0
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 is the journal entry to record receipts from customers?
[Debit] Cash / bank xxxx
[Credit] Accounts receivable xxxx
Why would one restate a financial statement?
One would restate a financial statement is, for example, new information comes to light after the financial statement was first produced. Sometimes accounting rules change and to allow comparison with accounts done under the new rules, previous accounts are restated to comply with the new rules.
Why do many practices send out remainder statements than standard statements?
Whay is the difference between remainder statement and standard statements?
Why miscellaneous expenses treated on asset side?
Expenses are listed on the "Asset" side because the expenses effect Revenue (or income). Because Income is an Owners Equity account and is increased with a credit, expenses must be listed in the debit column. Also remember the accounting equation;
Assets = Liabilities + Owners Equity (Stockholders Equity)
The short answer, you want to deduct all your expenses from your equity (revenue account), the only way you can do that is to list expenses on the asset side, if you listed them in liabilities you would have to "Add" the to your revenue (equity account) and you would not get an accurate Revenue amount.
When you pay an expense you credit the amount of cash at the same time you debit the expense. When closing out your accounts you can then list expenses on the income statement and it will decrease revenue because Assets - Owners Equity = Liabilities. This is true with all expenses, not just Miscellaneous. Basically, it keeps the accounting equation in balance.
What does a statement of cash flows show?
A statement of cash flows is also called a cash flow statement. The statement of cash flows is a cash basis report that shows the inflows and outflows of cash for the operating, investing and financing resources of a business.
How is discount allowed treated in the trading and profit andloss account?
Discounts are allowed in the trading and loss accounts, because the products are not in brand new condition. This allows an amount of money to be taken off so that the item is discounted.
Cash is an asset, shown on a company's balance sheet.
Is gross profit same as operating profit?
Gross profit and operating profits are two different values as gross profit only cater direct expenses to produce goods while operating profit is calculated after deducting indirect expenses and selling and administration overall called operational expenses to arrive at operating profit
Example:
Sales xxxx
Less:Purchases xxxx
Gross Profit xxxx
Less:
Selling Expenses xxxx
Admin Expenses xxxx
other expenses xxxx
Operating Profit xxxxx
If there is no selling, admin or other expenses then gross profit and operating profit will be same.
What financial statement is concerned with the company at a point in time?
This relates to a company's balance sheet (aka statement of financial position). The balance sheet provides, in essence, a "snapshot" of a company at a point in time.
This differs from a statement of cash flows, or an income statement, both of which essentially show the events or transactions of a company that occurred during a certain period of time.
Why is to much liquidity not good thing?
Liquidity is itself a good thing but too much of everything is not good same goes with too much liquidity as it is known fact that money has it's opportunity cost and if company has too much liquidity cash available without any use for the specific time period, that portion of money is loosing opportunity earn interest on that amount for that specific period of time or may be that money can be utilized for more profitable investing opportunities.
That's why it is the responsibility of financial manager to determine the optimal working capital requirement so that remaining amount could be spend on other areas.
Optimal capital means nor too much liquidity neither shortage of liquidity as both are bad for business.
How does a company calculate their net cash flow?
How a company calculates their net cash flow is a complex calculation. It has to take into account all outgoings including taxes and all money being received.
Is debenture interest paid shown in balance sheet?
if Debenture interest is paid already then it will only show in income statement while if debenture interest is payable in future then it will only comes balance sheet, while if part of interest paid and part of interest payable then portion of paid amount will be shown in income statement while remaining amount will be shown in balance sheet as liability
How do the formulas differ for contribution margin per unit and contribution margin ratio?
Contribution margin per unit = Contribution margin / number of units of products
Contribution margin ratio = Contribution margin / Net sales
The formula is different for both situations because contribution margin per unit calculates the contribution margin for one unit of product while contribution margin ratio calculates the contribution margin for total overall sales as overall sales may be included different mix of products with diff rent fixed and variable costs that's why both of these are calculated separately
Is capital considered owners equity or an asset?
Capital is the amount contributed by company's owners toward company that's why it is a liability of company to payback on occasion of dissolution that;s why it is treated as owner's equity and comes under liability side of balance sheet and not as an asset of company.
is the value of an entity's assets less the value of its liabilities, often in relation to open-end or mutual funds
Where does interest expense in the income statement?
Interest expense is shown at debit side of income statement because it is an expense for business.
How do you calculate wacc using financial statements?
- Identify every source of capital financing, including: (a) each type of debt and (b) each class of stock.
- Determine the market value of each source of capital. If a source of capital has no market value, then estimate its present value. Denote this market value as IVa for the first source of capital and IVb for the second, etc.
- Determine the return on each source of capital. For debt, this is pretax borrowing rate. For equity, it is the cost of equity capital rate using the capital asset pricing model or a multi-factor model. Denote each rate as ra, rb, etc.
- Now find the weighted average of the rates, based on the values of the different sources of capital. Here's the formula if you have two sources of capital, "a" and "b."
WACC = [ra x IVa/(IVa+IVb)] + [rb x IVb/(IVa+IVb)]
How do you treat a purchase of a new component of a fixed asset?
As per IAS 16:
If purchase of component of fixed asset is major part of original asset or purchase of component increase the effectiveness or live of asset then it is treated as a part of original price and treated as asset.
If purchase of component is routine purchase for small repair etc then it is treated as revenue expense.
How is Free Cash Flow calculated?
Free cash flow is defined as the amount of cash available to a company's investors after the company has paid its bills. There are three different formulas for calculating free cash flow. The simplest one is Free Cash Flow = net cash flow from operations - capital expenditures. These figures can be obtained from the company's balance sheet.
What is the two methods of preparing trial balance?
A trial balance may be prepared according to either of the following two methods:
Total method:
If the total of debit sides of all accounts in the ledger is placed in one column of the list and similarly total of credit sides of all the accounts in the ledger is placed in another column of the list then list of total will be known to have been prepared with the total methods.
Balances method:
According to this system a trial balance is prepared on the basis of balances of accounts. It is based on the mathematical maxim that if equals are taken away from equals, results are equal. This method is simple and requires less work.
How can you use technical knowledge in correcting your balance sheet?
To use technical knowledge in correcting a balance sheet, the balance sheet is compared to past balance sheets. For example, in comparing liabilities, a total might be grossly higher or lower than in the past. This will notify the auditor that a miscalculation could have occurred in the liabilities section.
Which inventory gets into the balance sheets- opening or closing inventory?
Since it is the balance sheet, which is generally prepared at the "end" of a financial period, it would be your closing inventory that goes onto the balance sheet.
Once you have made all your adjusting entries and closing of accounts you prepare a Post Closing Trial Balance to check that all accounts remained balance. Since it is the "end" of the year and you are "closing" your books for the Fiscal Year, all adjusting entries are made, this includes taking inventory to get your closing inventory which goes onto your Post Closing Trial Balance and on your Balance Sheet.
