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Fnc 1 Study Questions

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Financial Statements 1. List the components that comprise a typical financial statement. a. Income Statement i. Reflects Net Income and Net Loss ii. Is a moving picture of operations during the period b. Statement of Owners Equity iii. Changes in owners equity during a time period iv. Increases from Net Income v. Decreases from Withdrawals and Net Loss c. Balance Sheet vi. “Statement of financial position” vii. Lists all Assets, liabilities, and owns viii. As of a specific date + d. Statement of cash flows ix. Cash receipts and cash payments
2. Describe how changes to a company’s revenue and expenses affect their Income Statement and Balance Sheet. Revenues & Expenses on the income statement affect the Net Income, by increase whith revenue and decreasing with expenses. All of which effect the Owners Equity on the balance sheet.
3. How do changes in the Income Statement and Balance Sheet data affect a Statement of Cash Flows? Revenues in the form of payment receipts and expenses in the form of payments are both reflected on the cash flow statement from operating activities which are derived from the P&L. Cash flows from investing activities are which increase or decrease the cash flow come from the balance sheet.
4. Explain how you can evaluate the financial condition of a firm by reviewing the Balance Sheet. To discover the total entities assets, liabilities, and owners equity. By using the current ratio (total assets/ total liabilities) which shows the financial health of a company by determining how quickly, if at all, a company can pay it’s liabilities. If a company has a current ratio of 2.56 then they have a 2.5x the assets to liabilities, therefore can pay all it’s liabilities if needed. This is a good indicator if

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