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PRINCIPLES OF FINANCE (C708) – WGU/340 QUESTIONS AND ANSWERS (A+)
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PRINCIPLES OF FINANCE(C708) – WGU/340
QUESTIONS AND ANSWERS
(A+)
Matching Principle - =The revenues and the
expected incurred to generate those revenues
must be reported together; a fundamental
component of accrual-based accounting.
-Historical Cost Principle - =Items that appear on
the financial statement are listed at the cost when
purchased.
-Current Assets - =Cash or assets that will be
converted into cash within the next year.
-Gross Fixed Assets - =Property, Plant, and
Equipment (PP&E). These are on the books at
their historical cost. This does not include
accumulated depreciation (do not consider
accumulated depreciation when calculating cash
flows).
-Liquidity - =The more liquid the asset, the more
quickly it can be turned into cash; measures how
quickly an asset can be turned into cash without
taking a large discount in value.
,-Marketable Securities - =Short-term, high-quality
securities such as Treasury Bills and certificates of
deposit (CDs).
-Contra-Asset Account - =A balance/reserve
account that decreases the balance of an
Accounts Receivable (AR) account if there is
doubt that all payments will be made to the firm to
an amount that they expect to collect.
-Inventories - =Includes raw material, work-in-
progress, and finished goods. They are the least
liquid.
-Last In, First Out (LIFO) - =Assumes that the last
inventory items purchased by the company are the
first ones sold to customers.
-First In, First Out (FIFO) - =Assumes that the first
units purchased are the first sold.
-Historical Cost - =The original purchase price.
-Book Value Formula - =Historical Cost -
Accumulated Depreciation
-Fixed Liabilities - =Obligations that require cash in
the next year to pay.
,-Notes Payable (NP) - =The borrowing of interest-
bearing money from a financial institution that the
firm will owe back.
-Accruals - =Obligations that have been uncured
but not paid, such as employee wages or utilities.
-Long-Term Debt - =A debt obligation with a
maturity longer than one year, such as rent, office
staff, and administration costs.
-Common Stock and Additional Paid-In Capital -
=Accounts that are generated when the firm
issues stock.
-Retained Earnings (RE) - =Net Income -
Dividends. Money generated from the operations
of the company that have been reinvested in the
existing assets of the firm.
-Owner's Equity - =the owner's stake in the
business. This includes what is from the owner's
pocket, from stocks sold, and Retained Earnings.
-Income Statement - =Shows the revenues and
expenses associated with a company's operations
for a given period of time.
, -Cost of Goods Sold (COGS) - =How much it cost
to make what was sold. Includes direct materials
and direct labor.
-Operating Expenses - =Costs that are not directly
tied to production, such as rent, office staff, and
administrative costs.
-Non-Cash Expenses - =Depreciation and
Amortization...intangibles
-If assets go up, it is because you - =Spent cash.
-If your liabilities go up, it is because you -
=borrowed cash.
-Operational Assets - =All current assets except
cash.
-Operational Liabilities - =All current liabilities
except notes payable.
-Cash Flow Statement - =Shows where the firm's
cash is coming from and where it is going; the
most honest of the financial statements.
-CFO + CFI + CFF - =Change in cash for the year
-Ratio Analysis - =Used in comparing company
performance, as it allows us to scale for size.
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