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Financial Statements Cheat Sheet (DRAFT) by

Introduction to Financial Accounting

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Forms of Business

1. Sole Prop
2. Partne­rship
3. Corpor­ation
Tax advantages
Tax advantages
Higher taxes
Easily formed
Skill of owners
Complex to organize
Owner control
Shared control
Easy transfer control
Personal liability
Personal liability
Limited liability
Limited life
Limited life
Easier to raise money

Stat­ement of Earnings = Income Statem­ent

How well a business performs. Profit and loss.
Net Income = Revenue
- Expenses
Rev = asset (cash) a company gets for a good or service. Recorded at delivery to customer.
Exp = cost of assets used or liabil­ities created during operat­ions.

Stat­ement of Cash Flows

Changes in cash over time. In/out­flows & related to:
Oper­ating
Inve­sting
Fina­ncing
Running the business
Buy/sell LTA to run ops
Get capital to run business
Acc Rec (income)
Buy/sell P, P & E
Issuing CS, Bonds, Bank invests
Acc Pay (services, wages)
Lending $ (loans)
Pay out Divs, Retire (pay back) Debt
SCF informs investors & creditors and assess company's:
- Ability to produce future net cash inflows
- Ability to meet obliga­tions and pay dividends
- Need for external financing
- Reasons for diffs btn NI & cash receipts
- SFP eval of effects of cash & noncash I & F transa­ctions.

Cash vs Accrual Accoun­ting

Cash Basis
Accrual Basis
= Rev recorded when cash rece­ived
= Rev recog when earned
= Exp recorded when cash paid
= Exp recog when incu­rred

Accrual Basis Accoun­ting

Peri­odi­city, Revenue Recogn­ition Principle, Matching Concept
- Done at end of accounting period, more meaningful compar­isons btn companies & across time, predictive of future income
- Impacts 1(+) income statement account and 1 SFP account (not Cash Flow statement)
ACCRUED REVENUE = earned Rev, no cash received. Adj needed: record Rev & in A (AR). If not done: unders­tated A (AR), Rev, NI, Profit
ACCRUED EXPENSE = incurred Exp, no cash is paid. Adj needed: record Exp & in L (AP). If not done: unders­tated L (AP), Exp, overstated NI, SE, Profit
UNEARNED REVENUE = receive cash (in A), service not done (de L). Adj needed: record Rev & de L (unearned Rev). If not done: overstated L, unders­tated Rev, NI, SE, Profit
PREPAID EXPENSE = cash is paid (de A, cash), service not received (in A, prepaid exp). Adj needed: record Exp & de A (prepaid Exp). If not done: overstated A, NI, SE, Profit, unders­tated Exp.
Revenue Recogn­ition can occur when the Rev and Exp is reliably measurable and the following has been transf­erred: managerial control, risks, economic benefits

Nature of Invent­ory

MERC­HAN­DISER = purchase inv ready to sell
MANU­FAC­TURER = Raw M-> WIP -> Fin Goods
Inventory = Asset, Expense = COGS
PERP­ETUAL INV SYSTEM = cont updated, records Rev & Cost at same time, more expensive, better for decisi­on-­making
PERIODIC INV SYSTEM = balance prod at end of accounting period w/ physical count, est using gross profit method, cheaper
Analyzing Inv: 2 main KPI = GP Ratio & Inv Turnover Ratio
 

Stat­ement of Financial Position

Balances what co has with what it owes at specific point in time
Assets =
Liab­ili­ties
+ Shareh­older's Equity
Resources owned or controlled by company
Obliga­tions incurred & need to be settled. Creditor's claim
Owners' residual interest in the company
CURR­ENT
CURR­ENT
Common Shares
Cash, supplies
Salaries
Retained Earnings
Accounts Receivable
Accounts Payable
- Revenue
Prepaid rent/ins
Unearned Revenue
- Expense
NON CURRENT
NON CURRENT
- Dividends
LTI (P, P & E)
Loans
Intangible (e.g. patent)
Notes, Bonds Payable

Stat­ement of Changes in Equity

How much income was kept and how much was given to owners over a period of time
Retained Earnings (end) = RE (start) + Net Income - Divide­nds

Defi­nit­ions

Acco­unt = records of in's & de's in each element of SFP
Net Income = Income from Ops - (Non-op Rev + Exp) - Income tax
Cost in Year = Inv(s) + Exp(net)
COGS = Inv(s) + Exp(net) - Inv(end)
Gross Profit (Margin) = Net Sales (Revenue) - Cost of Goods Sold
Income from Ops = Gross Margin - Op Exps
Cross Sectional Analysis = compares one corpor­ation to another & to industry averages
Time series (Trend) Analysis = compares a corpor­ation across time
Hori­zontal Analysis = SFP items are expressed as % of base yr (shows trends in time)
Vertical Analysis = SFP items are expressed as % of largest amount on SFP

Changes in SFP Accounts

Clas­sif­ica­tion
Cash Effect
SFP Affected
Exam­ple
Operating
Inflow (+)
de CA
Collect AR
  
in CL
Unearned rev
  
in RE
Cash sale
 
Outflow (-)
in CA
Buy inv
  
de CL
Pay AP
  
de RE
Pay int
Investing
Inflow (+)
de LTA
Sell equip
 
Outflow (-)
in LTA
Buy equip
Financing
Inflow (+)
in LTL
Issue debt
  
in SE
Issue CS
 
Outflow (-)
de LTL
Repay debt
  
de SE
Pay Div
NC I & F
Inflow (+)
NC A
Deprec Exp
 
Outflow (-)
NC Rev
Cash Flows Impact SFP
in CASH = in L + in SE + de NCA
de CASH = de L + de SE + in NCA

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