WSP ACCOUNTING PRACTICE FOR EXAMS
|QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT|
Walk me through the balance sheet. - ✔✔The balance sheet shows a company's
assets, liabilities, and equity sections at a specific point in time. The fundamental
accounting equation is: Assets = Liabilities + Shareholders' Equity. The assets belonging
to a company must have been funded somehow, so assets will always be equal to the
sum of liabilities and equity.
Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being
assets that can be converted into cash within a year, such as cash itself, along with
marketable securities, accounts receivable, prepaid expenses, and inventories. "Long-
Term Assets" include property, plant, and equipment (PP&E), intangible assets,
goodwill, and long-term investments.
Liabilities Section: Liabilities are listed in the order of how close they're to coming due.
"Current Liabilities" include accounts payable, accrued expenses, and short-term debt,
while "Long-Term Liabilities" include items such as long-term debt, deferred revenue,
and deferred income taxes.
Shareholders' Equity Section: The equity section consists of common stock, additional
paid-in capital (APIC), treasury stock, and retained earnings.
Could you give further context on what assets, liabilities, and equity each represent? -
✔✔Assets: Assets are resources with economic value that can be sold for money or
bring positive monetary benefits in the future. For example, cash and marketable
securities are a store of monetary value that can be invested to earn interest/returns,
accounts receivable are payments due from customers, and PP&E is used to generate
cash flows in the future - all representing inflows of cash.
,Liabilities: Liabilities are unsettled obligations to another party in the future and
represent the external sources of capital from third-parties, which help fund the
company's assets (e.g., debt capital, payments owed to suppliers/vendors). Unlike
assets, liabilities represent future outflows of cash.
Equity: Equity is the capital invested in the business and represents the internal sources
of capital that helped fund its assets. The providers of capital could range from being
self-funded to outside institutional investors. In addition, the accumulated net profits
over time will be shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? (Assets) -
✔✔Current Assets (Listed in Order of Liquidity)
Cash & Cash Equivalents This line item includes cash itself and highly liquid, cash-like
investments, such as commercial paper and short-term government bonds.
Marketable Securities Marketable securities are short-term debt or equity securities
held by the company that can be liquidated to cash relatively quickly.
Accounts Receivable A/R refers to payments owed to a business by its customers for
products and services already delivered to them (i.e., an "IOU" from the customer).
Inventories Inventories are raw materials, unfinished goods, and finished goods waiting
to be sold and the direct costs associated with producing those goods.
Prepaid Expenses Prepaid expenses are payments made in advance for goods or services
expected to be provided on a later date, such as utilities, insurance, and rent.
Non-Current Assets Property
,Plant & Equipment ("PP&E") Fixed assets such as land, buildings, vehicles, and
machinery used to manufacture or provide the company's services and products.
Intangible Assets Intangible assets are non-physical, acquired assets such as patents,
trademarks, and intellectual property ("IP").
Goodwill An intangible asset created to capture the excess of the purchase price over
the fair market value ("FMV") of an acquired asset.
What are the typical line items you might find on the balance sheet? (Liabilities) -
✔✔Current Liabilities (Listed in Order of Liquidity)
Accounts Payable A/P represents unpaid bills to suppliers and vendors for
services/products already received but were paid for on credit.
Accrued Expenses Accrued expenses are incurred expenses such as employee
compensation or utilities that have not been paid, often due to the invoice not being
received.
Short-Term Debt Debt payments coming due within twelve months, with the current
portion of long-term debt also included.
Non-Current Liabilities
Deferred Revenue Unearned revenue received in advance for goods or services not yet
delivered to the customer (can be either current or non-current).
Deferred Taxes Tax expense recognized under GAAP but not yet paid because of
temporary timing differences between book and tax accounting.
, Long-Term Debt Long-term debt is any debt capital with a maturity exceeding twelve
months.
Lease Obligations Leases are long-term contractual agreements, allowing a company to
lease PP&E for a specific time period in exchange for regular payments
What are the typical line items you might find on the balance sheet? (SE) -
✔✔Common Stock Common stock represents a share of ownership in a company and
can be issued when raising capital from outside investors in exchange for equity.
Additional Paid-In Capital ("APIC") APIC represents the amount received in excess over
the par value from the sale of preferred or common stock.
Preferred Stock Preferred stock is a form of equity often considered a hybrid
investment, as it has features of both common stock and debt.
Treasury Stock Refers to shares that had been previously issued but were repurchased
by the company in a share buyback and are no longer available to be traded.
Retained Earnings (or Accumulated Deficit) Represents the cumulative amount of
earnings since the company was formed, less any dividends paid out.
Other Comprehensive Income ("OCI") OCI consists of foreign currency translation
adjustments and unrealized gains or losses on available for sale securities.
Walk me through the cash flow statement - ✔✔There are two methods by which
cash flow statements are organized: Direct and Indirect.
|QUESTIONS WITH ANSWERS VERIFIED 100%
CORRECT|
Walk me through the balance sheet. - ✔✔The balance sheet shows a company's
assets, liabilities, and equity sections at a specific point in time. The fundamental
accounting equation is: Assets = Liabilities + Shareholders' Equity. The assets belonging
to a company must have been funded somehow, so assets will always be equal to the
sum of liabilities and equity.
Assets Section: Assets are organized in the order of liquidity, with "Current Assets" being
assets that can be converted into cash within a year, such as cash itself, along with
marketable securities, accounts receivable, prepaid expenses, and inventories. "Long-
Term Assets" include property, plant, and equipment (PP&E), intangible assets,
goodwill, and long-term investments.
Liabilities Section: Liabilities are listed in the order of how close they're to coming due.
"Current Liabilities" include accounts payable, accrued expenses, and short-term debt,
while "Long-Term Liabilities" include items such as long-term debt, deferred revenue,
and deferred income taxes.
Shareholders' Equity Section: The equity section consists of common stock, additional
paid-in capital (APIC), treasury stock, and retained earnings.
Could you give further context on what assets, liabilities, and equity each represent? -
✔✔Assets: Assets are resources with economic value that can be sold for money or
bring positive monetary benefits in the future. For example, cash and marketable
securities are a store of monetary value that can be invested to earn interest/returns,
accounts receivable are payments due from customers, and PP&E is used to generate
cash flows in the future - all representing inflows of cash.
,Liabilities: Liabilities are unsettled obligations to another party in the future and
represent the external sources of capital from third-parties, which help fund the
company's assets (e.g., debt capital, payments owed to suppliers/vendors). Unlike
assets, liabilities represent future outflows of cash.
Equity: Equity is the capital invested in the business and represents the internal sources
of capital that helped fund its assets. The providers of capital could range from being
self-funded to outside institutional investors. In addition, the accumulated net profits
over time will be shown here as "Retained Earnings."
What are the typical line items you might find on the balance sheet? (Assets) -
✔✔Current Assets (Listed in Order of Liquidity)
Cash & Cash Equivalents This line item includes cash itself and highly liquid, cash-like
investments, such as commercial paper and short-term government bonds.
Marketable Securities Marketable securities are short-term debt or equity securities
held by the company that can be liquidated to cash relatively quickly.
Accounts Receivable A/R refers to payments owed to a business by its customers for
products and services already delivered to them (i.e., an "IOU" from the customer).
Inventories Inventories are raw materials, unfinished goods, and finished goods waiting
to be sold and the direct costs associated with producing those goods.
Prepaid Expenses Prepaid expenses are payments made in advance for goods or services
expected to be provided on a later date, such as utilities, insurance, and rent.
Non-Current Assets Property
,Plant & Equipment ("PP&E") Fixed assets such as land, buildings, vehicles, and
machinery used to manufacture or provide the company's services and products.
Intangible Assets Intangible assets are non-physical, acquired assets such as patents,
trademarks, and intellectual property ("IP").
Goodwill An intangible asset created to capture the excess of the purchase price over
the fair market value ("FMV") of an acquired asset.
What are the typical line items you might find on the balance sheet? (Liabilities) -
✔✔Current Liabilities (Listed in Order of Liquidity)
Accounts Payable A/P represents unpaid bills to suppliers and vendors for
services/products already received but were paid for on credit.
Accrued Expenses Accrued expenses are incurred expenses such as employee
compensation or utilities that have not been paid, often due to the invoice not being
received.
Short-Term Debt Debt payments coming due within twelve months, with the current
portion of long-term debt also included.
Non-Current Liabilities
Deferred Revenue Unearned revenue received in advance for goods or services not yet
delivered to the customer (can be either current or non-current).
Deferred Taxes Tax expense recognized under GAAP but not yet paid because of
temporary timing differences between book and tax accounting.
, Long-Term Debt Long-term debt is any debt capital with a maturity exceeding twelve
months.
Lease Obligations Leases are long-term contractual agreements, allowing a company to
lease PP&E for a specific time period in exchange for regular payments
What are the typical line items you might find on the balance sheet? (SE) -
✔✔Common Stock Common stock represents a share of ownership in a company and
can be issued when raising capital from outside investors in exchange for equity.
Additional Paid-In Capital ("APIC") APIC represents the amount received in excess over
the par value from the sale of preferred or common stock.
Preferred Stock Preferred stock is a form of equity often considered a hybrid
investment, as it has features of both common stock and debt.
Treasury Stock Refers to shares that had been previously issued but were repurchased
by the company in a share buyback and are no longer available to be traded.
Retained Earnings (or Accumulated Deficit) Represents the cumulative amount of
earnings since the company was formed, less any dividends paid out.
Other Comprehensive Income ("OCI") OCI consists of foreign currency translation
adjustments and unrealized gains or losses on available for sale securities.
Walk me through the cash flow statement - ✔✔There are two methods by which
cash flow statements are organized: Direct and Indirect.
