Wall Street Prep Exam Questions and Answers 2023

1. Assets: resources a company uses to operate its business includes cash, A/R, PP&E 2. Liabilities: represents the company's contractual obligations and includes A/P, debt, accrued expenses 3. Shareholder's equity: is the residual the value of the business available to the owners (shareholders) after debts have been paid off 4. Income statement: illustrates the profitability of the company over a specified period of time broad sense: shows revenue-expenses 5. Balance sheet: snapshot of the company economic resources and funding for those resources at a given point in time (A = L + SE) 6. Revenue: "top-line" represents the sale of goods and services it is recorded when earned (even though cash might not have been received at the time of transaction) 7. Expenses: netted against revenue to arrive at net income COGS (directly associate with good production), SG&A (indirectly associated with production), interest expense (expense related to paying debt holders periodic payments), taxes, depreciation expense (non-cash expense accounting for the use of PP&E, often imbedded within COGS and SG&A) 8. Net income: "bottom-line" revenue-expenses the profitability available to common shareholder's after debt payments have been made (interest expense) 9. EPS (earnings per share): portion of a company's profit allocated to each outstanding share of common stock EPS = (net income - dividends on preferred stock)/weighted average shares outstanding 10. Cash flow statement: While cash is not necessarily received when a sale occurs, the income statement still records the sale. As a result, the income statement captures all the economic transactions of the business. The cash flow statement is needed because the income statement uses what is called accrual accounting. In accrual accounting, revenues are recorded when earned regardless of when cash is received (revenue includes sales using cash and made on credit A/R) Since we also want to have a clear understanding of the cash position of a company, we need the statement of cash flows to reconcile the income statement to cash inflows and outflows. "cash position of the company" cash from operating activities, cash from investing activities, and cash from financ- ing activities 11. Cash from operating activities: mostly indirect method starts with net income and includes the cash effects of transactions involved in calculating net income. reconciliation of net income. Net income (income statement)