Cash Flow Statement

Final Exam prep focus list-acct 1b by topic

Cash Flow Statement:

• Understand the primary purpose of the statement of cash flows.
• Know 3 categories of cash flow statement and meaning /significances of each categories,     Operating Activities, Investing Activities, and Financing Activities.
• Be able to compute cash provided (generated) and cash used for each of major activities in all 3 cash flow categories.
• Be able to prepare a partial cash flow statement in BOTH Direct and Indirect methods of preparing cash flow statement.
• Conceptual understanding of Increase or decrease of net cash provided/used by each of activities.
• General understanding of “non cash investing and financing activities” and its disclosure requirement on a financial statement.
• How do the following transactions impact on cash flow:

• sale of common stock.
• purchase of equipment.
• sale of land.
• issuance of long-term debt.
• inflows from revenue.
• inflows from sale of equipment.
• outflows for income taxes.
• outflows for wages.
• decrease in short-term notes payable.
• depreciation expense.
• decrease in inventory.
• loss on sale of equipment.

LT Debt, Bonds, Note:

• Understand advantages and disadvantages of issuing Stocks vs. Bonds in an organization, in other words, “Equity financing” vs. “Debt financing” options to an organization, its’ ups and downs.  
• What are “bonds” to a corporation? What are bonds to an investor?
• What types of bonds are available in our country? What do they mean: convertible bonds, term bonds, serial bonds, callable bonds, debenture bonds?
• Conceptual understanding of “Discounting” bonds issuance vs. “Premium” bonds issuance, what are those “discounts” and “premium” amounts meant to the bond issuer and bondholders?
• Accounting Journal entries at the Inception of bonds issuance in BOTH issuing bonds with discounts and with premiums.
• Accounting Journal entries at periodic interest payments and amortizations of bond premium and bond discount over the life of the debt.
• Notes Payable, such as mortgage loan, vs. bonds

Corporation equity financing chapters:

• Journal entries issuing shares for cash, issuing shares for services provided to the corporation.
• Component of SHE (Shareholders’ Equity Statement)
• How those 3 distinctively different corporate financing transactions are differing from each other: one, CASH dividend, two, STOCK dividend, and the third, stock SPLITS.
• Be able to calculate EPS (yes, that is Earning Per Share)
• Good conceptual and mechanical understanding of RETAINED Earnings account in a typical corporate financial statement.
• Compute Retained Earnings account balance whether it’s beginning balance or it’s ending balance, how those balances show on SHE.
• Treasury shares what are those and how those are shown on a SHE.
• Issuing shares at what valuation base in finance and accounting world?  Fair market value, Cost, present value, or other values?
• Number of shares: outstanding, authorized, issued, treasury shares. How to tally up each.
• Effect of the declaration of a cash dividend by the corporation board of directors.

Financial statement analysis:

• Return of Assets, Return on Equity, how those two ratios are interrelated?
• Receivable and inventory turnover ratios, what do they indicate to a corporation?
• Solvency ratios, what are they?
• Basic horizontal and vertical analysis method, basics.

Operating (fixed) assets (PP&E) and Contingent Liabilities:

• Intangible assets, what are they and how they show on a typical financial statement of a corporation? Patent, copy rights, trademarks, brands
• Goodwill? Who?  How they are valued and recorded on a financial statement.
• Different depreciation methodologies: straight line depreciation, declining balance, units of production depreciation methods; should be able to compute the depreciation amount and journal entries using each of those methods.
•  Research and Development costs to a corporation, how do they get treated in financial reporting?
• Contingent Liabilities, what are the rules on US GAAP, i.e. pending litigation, warranty, etc.
• Depletion, Amortization, Depreciation, are these 3 words are the same or how are they different from each other?
• Warranty cost, pending litigations, how those economic events are treated and shown on a financial report?

Partnership:

• Partnership structure basics, what are the differences between corporations vs. a partnership in terms of financial statement?

Investment:

• Equity method vs. cost method of accounting for LT investment.
• 3 classifications of reporting investment.