Closing Equity=
Opening Equity+(Net Income−Dividends)
Cash at end of period=
Cash at start+Operating cash flow+Investing cash flow+Financing cash flow
where does net profit or loss from income statement go in the balance sheet
to retained earnings
Cash-register receipts are classed as external source documents.
TRUE. They originate from sales to customers, i.e. parties outside the firm, and therefore fall under external documentation.
a) Office equipment that the company uses day-to-day is presented under non-current (fixed) assets in a balance sheet.
TRUE. Non-current (or fixed) assets comprise tangible items the firm intends to use for more than one accounting period, such as desks, shelving, or computers employed in the office rather than held for sale.
e) Trade receivables become non-current assets whenever customers are allowed more than 60 days to pay.
FALSE. Trade receivables remain current assets as long as they are expected to be settled within twelve months
e) Non-current liabilities, having maturities beyond one year, are typically presented beneath current liabilities in the balance-sheet order
FALSE. Non-current liabilities are typically shown above current liabilities on the balance sheet, because liabilities are listed from longer to shorter maturities.
a) The wealth of a company is best expressed by the balance-sheet total.
FALSE. The balance-sheet total shows the size of the firm’s assets but says nothing about how those assets are financed. Wealth (net worth) is captured by equity, which equals assets minus liabilities. A company can have a large asset base yet very low equity if it is heavily indebted.
a) A company may base its entire balance-sheet preparation solely on an internally written accounting manual, provided that manual is applied consistently from year to year.
FALSE. Consistency alone is insufficient. National laws and/or mandatory frameworks such as IFRS or local GAAP prescribe minimum recognition, measurement and disclosure rules that override purely in-house guidelines.
d) A core objective of formal accounting standards is to facilitate comparability of financial statements across different reporting entities.
TRUE. Standardisation reduces idiosyncratic treatment, enabling investors, creditors and regulators to compare like with like and to rely on the information’s credibility.
a) Financial accounting is aimed mainly at external users (e.g. investors, regulators), whereas cost accounting is designed for internal decision-making.
TRUE.
Financial accounting produces general-purpose statements (balance sheet, income statement, cash-flow statement) intended for external stakeholders.
Cost (managerial) accounting supplies detailed cost and performance information to managers for planning and control; it is not normally published.
d) Revenues are shown at the very top of a standard income statement.
TRUE. The presentation convention starts with gross or net revenue. Subsequent lines deduct various categories of expenses, leading down to intermediate subtotals and ultimately the bottom-line profit or loss.
structure of an income statement
revenues
expenses
net income
a) If a company sells a large number of products during the year, the “Revenues” line on the balance sheet will increase accordingly.
FALSE. Revenues are recorded in the income statement, not the balance sheet.
a) Typical production costs reported in an income statement include materials, wages, energy, rent and trade payables to suppliers.
FALSE. Materials, wages, energy and rent are indeed recognised as expenses, but trade payables are liabilities shown on the balance sheet, not costs in the income statement. The expense is the purchase itself; the payable is merely the outstanding obligation to pay.
e) The range of allowable useful-life estimates for different fixed-asset classes can vary by several decades.
TRUE. Useful lives differ widely: office equipment might be written off over three years, whereas buildings can be depreciated over as long as fifty. Thus the permissible spans indeed differ by multiple decades.
profit formula
Closing equity−Opening equity+Dividends paid−Owner’s equity contributions
a) Depreciation affects both the income statement and the balance sheet.
TRUE. Income-statement effect: Depreciation expense reduces profit. Balance-sheet effect: It increases accumulated depreciation, lowering the carrying amount of the asset.
cash flow statement 3 sections
operating activities - from core activities
investing activities - long-term assets
financing activities - related to debt, equity, dividends
free cash flow formula
CFO - CFI
c) Settling a short-term bank overdraft with cash reduces the amount reported in cash flow from operations.
FALSE. Repayment of debt—whether short- or long-term—is a financing cash outflow. Operating activities cover day-to-day business (receivables, payables, inventory), not debt service.
c) When analysing financial performance, a single year’s set of statements usually offers the greatest amount of insight one can obtain.
FALSE. Trend analysis across several periods and peer comparison provide far richer information: growth rates, seasonality, sustainability and strategic direction become visible only over time or against benchmarks.
non-controlling interests are
Non-controlling interests (NCI), also called minority interests, represent the portion of a subsidiary company’s equity not owned by the parent company, showing up as a separate line in consolidated financial statements to reflect outside investors’ ownership, even if the parent controls the subsidiary.
d) Non-controlling interests reported in consolidated financial statements are classified within equity and therefore increase the equity ratio.
TRUE. They are part of total equity, enlarging equity relative to assets.
