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Financial Statements

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Types of Accounting Errors

Nobody’s perfect. In the sometimes-harum-scarum world of GAAP interpretation and booking accounting events, mistakes do happen. And just as you do with changes in estimates, the important point is to make [more…]

How to Correct Accounting Errors

As soon as an error is found, it must be corrected. How you correct the error under GAAP depends on the type of error, the number of financial periods the error affects, how the error affects financial [more…]

Ten Common Notes to the Financial Statements

Explanatory notes are discussions of items that accompany the financial statements, which are the income statement, the balance sheet, and the statement of cash flows. These notes are important disclosures [more…]

Ten Ratios for Financial Statement Analysis

The four major ratio measurements that users of the financial statements perform to gauge the effectiveness and efficiency of a company’s management are liquidity, activity, profitability, and coverage [more…]

The Advantages of Leasing

Leasing brings six major advantages, and all directly involve the company’s cash flow. Essentially, the advantage to leasing over buying is that there’s usually no large outlay of cash at the beginning [more…]

Financial Statement Presentation for Capital Leases

Financial statement presentation for operating leases is a snap. Unless you have an event such as a finder’s fee, no part of the transaction is capitalized. You treat the entire extravaganza as a straight-out [more…]

When You Should Change Accounting Methods

The whole purpose of preparing financial statements is to give the interested external users of the financial statements relevant, comparable information to use in making their investment decisions. When [more…]

Financial Statement Q&A

Accounting information is presented in the form of financial statements that are packaged with other information, such as explanatory footnotes and a letter from top management, in what is called a [more…]

Current Assets on a Corporate Balance Sheet

Current assets are those assets that a company expects to turn into cash within one year or, for inventories that take more than a year to turn into cash [more…]

Long-Term Assets on a Corporate Balance Sheet

Long-term assets are those assets that will take more than one year to turn into cash or that are otherwise not intended to be sold yet (but can be sold, if necessary). The long-term assets section of [more…]

Intangible and Other Assets on a Corporate Balance Sheet

Intangible assets listed on a corporate balance sheet are things that add value to a company but that don’t actually exist in physical form. Intangible assets primarily include the legal rights to some [more…]

Current Liabilities on a Corporate Balance Sheet

Current liabilities are those that must be paid back, fully or in part, in less than one year. Following are the current liabilities you find on the balance sheet in order from those that must be paid [more…]

Long-Term Liabilities on a Corporate Balance Sheet

Long-term liabilities are those that must be paid back in a time period of one year or more. On a balance sheet, you might see the following categories in the long-term liabilities section. [more…]

Owners’ Equity Portion of a Corporate Balance Sheet

The owners’ equity portion of the balance sheet breaks down exactly what value the company has to its owners and how that value is allocated to them. The amount of value that investors have in a corporation [more…]

The Gross Profit Portion of the Corporate Income Statement

The first portion of a corporate income statement, called gross profit, seeks to calculate the profitability of a company’s operations after direct costs. Its ultimate goal is to determine the company’s [more…]

The Operating Income Portion of the Corporate Income Statement

The operating income portion of the income statement takes into account a company’s costs of doing business other than the costs of goods sold. Think of it as a way of breaking down the overhead costs [more…]

The Income Statement's Earnings before Interest and Taxes Section

The goal in the earnings before interest and taxes portion of the income statement is to account for all the costs and revenues from activities that aren’t related to the company’s normal operations. This [more…]

The Income Statement's Net Income Section

The net income portion of the income statement, which lists costs and revenues, is called net income and deals exclusively with taxes and interest. A company has to pay the taxes and interest charges that [more…]

The Income Statement's Earnings per Share Section

In the earnings per share (EPS) portion of the income statement, which immediately follows net income, corporations have to include the amount of earnings each individual share of stock they have outstanding [more…]

Operating Activities Cash Flows

In essence, operating activities cash flows include any increases or decreases in cash that result from the primary functions of the company. Here are some of the most common changes in cash you may see [more…]

Investing Activities Cash Flows

Any cash flow changes that result from the purchase or sale of investment assets belong in the investing activities cash flows portion of the statement of cash flows. [more…]

Financing Activities Cash Flows

Financing refers to the process of acquiring capital to fund a start-up, an expansion, basic operations, or whatever else the company needs the extra funds for. The financing activities cash flows section [more…]

How to Use Liquidity Metrics to Measure Days Sales in Receivables

A company can use the days sales in receivables metric to calculate the number of days it takes for the company to finish collecting the money a customer owes it. When a company sells a product and the [more…]

How to Use the Accounts Receivables Turnover Liquidity Metrics

The accounts receivables turnover metrics are used by companies to determine whether they’re collecting the money that customers owe them. To find out exactly how well a company is at making sales that [more…]

How to Use the Days Sales in Inventory Liquidity Metric

How long does it take for a company to turn its inventory into sales? Companies can answer this question with the days sales in inventory liquidity metric. The days sales in inventory metric looks like [more…]

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