Accounting Reading Flashcards
(34 cards)
Gross Margin
Revenue - COGS
Basic Order of Income Statement
Revenue - Cogs = Gross Margin
Gross Margin - Operating Expenses = Operating Income (EBIT - Earnings Before Interest & Taxes)
Operating Income - Interest = EBT
EBT - Taxes = Net Income
What can cause differences between Net Income and actual cash?
- Installment Payments
- Prepaid Expenses
- Prepaid Services
- Monthly subscription / deferred revenue
Why is depreciation a non cash expense?
Reduces company taxes (income statement), but it doesn’t effect cash and is backed out of cash flow statement.
Deferred tax impact on income statement and cash floww
Show the entire tax expense on the income statement and on cash flow adjust the non cash portion
How to asset write downs produce tax savings?
They show up on income statement as loss
Stock based compensation effect on income statement, tax, and cash flow?
Shows up as an expense on income statement, reduces tax, but is a non cash transaction that gets back out
How does amortization effect income statement, tax, balance sheet, cash flow
(END KEY RULE 2)
Reduces income, reduces taxes, backed out of cash flow because non cash expense
Where are Depreciation and Amortization on income statement?
Embedded within cogs
Where is stock based compensation on income statement?
Embedded within operating expenses
2 Criteria for showing up on income statement
END KEY RULE 3
Current period and have an impact on tax
How does balance sheet link up to cash flow statement
Changes in accounts are tracked on B/S and put in SCF, and SCF calculates final cash amount which links up to cash amount on B/S
How does net income link to B/S
Net income falls within retained earnings section under the equity section of balance sheet
2 criteria for showing up on cash flow statement
Review Question 9
It affects net income but is a non cash transaction that needs to be adjusted for.
It does not effect net income but it was a cash transaction.
Cash based vs accrual accounting
With cash based accounting, sales can’t be recorded as revenue until cash is delivered, even if item changes hands.
With accruel accounting, you can record A/R and make a sale
Which financial statement has the correct value for depreceation?
Statement of cash flow show actual depreciation amount.
Income statement will embed or hide full depreciation amount.
Difference between A/P and accrued expenses (Review Question 16)
A/P is for invoices and specific things while accrued expenses is for monthly recurring items.
If you buy equipment for 100 and sell for 85 - what happens on income statement and SCF
Income statement decreases by 15 for loss on sale of equipment.
The 15 gets backed out SCF because it’s not like your actually losing 15 dollars in that moment - thus it’s a non cash expense.
How does interest income from investments effect income statement and SCF (end Conceptual Accounting Questions)
Interest Income earned on these investments will appear on the Income Statement and boost the company’s Pre-Tax Income, Net Income, and its Cash balance
Common Stock & Additional Paid-In Capital (APIC) on B/S
The value of shares issues - value of shares does not change with the market - this stays constant
Retained Earnings on B/S
Earnings after tax and dividends are paid out
Treasury Stock
End Key Rule 4
This item represents the cumulative value of shares the company has
repurchased from shareholders. Just like Common Stock & APIC, the values here are
based on the share prices at the time the company repurchased the shares. This value
does NOT change even if the company’s share price changes afterward.
What is CFO part of SCF derived from
Net income on income statement and accounts on balance sheet
How does CFI on SCF link to balance sheet
PPE / Long term assets