Chapter 9 Flashcards
what are financial statements
reports prepared to summarize the changes resulting from business transactions that occur during an accounting period
-7th step
what are the four types of financial statements
- income statement
- balance sheet
- statement of changes in owner’s equity
- statement of cash flows
what are income statements
a report of the net income or net loss for a specific period sometimes called a profit-and-loss statement
what are the sections of an income statement
- three line heading
- the revenue
- the expenses
- the net income or net loss
what are the statements of changes in owner’s equity
a financial statement that summarizes changes in owner’s capital account as a result of business transactions during the period
what is needed to prepare the statement of changes in owner’s equity
- the work sheet
- the income statement
- the owner’s capital account in the general journal
what is a balance sheet
a report of the balances in the permanent accounts on a specific date
what is a report form
a balance sheet format that lists classifications one under another
what are statements of cash flows
a financial statement that summarizes the cash receipts and cash payments resulting from business activities during a period
what are ratio analysis
the process of evaluating the relationship between various amounts in the financial statements
what is a profitability ratio
a ratio used to evaluate the earnings performance of the business during the accounting period
what is return on sales
a ratio or percent that tells you how much profit you are receiving from your total revenue
how can you find your return on sales
net income divided by total revenue
what are current assets
assets that are used up or converted to cash during the normal operating cycle of the business (NOT INCLUDING EQUIPMENT)
what are current liabilities
debts of the business that must be paid within the next accounting period
what is working capital
the amount by which current assets exceed current liabilities
current assets - current liabilities = work capital
what is a liquidity ratio
a measure of the ability of a business to pay its current debts as they become due and to provide for an unexpected need for cash
what is a current ratio
the relationship between current assets and current liabilities
current assets divided by current liabilities
ex. 2:1 for every $1 in liabilities you have $2 in assets
what is a quick ratio
a measure of the relationship between short-term assets and current liabilities
total cash and receivables divided by the currents liabilities
