Wall Street Prep questions with verified detailed answers

Wall Street Prep questions with verified || || || || || ||




detailed answers ||




Assets - ✔✔resources a company uses to operate its business
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includes cash, A/R, PP&E || || ||




Liabilities - ✔✔represents the company's contractual obligations and includes A/P, debt, accrued
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expenses


Shareholder's equity - ✔✔is the residual || || || || ||




the value of the business available to the owners (shareholders) after debts have been paid off
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Income statement - ✔✔illustrates the profitability of the company over a specified period of time
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broad sense: shows revenue-expenses
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Balance sheet - ✔✔snapshot of the company economic resources and funding for those resources
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at a given point in time (A = L + SE)
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Revenue - ✔✔"top-line" || || ||




represents the sale of goods and services || || || || || || ||




it is recorded when earned (even though cash might not have been received at the time of
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transaction)

, Expenses - ✔✔netted against revenue to arrive at net income || || || || || || || || ||




COGS (directly associate with good production), SG&A (indirectly associated with production),
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interest expense (expense related to paying debt holders periodic payments), taxes, depreciation
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expense (non-cash expense accounting for the use of PP&E, often imbedded within COGS and
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SG&A)


Net income - ✔✔"bottom-line"
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revenue-expenses


the profitability available to common shareholder's after debt payments have been made (interest
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expense)


EPS (earnings per share) - ✔✔portion of a company's profit allocated to each outstanding share of
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common stock
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EPS = (net income - dividends on preferred stock)/weighted average shares outstanding
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Cash flow statement - ✔✔While cash is not necessarily received when a sale occurs, the income
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statement still records the sale. As a result, the income statement captures all the economic
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transactions of the business. || || ||




The cash flow statement is needed because the income statement uses what is called accrual
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accounting. In accrual accounting, revenues are recorded when earned regardless of when cash is
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received (revenue includes sales using cash and made on credit A/R)
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Since we also want to have a clear understanding of the cash position of a company, we need the
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statement of cash flows to reconcile the income statement to cash inflows and outflows.
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