Chapter 4 notes Understanding Financial Statements Includes the understanding of balance sheet and income statement through an analytical standpoint A classified balance sheet seperates assets and liabilities into sub groups. These groups are considered to help further analyze financial and business decisions Groups are known as long term liabilities and long term assets. Corporate social responsibility is the act of a company to assess and take responsibility for the company’s effect on the environment. Where company efforts promote positive social changes towards the environment. Companies invest in ethical and more environmentally friendly activities that would benefit them financially and socially Normal operating cycle: is the period
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They are long term rather than current. Example: Bonds payable--------15000 Notes Payable---------10000 Long term liabilities --------------25000 Presentation format: There are two main formats to present a classified balance sheet including account form and report form. An account form displays assets on the left and stockholders’ equity and liabilities on the right A report form displays assets on the top with liabilities below and equity below liabilities
Income Statement Classification and Analysis A single step income statement is the easiest form of displaying the income statement. It includes the sum of revenues minus the sum of expenses with a result of the net income.
A multistep income statement provides distinct subdivisions within revenue and expenses It provides more information for financial analysis and management decisions In the multi statement we obtain gross profit through subtracting net sales from cost of goods sold Net sales: includes the total sales with the calculation of returns and allowances and sales discounts Income tax is subtracted from income before tax to acquire net income …show more content…
It uses the process of division to demonstrate the rate of two different accounting numbers or accounts. Trend Analysis: compares ratio that is found in the ratio analysis over time. This demonstrates the trends found over the course of the company’s performance Benchmarking Analysis: compares ratio found in ratio analysis to its competitors
Working with the Balance Sheet Liquidity: how quickly a company can generate cash and pay short term liabilities Current ratio: current assets divided by current liabilities, it is a ratio that is compared to the number 1 to determine how much money they have to pay off short term obligations
current ratio=(current assets)/(current liab) Solvency: measures the ability of a company to pay off its long term obligations Measures how long a company can survive long term A company must be liquid before it is solvent Debt to asset ratio: measures the risk of the company. It analyzes the factors of solvency by dividing total liabilities to total assets debt to asset ratio= (total liab)/(total
They are long term rather than current. Example: Bonds payable--------15000 Notes Payable---------10000 Long term liabilities --------------25000 Presentation format: There are two main formats to present a classified balance sheet including account form and report form. An account form displays assets on the left and stockholders’ equity and liabilities on the right A report form displays assets on the top with liabilities below and equity below liabilities
Income Statement Classification and Analysis A single step income statement is the easiest form of displaying the income statement. It includes the sum of revenues minus the sum of expenses with a result of the net income.
A multistep income statement provides distinct subdivisions within revenue and expenses It provides more information for financial analysis and management decisions In the multi statement we obtain gross profit through subtracting net sales from cost of goods sold Net sales: includes the total sales with the calculation of returns and allowances and sales discounts Income tax is subtracted from income before tax to acquire net income …show more content…
It uses the process of division to demonstrate the rate of two different accounting numbers or accounts. Trend Analysis: compares ratio that is found in the ratio analysis over time. This demonstrates the trends found over the course of the company’s performance Benchmarking Analysis: compares ratio found in ratio analysis to its competitors
Working with the Balance Sheet Liquidity: how quickly a company can generate cash and pay short term liabilities Current ratio: current assets divided by current liabilities, it is a ratio that is compared to the number 1 to determine how much money they have to pay off short term obligations
current ratio=(current assets)/(current liab) Solvency: measures the ability of a company to pay off its long term obligations Measures how long a company can survive long term A company must be liquid before it is solvent Debt to asset ratio: measures the risk of the company. It analyzes the factors of solvency by dividing total liabilities to total assets debt to asset ratio= (total liab)/(total