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Financial Statements
A financial statement is a record of the financial activities of a person or business entity where all related financial information are presented in an orderly manner and can be easily understood.
5,583 Questions
What are the two fundamental questions in dividend policy?
the amount of growth the firm considers optimal and determining the protion of earnings to be paid out
Current income = ending equity - opening equity
current income = 1.98 - 1.38
Current income = 0.6 million
Return on asset= profit margin × asset turnover
Return on equity= return on asset × equity multiplier
so, return on equity is more comprehensive
Income summary is a temporary adjusting account, which eliminates all the revenues and expenses (the temporary accounts) and transfers the effect (profit or loss) to the owner's capital capital account thereby increasing or decreasing it.
What are current year earnings on a balance sheet?
Current year earnings are the net income or loss of the business for the current year. This amount is the difference between all revenues and all expenses on the income statement. Current year earnings are presented on the balance sheet only until they are transferred to retained earnings.
Net Credit Loss demonstrates what happened to assets (ANR) and what billed to write-off. NCL is a dollar amount representing Gross Write-Off + Bankruptcy - Recoveries. (NCL = GWO + BK - REC).
Internal parties of a business means the management of business, management prepare the budgets for the business, in other words we can say that management recognizes the future transaction and estimates the monitory effect of these transaction,But the management prepares the budgets, only for internal use for this purpose the management adopts a system which is called management accounting information system and that is why they are interested in Accounting Information system. Sheraz Mansoor Nawanshehr Abbottabad (sherazmansoor@gmail.com)
What are the three types of appropriated retained earning accounts?
Stock buyback is one of the three types of appropriated retained earning accounts. Also, new product development and acquisitions are two other types of appropriated retained earning accounts.
What is the Journal entry for purchase of asset with proceeds of bank loan?
If you borrow the money and the bank pays the amount directly to the company (or person) in which you are buying the asset the from, depending on the asset the following entries will be made
Debit the related asset account and credit either accounts or notes payable. This transaction will NOT affect cash, as your books never see an actual transaction in the cash account.
The best example I can think to show this is the purchase of a vehicle for your business. Say you purchase the vehicle for $25,000 and the bank finances this amount.
Equipment - Vehicle (db) $25,000
Notes Payable (cr) $25,000
After reading the question again, I thought I should add this. Since the question is worded "proceeds of a bank loan" it implies that the company/person has already taken out the loan and has it recorded on the books. If this is the case then the cash is already received from the bank and therefore the transaction would be listed as a cash purchase. The initial recording of the loan would be a debit to cash and a credit to notes payable (note that NO interest would be recorded in the initial transaction as no interest would have accrued on the first day of the loan.) Any purchase made after this time would be recorded as a cash purchase.
Revenue is properly recognized?
Revenue is properly recognized as an income at the end of an accounting period. Any form of money received is regarded as revenue.
Will an adjusting entry ever affect the asset account called cash?
Adjusting entries never affect cash. The entry is entered to make sure that the books match what the cash balance says.
Depreciating asset is that asset which is utilizing by business in generating revenue and cost of asset is allocating to income statement through depreciation.
What does Contribution Format in cost accounting?
Contribution format informs the management that how much any product is contributing towards the recovery of fixed expenses.
Can Retained earnings best be described as undistributed profits?
YES, retained earnings is that portion of net income which is not available to distribute to owners or shareholders of business.
What will decrease a liability and increase a liability?
account payable paid-off by arranging a new loan.
Is cost of goods an asset or liability?
It's not really either. Cost if goods sold is an expense on the profit and loss.
What is the effect of closing stock on net profit?
A business remaining stock at the end of an accounting period is known as closing stock. It may include the finished goods, raw material and work in process and it is also deducted from the periods costs in the balance sheet. however sales in the trading a/c do have an effect on the gross profit and hence in the profit and loss a/c for the net profit. An increase or decrease in closing stock will have an effect on the net profit..if closing stock increase the gross profit will increse and vice versa. As the gross profit will increase the firm will able to deduct more expenses from it and hence the remaining will be the net profit.( increase)
The date of the CPA's opinion on the financial statements of his client is is?
the date of the completion of all important audit procedures.(Field work completed).
How are the errors that are not detected by the trial balance treated?
A trial balance only checks the sum of debits against the sum of credits. That is why it does not guarantee that there are no errors. The following are the main classes of error that are not detected by the trial balance:
- An error of original entry is when both sides of a transaction include the wrong amount. For example, if a purchase invoice for £21 is entered as £12, this will result in an incorrect debit entry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for £9 less, so the total of both columns will be £9 less, and will thus balance.
- An error of omission is when a transaction is completely omitted from the accounting records. As the debits and credits for the transaction would balance, omitting it would still leave the totals balanced. A variation of this error is omitting one of the ledger account totals from the trial balance.
- An error of reversal is when entries are made to the correct amount, but with debits instead of credits, and vice versa. For example, if a cash sale for £100 is debited to the Sales account, and credited to the Cash account. Such an error will not affect the totals.
- An error of commission is when the entries are made at the correct amount, and the appropriate side (debit or credit), but one or more entries are made to the wrong account of the correct type. For example, if fuel costs are incorrectly debited to the postage account (both expense accounts). This will not affect the totals.
- An error of principle is when the entries are made to the correct amount, and the appropriate side (debit or credit), as with an error of commission, but the wrong type of account is used. For example, if fuel costs (an expense account), are debited to stock (an asset account). This will not affect the totals.
- Compensating errors are multiple unrelated errors that would individually lead to an imbalance, but together cancel each other out
What ratios are useful in financial statement analysis?
There are a number of ratios I think are interesting, but generally I start with return on assets (ROA). Return on Assets is Net Income divided by Total Assets. So there's the most important piece of information from the income statement and the most important piece of information from the balance sheet.
Then I look at the ROA and how it compares to the industry benchmark and to previous periods. If the ROA is slipping, I look at the components that comprise ROA.
Net Profit Margin is Net Income/Sales
Total Asset Turnover is Sales/Total Assets
If those two items are multiplied, the Sales items would cancel out and you are left with Net Income/Total Assets. In other words, ROA is Net Profit Margin x Total Asset Turnover.
So if a company has a Return on Assets problem, it is a Net Profit Margin problem, a Total Asset Turnover Problem. So I check Net Profit Margin and Total Asset Turnover to try to isolate the problem quickly.
What is debit balance of profit and loss account?
Debit balance of Profit & Loss Account represents "Loss"
Activity Ratios or Efficiency Ratios are used to measure the effectiveness of a firm's use of resources. Good companies would always put their resources to optimum utilization. Better the activity or efficiency ratio, the better it is for the company and it means the company is utilizing its resources properly and effectively.
The ratios that come under this category are:
1. Average Collection Period
2. Degree of Operating Leverage
3. Days Sales Outstanding Ratio
4. Average payment period
5. Asset Turnover Ratio
6. Stock Turnover Ratio
7. Receivables Turnover Ratio
What are the proforma journal entries used under the percentage of completion method?
Pro forma journal entries are used in a certain percentage of the completion method. They are generally used for construction projects.
