |for |those |resources |(liabilities |and
|stockholder's |equity). |Assets |must |always |equal |the |sum |of |liabilities |and |equity. |
Lastly, |the |statement |of |cash |flows |is |a |magnification |of |the |cash |account |on |the |balance |sheet |and |
accounts |for |the |entire |period |reconciling |the |beginning |of |period |to |end |of |period |cash |balance. |It |
typically |begins |with |net |income |and |is |then |adjusted |for |various |non-cash |expenses |and |non-cash |
income |to |arrive |at |cash |from |operating. |Cash |from |investing |and |financing |are |then |added |to |cash |
flow |from |operations |to |arrive |at |net |change |in |cash |for |the |year."
Balance |Sheet |(big |picture) |- |VERIFIED |ANSWER✔✔-financial |condition |at |one |point |in |time
Assets= |Liability |+ |Shareholder's |Equity
Income |Statement |(big |picture) |- |VERIFIED |ANSWER✔✔-profitability |over |time
Net |Income |= |Revenue |- |Expenses
,Relate |Balance |Sheet |to |Income |Statement |- |VERIFIED |ANSWER✔✔--Net |income |comes |from |income |
statement |
-Appears |as |retained |earnings |on |Balance |sheet |in |equity |section
Cash |Flow |Statement |(big |picture) |- |VERIFIED |ANSWER✔✔-changes |in |cash |over |period |of |time
Why |is |the |cash |flow |statement |important |and |how |does |it |compare |to |the |income |statement? |- |
VERIFIED |ANSWER✔✔-- |Income |statement |accounting |uses |what |is |accrual |accounting-- |record |
revenue |when |earned |and |expenses |when |incurred.
Pros: |Accrual |method= |more |accurate |picture |of |the |companies |profitability. |
Cons: |More |easily |to |manipulate |accounting |profits |than |cash |profits.
Cons: |Must |see |amount |of |cash-- |not |having |a |handle |on |cash |can |potentially |make |even |a |healthy |
company |go |bankrupt.
-Solution: |analyze |both, |they |should |corroborate.
What |does |balance |sheet |tell |us? |- |VERIFIED |ANSWER✔✔-dollar |amounts |of |a |company's |assets, |
liabilities, |and |owner's |equity
Diff |b/w |debt |and |equity |- |VERIFIED |ANSWER✔✔-Debt- |take |out |loans, |fixed |payment, |the |owner |of |
debt |has |first |priority |for |repayment
Equity- |shareholder |now |owns |part |of |the |business, |likely |more |expensive |than |debt, |not |first |priority
|of |repayment
Three |sections |of |a |cash |flow |statement |- |VERIFIED |ANSWER✔✔-Operating
Financing
Investing
Working |Capital |assets |examples |- |VERIFIED |ANSWER✔✔-accounts |receivable, |inventory, |prepaid |
expenses, |etc.
, Cash |from |operating |activities |- |VERIFIED |ANSWER✔✔-Determine |from |2 |methods: |direct |and |indirect
Indirect(super |common)- |The |indirect |method |starts |with |net |income |and |includes |the |cash |effects |of |
transactions |involved |in |calculating |net |income. |
Cash |from |operations= |Net |income |(from |income |statement)
|+ |period-on-period |increases |in |working |capital |liabilities |+ |non-cash |expenses |- |non-cash |gains |- |
period-on-period |increases |in |working |capital |assets |
-For |a |stable, |mature |company |a |positive |cash |flow |from |operating |activities |is |desirable
|Essentially, |cash |from |operating |activities |is |a |reconciliation |of |net |income |(from |the |income |
statement) |to |the |amount |of |cash |the |company |actually |generated |during |that |period |as |a |result |of |
operations |(think |cash |profits |vs |accounting |profits). |The |adjustments |to |get |from |accounting |profit |
(net |income) |to |cash |profits |(cash |from |operations) |are |as |follows:
Working |Capital |liabilities |examples |- |VERIFIED |ANSWER✔✔-accounts |payable, |accrued |expenses, |etc.
Walk |me |through |a |cash |flow |statement. |- |VERIFIED |ANSWER✔✔-1. |Start |with |net |income, |go |line |by
|line |through |major |adjustments |(depreciation, |changes |in |working |capital |and |deferred |taxes) |to |
arrive |at |cash |flows |from |operating |activities.
2. |Mention |capital |expenditures, |asset |sales, |purchase |of |intangible |assets, |and |purchase/sale |of |
investment |securities |to |arrive |at |cash |flow |from |investing |activities.
3. |Mention |repurchase/issuance |of |debt |and |equity |and |paying |out |dividends |to |arrive |at |cash |flow |
from |financing |activities.
4. |Adding |cash |flows |from |operations, |cash |flows |from |investments, |and |cash |flows |from |financing |
gets |you |to |total |change |of |cash.
5. |Beginning-of-period |cash |balance |plus |change |in |cash |allows |you |to |arrive |at |end-of-period |cash |
balance.
Cash |from |investment |activities |- |VERIFIED |ANSWER✔✔--Cash |related |to |investments |in |the |business |
(i.e., |additional |capital |expenditures) |or |divesting |businesses |(sale |of |assets). |
