Week 3

Question 1

What is Capital

Answer 1

Money Invested by the Owner(s)

Question 2

What is the Profit Equation

Answer 2

Income - Expenses

Question 3

What are the Steps of an Income Statement

Answer 3

Name of Company | Date of Statement Period

Revenue - COGS = Gross Profit

Gross Profit - Operating Expenses = Net Operating Income

Net Operating Income - Interest Expense = EBT

EBT - Income Taxes = NET INCOME (EAT)

Question 4

What does COGS stand for

Answer 4

Cost of Goods Sold

Question 5

What is the Equation for COGS

Answer 5

Beginning Inventory + Purchases - Ending Inventory

Question 6

What does EBITDA stand for

Answer 6

Earning Before Interest, Tax, Depreciation and Amortization

Question 7

What’s another way of saying Net Operating Income

Answer 7

EBITDA

Question 8

What’s another way of saying EBITDA

Answer 8

Net Operating Income

Question 9

What does EAT stand for

Answer 9

Earnings After Tax

Question 10

What does the A stand for in EBITDA

Answer 10

Amortization

Question 11

What is the difference between Depreciation and Amortization

Answer 11

Tangible and Intangible assets respectively

Question 12

What is Cash-Based Transaction Recognition

Answer 12

Income is counted when physically collected or given

Question 13

What is Accrual-Based Transaction Recognition

Answer 13

Counted when earnt, regardless of whether receipt is in arrears or advance

Question 14

What is considered for Depreciation

Answer 14

Cost (or Fair Value), Useful Life, Residual Value, Depreciation Method

Question 15

What is the Residual Value

Answer 15

Value of an Asset after the useful life or lease term

Question 16

What are the 3 Depreciation methods

Answer 16

Straight-Line, Accelerated Depreciation, and Units of Productions

Question 17

What’s another name for Accelerated Depreciation

Answer 17

Reducing Declining Balance

Question 18

What is Fair Value

Answer 18

Valuation of an Asset or Liability based on its characteristics compared to the market

Question 19

What is the Equation for Calculating Annual Depreciation

Answer 19

Cost (or Fair Value) - Residual Value = Depreciable Amount

Question 20

What is the Depreciable Amount

Answer 20

Estimated value that an asset will depreciate

Question 21

What is the Straight-Line Depreciation Method

Answer 21

Depreciable amount split evenly over useful life of an Asset

Question 22

What is the Accelerated Depreciation Method

Answer 22

Depreciation expenses are higher in the early years of an Assets life

Question 23

What is the Units of Production Depreciation Method

Answer 23

Based on the relationship between the production achieved in a period and the total expected production within the lifetime of the Asset

Question 24

What are the 3 Methods to Calculate the Cost of Inventories

Answer 24

First in, First out (FIFO), Last in, First out (LIFO), and Weighted Average Cost (AVCO)

Question 25

What is Weighted Average Cost in regards to Inventories

Answer 25

Inventories entering the business lose their separate identity and get grouped together

Question 26

What are the Uses of the Income Statement

Answer 26

Provides information; - On how effective the business has been in generating wealth - On how the Profit was made - In the Value of all Equity Accounts connected to a company's Shareholders Ending Balance of the Income Statement is used for the Balance Sheet

Question 27

What are the Steps of the Statement of Owners Equity

Answer 27

Name of Company | Date of Statement Period Opening Balance (oe) + Profit During the Period (EAT from Income Statement) + Owner's Contributions During the Period - Owner's Drawings During the Period = Ending Balance of Owner's Equity (oe)

Question 28

What does oe Stand for in the Statement of Owners Equity

Answer 28

Owner's Equity