Financial Statements Cheat Sheet, Cheat Sheet of Financial Accounting

Download Financial Statements Cheat Sheet and more Cheat Sheet Financial Accounting in PDF only on Docsity! Forms of Business 1. Sole Prop 2. Partne ​rship 3. Corpor ​ation Tax advantages Tax advantages Higher taxes Easily formed Skill of owners Complex to organize Owner control Shared control Easy transfer control Personal liability Personal liability Limited liability Limited life Limited life Easier to raise money Stat ​ement of Earnings = Income Statem ​ent How well a business performs. Profit and loss. Net Income = Revenue - Expenses Rev = asset (cash) a company gets for a good or service. Recorded at delivery to customer. Exp = cost of assets used or liabil ​ities created during operat ​ions. Stat ​ement of Cash Flows Changes in cash over time. In/out ​flows & related to: Oper ​ating Inve ​sting Fina ​ncing Running the business Buy/sell LTA to run ops Get capital to run business Acc Rec (income) Buy/sell P, P & E Issuing CS, Bonds, Bank invests Acc Pay (services, wages) Lending $ (loans) Pay out Divs, Retire (pay back) Debt SCF informs investors & creditors and assess company's: - Ability to produce future net cash inflows - Ability to meet obliga ​tions and pay dividends - Need for external financing - Reasons for diffs btn NI & cash receipts - SFP eval of effects of cash & noncash I & F transa ​ctions. Cash vs Accrual Accoun ​ting Cash Basis Accrual Basis = Rev recorded when cash rece ​ived = Rev recog when earned = Exp recorded when cash paid = Exp recog when incu ​rred Accrual Basis Accoun ​ting Peri ​odi ​city, Revenue Recogn ​ition Principle, Matching Concept - Done at end of accounting period, more meaningful compar ​isons btn companies & across time, predictive of future income - Impacts 1(+) income statement account and 1 SFP account (not Cash Flow statement) ACCRUED REVENUE = earned Rev, no cash received. Adj needed: record Rev & in A (AR). If not done: unders ​tated A (AR), Rev, NI, Profit ACCRUED EXPENSE = incurred Exp, no cash is paid. Adj needed: record Exp & in L (AP). If not done: unders ​tated L (AP), Exp, overstated NI, SE, Profit UNEARNED REVENUE = receive cash (in A), service not done (de L). Adj needed: record Rev & de L (unearned Rev). If not done: overstated L, unders ​tated Rev, NI, SE, Profit PREPAID EXPENSE = cash is paid (de A, cash), service not received (in A, prepaid exp). Adj needed: record Exp & de A (prepaid Exp). If not done: overstated A, NI, SE, Profit, unders ​tated Exp. Revenue Recogn ​ition can occur when the Rev and Exp is reliably measurable and the following has been transf ​erred: managerial control, risks, economic benefits Nature of Invent ​ory MERC ​HAN ​DISER = purchase inv ready to sell MANU ​FAC ​TURER = Raw M-> WIP -> Fin Goods Inventory = Asset, Expense = COGS PERP ​ETUAL INV SYSTEM = cont updated, records Rev & Cost at same time, more expensive, better for decisi ​on- ​making PERIODIC INV SYSTEM = balance prod at end of accounting period w/ physical count, est using gross profit method, cheaper Analyzing Inv: 2 main KPI = GP Ratio & Inv Turnover Ratio