Exam 2 - Study Guide.docx - EXAM 2 STUDY GUIDE Income...

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EXAM 2 STUDY GUIDE Income Statement (Statement of Operations or Statement of Earnings”: reports a company’s profit during a particular reporting period Profits = revenues/gains – expenses/losses Comprehensive Income: includes a few types of gains and losses excluded from the Income Statement Statement of Cash Flows: provides information about cash receipts and cash payments of a company during a particular period The difference between cash receipts and cash payments represents the change in cash for the period Required for each period when balance sheet and income statement are presented Provides information about the cash receipts and cash disbursements of an enterprise o Cash refers to cash plus cash equivalents Helpful in assessing future profitability, liquidity, and long-term solvency **** all activities need to add up to the change in cash IF THEY DO NOT YOU HAVE SCREWED UP Operating Activities: inflows and outflows of cash that results from activities reported in the income statement CASH INFLOWS o Sale of goods or services o Interest and dividends from investments CASH OUTFLOWS o Purchase of inventory o Salaries, wages, and other operating expense o Income taxes NET CASH FLOWS FROM OPERATING ACTIVITIES: difference between the inflows and outflows Indirect Method: net cash flow is derived indirectly by starting with reported net income and adding or subtracting items to convert that amount to a cash basis ** review slide 33 ch. 4 Investing Activities: inflows and outflows of cash related to the acquisition and disposition of 1. Long-lived assets used in the operations of the business 2. Investment assets ***(purchase and sale of inventories are NOT investing activities) CASH OUTFLOWS o Purchase of long-lived assets used in the business
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