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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 do you debit and credit when recording depreciation expense?
There are two ways to record depreciation. With and without using a contra t-account for accumulated depreciation.
Example
The company buys a machine for 100,000. The residual value is 0 and the expected economic lifetime is 10 years. Using straight line method this results in a yearly depreciation expense of 10,000.
Without a contra t-account
Depreciation expense machine debit 10,000; machines credit for 10,000.
At the end of (say) the third year, machines has a debit value of 70,000.
With a contra t-account
Depreciation expense machine debit 10,000; accumulated depreciation machines credit for 10,000.
At the end of (say) the third year, machines still has a debit value of 100,000. Accumulated depreciation machines has a credit value of 30,000. Jointly they show the net value (or book value) of 70,000, which is the same as when no contra t-account is used.
Depreciating assets over time causes the Accumulated Depreciation to go up with a credit entry. The debit is to depreciation expense.
What is the difference between retained earnings and reserve?
Retained earnings are current year profit and Reserves are allotted the amount from last year profits as reserves.
Cash budget determines how much cash is needed at what stage and plan the availability of cash in case of shortage and investment in case of excess cash.
How do you calculate the consignment stock?
consignment stock left unsold : ****
+ proportionate consignor's expenses : ****
+ non-selling expenses : ****
consignment stock : #### ----
What are the different types of Contingent Liabilities?
Common types of contingent liabilities include guarantees and the results of legal disputes. Guarantees may be given on behalf of an associate company, or as part of a larger deal (banks frequently give guarantees of various sorts as part of their business).
What is the order that the financial statements should be prepared?
the income statement is first, followed by the the statement of owner or stockholder's equity balance sheet, and last the cash flow statement.
1. Teeming and lading is method under which payment from one customer is allocated to other customer and to balance the accounts and avoiding any shortfall. The process is continued until it is discovered.
Which tangible fixed assets would not normally be depreciated?
Tangible fixed assets with an infinite life such as land do not need to be depreciated.
How do you record loan proceeds using cash basis acctg Debit Cash and Credit what?
If cash is received from debtors then accounts receivable will be credited otherwise to whom it is received will be credited.
When three or more accounts are required in one journal entry the entry is referred to as a?
Compound Entry
How does a payout of dividends effect the net income?
It shouldn't. Dividends are not considered an expense since stockholders are investing in the company. In return for investing, the company pays them but they are not employees.
How does the issuing of capital stock effect net income?
Somebody please correct me if I am wrong, but issuing capital stock increases total assets. If one considers total assets when calculating net income, any capital stock or additional paid in capital must be deducted from total assets in order to find net income.
Issuance of stock does not contribute to income from operations; it is a financing activity that contributes to total equity. Also, if there are dividend payments for the year, these outflows must be added to assets before arriving at net income.
What does a cash flow represents?
Cash flow is the movement of cash into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used
- to determine a project's rate of return or value. The time of cash flows into and out of projects are used as inputs in financial models such as internal rate of return, and net present value.
- to determine problems with a business's liquidity. Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.
- as an alternate measure of a business's profits when it is believed that accrual accounting concepts do not represent economic realities. For example, a company may be notionally profitable but generating little operational cash (as may be the case for a company that barters its products rather than selling for cash). In such a case, the company may be deriving additional operating cash by issuing shares, or raising additional debt finance.
- cash flow can be used to evaluate the 'quality' of Income generated by accrual accounting. When Net Income is composed of large non-cash items it is considered low quality.
- to evaluate the risks within a financial product. Eg matching cash requirements, evaluating default risk, re-investment requirements, etc.
What best exemplifies a contingency that is reported in the notes to the financial statements?
Estimated loss from an ongoing lawsuit
Where does accrued interest on notes receivable go on a balance sheet?
Accrued interest which is to be received within 12 months is a current asset.
How are variable expenses different from fixed expenses?
Variable expenses are those expenses which vary according to production level while fixed expenses are those expenses which have no effect of production level and remain same.
Does goodwill only appear on the consolidated balance sheet?
That is correct. Goodwill as an asset appears on the balance sheet of a consolidated company to represent any premium that the acquiring company paid for a subsidiary company that is in excess of the fair value of the company's net assets. Therefore, Goodwill would only show up on the consolidated balance sheet, as the subsidiary's net assets are not reflected on the acquiring company's balance sheet until the consolidation process.
