Financial Reporting and Analysis Flashcards

Which financial statement reports a company's revenues, expenses, and net income over a specific period?

Answer: Income Statement

The Income Statement (also called Profit & Loss statement) summarizes revenues and expenses over an accounting period to show net income or net loss.

Under US GAAP, which inventory costing method assumes that the most recently purchased goods are sold first?

Answer: LIFO

LIFO (Last-In, First-Out) assumes the most recently acquired inventory units are sold first, which can reduce taxable income during periods of rising prices.

What does the current ratio measure?

Answer: A company's short-term liquidity

The current ratio (current assets ÷ current liabilities) measures a company's ability to meet its short-term obligations with its short-term assets.

Which accounting concept requires that revenue be recognized when it is earned, regardless of when cash is received?

Answer: Revenue recognition principle

The revenue recognition principle (codified under ASC 606) states that revenue is recorded when performance obligations are satisfied, not necessarily when cash changes hands.

On a classified balance sheet, which of the following is typically listed as a long-term asset?

Answer: Goodwill

Goodwill is an intangible long-term asset recorded when a company acquires another business for more than the fair value of its net identifiable assets.

Which financial ratio is calculated by dividing net income by total equity?

Answer: Return on Equity (ROE)

Return on Equity (ROE) = Net Income ÷ Shareholders' Equity, measuring how effectively management generates profit from shareholders' investment.

Which section of the Statement of Cash Flows includes cash received from customers and cash paid to suppliers?

Answer: Operating Activities

Operating Activities captures cash flows from the company's core business operations, including collections from customers and payments to suppliers and employees.