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Flashcards in Practice Exam Deck (38):
1

Which account is not closed at the end of the year?

Cost of Goods Sold

2

Appropriate way to present date for a balance sheet

December 31, 2010

3

The statement which shows the operating, investing, and financing activities of a business is the:

Statement of cash flows

4

What does the debt to total assets ratio measure?

Solvency

5

For information to be considered relevant, it should:

Be timely

Confirm or correct prior expectations

6

Which ratio measures the percentage of assets financed by creditors rather than by stockholders?

Debt to total assets ratio

7

If a company receives cash from a customer before performing services for the customer, then:

Assets increase and liabilities increase

8

Bucky Company purchases supplies on account

Increase assets, increase liabilties

9

What is the purpose of closing entries?

To transfer net income and dividends to retained earings

10

Accrued expense adjustment

expenses overstated

liabilities overstated

11

A company worried about their cash levels

LIFO

12

under the perpetual method, buyers include the shipping cost they pay in ______________

inventory

13

Prepaid expenses adjustment

Understated expenses

Overstated assets

14

Deferred revenue adjustments

understated net income

overstated liabilities

15

Depreciation used to

evenly expense benefit of having that asset

16

Earings per share and gross profit rate are_______________

profitability ratios

17

FOB shipping point, who pays?

Buyer

18

Inventory turnover ratio:

COGS / Average Inventory

19

Net Sales

Sales - Sales r&a - sales discounts = net sales

20

Gross profit

Sales - sales r&a - sales discounts - cost of goods sold = gross profit

21

Profitability ratios

How much money the company is making (EPS)

 

22

Liquidity ratios

Ability to pay short-term obligations

Currenr ratio, working capital

23

Solvency ratios

Ability ro survive

Debt to total assets ratio

24

Steps in determing inventory quantities

1. Take a physical inventory of goods on hand

2. Determine the ownership of goods in transit or on consignment

25

Primary basis of accounting for inventories:

Cost

26

Ending inventory under FIFO

closest to current value

27

Inventory under LIFO

farthest from current value

28

LIFO results in

lower net income

lower income taxes

29

Beginning Retained earnings to Ending formula

Beginning retained earnings

+ Net income

- Dividends

= Ending retained earnings

 

30

Working capital: analyzing liquidity

Positive working capital provides liquidity (can pay off short-term liabilities)

negative working capital - could go bankrupt; does not necessarily mean a company has liquidity problems

31

Current ratio: analyzing liquidity

Current ratio is a more reliable indicator of liquidity than working capital

97:1  - for every 1 dollar of current liabilities, they have 97 cents of assets

*could be innaccurate because it depends what kind of current assets it has - cash or inventory?

32

Debt to total assets ratio: analyzing solvency

Measures the amount of financing provided by creditors

Higher the percentage - more riskier the company is and may be unable to pay off debts

 

33

Free Cash Flow = 

Cash provided by operations

- capital expenditures

- cash dividends

= Free Cash Flow

34

Earings per share: analyzing profitability

Shows how much income is earned per each share of common stock

Can be used for year-to-year comparrisons but not accros companies

35

Gross Profit Rate: Analyzing Profitability

Measures how much a company profits off the sale of its inventory

Shows how much a company is able to mark up their inventory & how cheaply they can purchase the inventory

*Can compare year-to-year and within the same industry

36

Receiving a bank loan

Notes payable is creditted

37

Other revenues and gains

Interest revenue

Dividend revenue

Rent Revenue

Gain - from sale of PP&E

38

Other Expenses and Losses

Interest expense

Casualty losses - vandalism and accidents

Loss - from sale of PP&E

Loss - from strikes