Wall Street Prep Premium Exam | Practice
Test Questions and Verified Answers | 100%
Correct (A+)
• Assets -✓✓resources a company uses to operate its business
includes cash, A/R, PP&E
• Liabilities -✓✓represents the company's contractual obligations and includes A/P,
debt, accrued expenses
• Shareholder's equity -✓✓is the residual
the value of the business available to the owners (shareholders) after debts have been
paid off
• Income statement -✓✓illustrates the profitability of the company over a specified
period of time
broad sense: shows revenue-expenses
• Balance sheet -✓✓snapshot of the company economic resources and funding for
those resources at a given point in time (A = L + SE)
• 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 transaction)
• Expenses -✓✓netted against revenue to arrive at net income
COGS (directly associate with good production), SG&A (indirectly associated with
production), interest expense (expense related to paying debt holders periodic
payments), taxes, depreciation expense (non-cash expense accounting for the use of
PP&E, often imbedded within COGS and SG&A)
• Net income -✓✓"bottom-line"
revenue-expenses
, the profitability available to common shareholder's after debt payments have been made
(interest expense)
• EPS (earnings per share) -✓✓portion of a company's profit allocated to each
outstanding share of common stock
EPS = (net income - dividends on preferred stock)/weighted average shares
outstanding
• Cash flow statement -✓✓While cash is not necessarily received when a sale occurs,
the income statement still records the sale. As a result, the income statement captures
all the economic transactions of the business.
The cash flow statement is needed because the income statement uses what is called
accrual accounting. In accrual accounting, revenues are recorded when earned
regardless of when cash is received (revenue includes sales using cash and made on
credit A/R)
Since we also want to have a clear understanding of the cash position of a company,
we need the statement of cash flows to reconcile the income statement to cash inflows
and outflows.
"cash position of the company"
cash from operating activities, cash from investing activities, and cash from financing
activities
• Cash from operating activities -✓✓mostly indirect method
starts with net income and includes the cash effects of transactions involved in
calculating net income. reconciliation of net income.
Net income (income statement)
+ non-cash expenses
- non-cash gains
- period on period increases in working capital assets
+ period on period increases in working capital liability
= CF from operations
*for stable, mature, plain vanilla companies, a positive cash flow from operating
activities is desirable
• Cash from investing activities -✓✓cash related to investments in the business
(additional capex or sales of assets)
Test Questions and Verified Answers | 100%
Correct (A+)
• Assets -✓✓resources a company uses to operate its business
includes cash, A/R, PP&E
• Liabilities -✓✓represents the company's contractual obligations and includes A/P,
debt, accrued expenses
• Shareholder's equity -✓✓is the residual
the value of the business available to the owners (shareholders) after debts have been
paid off
• Income statement -✓✓illustrates the profitability of the company over a specified
period of time
broad sense: shows revenue-expenses
• Balance sheet -✓✓snapshot of the company economic resources and funding for
those resources at a given point in time (A = L + SE)
• 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 transaction)
• Expenses -✓✓netted against revenue to arrive at net income
COGS (directly associate with good production), SG&A (indirectly associated with
production), interest expense (expense related to paying debt holders periodic
payments), taxes, depreciation expense (non-cash expense accounting for the use of
PP&E, often imbedded within COGS and SG&A)
• Net income -✓✓"bottom-line"
revenue-expenses
, the profitability available to common shareholder's after debt payments have been made
(interest expense)
• EPS (earnings per share) -✓✓portion of a company's profit allocated to each
outstanding share of common stock
EPS = (net income - dividends on preferred stock)/weighted average shares
outstanding
• Cash flow statement -✓✓While cash is not necessarily received when a sale occurs,
the income statement still records the sale. As a result, the income statement captures
all the economic transactions of the business.
The cash flow statement is needed because the income statement uses what is called
accrual accounting. In accrual accounting, revenues are recorded when earned
regardless of when cash is received (revenue includes sales using cash and made on
credit A/R)
Since we also want to have a clear understanding of the cash position of a company,
we need the statement of cash flows to reconcile the income statement to cash inflows
and outflows.
"cash position of the company"
cash from operating activities, cash from investing activities, and cash from financing
activities
• Cash from operating activities -✓✓mostly indirect method
starts with net income and includes the cash effects of transactions involved in
calculating net income. reconciliation of net income.
Net income (income statement)
+ non-cash expenses
- non-cash gains
- period on period increases in working capital assets
+ period on period increases in working capital liability
= CF from operations
*for stable, mature, plain vanilla companies, a positive cash flow from operating
activities is desirable
• Cash from investing activities -✓✓cash related to investments in the business
(additional capex or sales of assets)
