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Chapt. 12 study guide

by: Sophia Ronzetti

Chapt. 12 study guide Accounting 202

Sophia Ronzetti
ACCY 202

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All information for test 1 from Chapter 12 in J. Wild's Financial and Managerial Accounting book.
ACCY 202
Study Guide
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This 4 page Study Guide was uploaded by Sophia Ronzetti on Wednesday February 11, 2015. The Study Guide belongs to Accounting 202 at University of Mississippi taught by Taylor in Spring2015. Since its upload, it has received 198 views.

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Date Created: 02/11/15
Chap 12 All info is from Financial and Managerial Accounting Textbook l Statement of cash ows report in ows and out ows during a period of time Important for internal and external users who need this information to make decisions and want to assess the company s expense activities i cash ows are measured in both cash and cash equivalents if its not cash it must be readily convertible to cash or be close to maturity date so the value is not affected by interest rate changes ii classi cation of cash ows a operating activities transactions that determine net income ie production inventory purchases sale of goods collection of interest on loans etc b investing activities transactions that affect long term assets ie purchase and sale of long term assets lendingcollecting notes receivable c nancing activities transactions that affect long term liabilities and equity ie obtaining cash from issuing debt receivingdistributing cash to owners repaying borrowed amounts 1 Non cash investing and nancing investing or nancing activities that do no affect cash receipts or payments are not reported in any of the three cash ows ll Format of Statement of Cash Flows Cash ows from operating activities Cash ows from investing activities Cash ows from nancing activities Net increase decrease in cash Cash balance prior to period end Cash balance at current period end lll Preparing Statement of Cash Flows i compute net increase or decrease in cash ii compute net cash provided operating activities directindirect a direct method cash payments subtracted from cash receipts to determine net cash provided b indirect method reports net income and makes adjustments for cash in ows and out ows that affect net cash 1 adjustments for changes in non cash current assets and current liabilities decreases in noncash current assets are added to net income increases in noncash current assets are subtracted from net income 2 adjustments for changes in current liabilities increases in current liabilities are added to net income decreases in current liabilities are subtracted from net income 3 adjustments for operating items not using cash expenses with no cash out ows are added back revenues with no cash in ows are subtracted 4 adjustments for nonoperating items nancing investing nonoperating loses are added back nonoperating gains are subtracted iii compute net cash provided by investing activities identifying changes in all noncurrent asset accounts and current accounts for NR and investments in securities a reconstructed entries not actual entries made but they explain changes in accounts from comparative balance sheets ie increase in plant assets xx and increase in accumulated depreciatedyy Plant Assets xx Note Payable yy Cash xxyyzz This entry is then able to be reported in a note as Purchase of plant assets with issuance of notes 22 iv Compute net cash provided by nancing activities identifying changes in all noncurrent liability accounts a Reconstructed entry ie Note retired for XX amount in cash resulting in a gain of yy Notes Payable xx Gain on retirement yy Cash xxyyzz This entry can then be reported in the nancing section as Cash paid to retire notes 22 b analysis of equity transactions involving changes in equity accounts such as issuing common stock or paying cash dividends must be reported in the nancing section as well add all net totals together and check by adding to beginning cash balance to show it equals ending cash balance a Add operating investing nancing together to nd net increase in cash b Add net increase in cash to prior year ending balance and it should equal current year ending balance Chapter 13 All info is from Financial and Managerial Accounting Textbook Financial Statement Analysis uses generalpurpose nancial statements to make decisions This involves taking data from statements and transforming them into useful information including comparative statements purpose both internal and external users use this information to make better and more informed nancial and managerial decisions Building blocks a 906 Liquidity and ef ciency meet short term obligations and generate revenues Solvency generate future revenues and meet long term obligations Pro tability provide nancial rewards to attract and retain nancing Market prospects generate positive expectations for goods or services provided in the market information for analysis a b general purpose nancial statements these reports are used for gathering the data used by users income statement balance sheet statement of retained earnings cash ows and notes nancial reporting communication on nancial information used in making business decisions standards for comparisons a b c d intercompany company under analysis compares data to their own prior performance competitor competitors of a company can be used for comparisons industry company can compare their own data to industry statistics available guidelines general standard that are developed from experience can be used to compare data with tools for analysis a horizontal analysis used to compare things across time using side by side columns on a single statement called comparative i dollar changes analysis period amtbase period amt ii percent changes analysis pr amtbase pr amt base period amt x 100 iii trend analysis analysis period amtbase period amtx100 vertical analysis used to evaluate items or groups of items speci c to a base amount For a common size balance sheet the base amount is usually total assets i common size percent analysis amtbase amt x 100 ratio analysis ratios are used to nd trends they are usually future oriented and can be interrelated differently 2 These ratios determine liquidity m ef ciency i working capital current assets current liabilities ii current ratio current assetscurrent liabilities iii acidtest ratio cash short term investments current receivablescurrent liabilities iv accounts receivable turnover net sales average accounts receivable net v inventory turnover cogs average inventory vi days sales uncollected AR net net sales x 365 vii days sales in inventory ending inventorycogs x 365 viii total asset turnover net salesaverage total assets 2 These ratios determine solvency i debts and equity ratio total liabilitiestota equity ii times interest earned income before interest expense and income taxesinterest expense 1 these ratios determine pro tability I pro t margin net incomenet sales ii return on total assets net incomeaverage total assets a important to note pro t margin x total asset turnover return on total assets net income net sales x net sales av Total assets Net income Av total assets iii return on common stockholders equity net income preferred dividends average common stockholders equity these ratios determine market prospects iv price earning ratio market price per shareearning per share v dividend yield annual cash dividends per sharemarket price per share


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