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Guide to Financial Ratios and Time Value of Money Study Guide

This guide covers the accounting principles for long-term contracts, focusing on revenue recognition methods such as percentage of completion and recognition upon completion. It also addresses the accounting for costs, balance sheet presentation, and the critical aspect of recognizing projected losses.

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Income Statements and Statement of Cash Flows

Income Statement and Statement of Cash Flows

This chapter focuses on Income from Continuing Operations, Discontinued Operations, Accounting Changes, Earnings per Share, Comprehensive Income, and the Statement of Cash Flows.

  • Income from Continuing Operations
  • Revenues
  • Expenses
  • Gains & Losses
  • Operating Income
  • Nonoperating Income
  • Single-Step Format
  • Multiple-Step Format
  • Earnings Quality
  • Earnings Management Practices
  • Income Smoothing
  • Classification Shifting
  • Non-GAAP Earnings
  • Discontinued Operations
  • Accounting Changes
  • Change in Accounting Principle
  • Change in Accounting Estimate
  • Change in Reporting Entity
  • Retrospective Approach
  • Prospective Approach

Statement of Cash Flows Overview

The Statement of Cash Flows serves as a reconciliation tool itemizing specific sources and uses of cash to explain the change in the ending cash balance.

  • Operating Activities
  • Investing Activities
  • Financing Activities
  • Non-Cash Transactions
  • Direct Method
  • Indirect Method
  • Accrual Accounting vs Cash Basis
  • Liquidity and Solvency Assessment
  • Working Capital Adjustments
  • Depreciation and Amortization

Construction Contract Revenue and Loss Recognition

Construction Contract Revenue Recognition Analysis

A study review of revenue upon completion versus over time, projected losses, and balance sheet presentation for construction contracts.

  • Revenue upon completion
  • Revenue over time
  • Projected losses
  • Fixed contract price
  • Construction in progress (CIP)
  • Billings to date
  • Balance sheet classification
  • Cumulative profit/loss

Digital Textbook Interface and Learning Objectives

Annuity Situations and Time Value of Money

Learning objectives include solving for unknown values in annuity situations involving present value and describing how the time value of money is incorporated into the valuation of bonds, long-term leases, installment notes, and pension obligations.

  • annuity situations
  • present value
  • time value of money
  • valuation of bonds
  • long-term leases
  • installment notes
  • pension obligations

Financial Mathematics and Annuity Calculations

Financial Mathematics and Annuity Learning Objectives

Learning objectives regarding present value techniques, ordinary annuities, annuity due, and deferred annuities.

  • present value techniques
  • valuation of notes
  • ordinary annuity
  • annuity due
  • future value
  • present value
  • deferred annuity

Simple and Compound Interest Calculations

Simple and Compound Interest Fundamentals

Explain the difference between simple and compound interest and compute the future value and present value of a single amount.

  • simple interest
  • compound interest
  • future value of a single amount
  • present value of a single amount
  • interest rate
  • compounding periods

Revenue Recognition Principles and Interface Navigation

Revenue Recognition Principles and Application

State the core revenue recognition principle and the five key steps in applying it.

  • core revenue recognition principle
  • five key steps
  • revenue recognition at a single point in time
  • revenue recognition over a period of time
  • allocate a contract

Revenue Recognition Learning Objectives

Revenue Recognition Learning Objectives

Learning objectives regarding the timing of revenue recognition for licenses, franchises, and long-term contracts, including required disclosures for accounts receivable, contract assets, and contract liabilities.

  • revenue recognition timing
  • licenses
  • franchises
  • revenue recognition disclosures
  • accounts receivable
  • contract assets
  • contract liabilities
  • long-term contracts

Contract Transaction Price and Performance Obligations

Allocating Transaction Price to Performance Obligations

Learning objectives cover allocating a contract’s transaction price to multiple performance obligations and determining if contract features qualify as performance obligations.

  • allocate a contract’s transaction price to multiple performance obligations
  • performance obligations
  • variable consideration
  • calculation and allocation of the transaction price

Revenue Recognition Accounting Questions

Revenue Recognition Accounting Principles

Questions regarding circumstances for recognizing revenue at a point in time, over a period of time, or through long-term contracts.

  • revenue recognition at a point in time
  • revenue recognition over a period of time
  • long-term contracts
  • accounting for sales components

Income Statement Components and Financial Analysis

Multiple-Step Income Statement Components

This content explains the multiple-step income statement format, including income from continuing operations, discontinued operations, and earnings per share.

  • multiple-step income statement
  • income from continuing operations
  • discontinued operations
  • earnings per share
  • operating income
  • nonoperating income
  • income tax expenses
  • gross profit
  • net income
  • earnings quality
  • non-GAAP earnings
  • component of an entity

Financial Ratios and Time Value of Money

Analysis of profitability, activity, and leverage ratios alongside concepts of time value of money and interest.

  • Receivables turnover ratio
  • Average collection period
  • Inventory turnover
  • Average days in inventory
  • Profit margin on sales
  • Return on assets
  • Return on equity
  • Equity multiplier
  • DuPont framework
  • Time value of money
  • Simple interest
  • Compound interest

Time Value of Money Concepts

The sources explain future value, present value, effective rate, and annuity calculations using interest rates, compounding periods, and Excel functions.

  • Future value (FV)
  • Present value (PV)
  • Effective rate
  • Compounding frequency
  • Ordinary annuity
  • Annuity due
  • Time value of money
  • Interest rate per compounding period
  • Number of compounding periods
  • Excel FV function
  • Excel PV function
  • Excel RATE function
  • Excel NPER function

Financial Reporting, Revenue Recognition, and Cash Flows

Statement of Cash Flows and Profitability Analysis

The statement of cash flows summarizes transactions that cause cash to change through operating, investing, and financing activities to assess profitability, liquidity, and solvency.

  • Statement of cash flows
  • Operating cash flows
  • Investing cash flows
  • Financing cash flows
  • Direct method
  • Indirect method
  • Non-cash revenues and expenses
  • Asset turnover ratio
  • Profitability analysis

Revenue Recognition Principles and Accounting

Accounting principles for recognizing revenue through performance obligations, transaction price determination, and contract modifications.

  • Revenue recognition five-step process
  • Performance obligations
  • Transaction price
  • Variable consideration
  • Contract modifications
  • Stand-alone selling price
  • Principal versus agent
  • Output-based estimate
  • Input-based estimate
  • Contract assets
  • Contract liabilities
  • Long-term contracts
  • Construction in progress
  • Billings on construction contracts

Revenue Recognition for Long-Term Contracts

Recognition of revenue over time using percentage of completion and revenue recognition upon the completion of the contract.

  • Revenue recognition over time
  • Revenue recognition upon completion
  • Percentage of completion
  • Cost-to-cost ratio
  • Construction in progress (CIP)
  • Long-term contract losses
  • Balance sheet presentation
  • Gross profit recognition

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