Financial Analysis and Reporting Flashcards

What are the three main financial statements?

Answer: Income statement, balance sheet, and cash flow statement

The income statement, balance sheet, and cash flow statement provide a comprehensive view of financial performance and position.

What does the balance sheet represent?

Answer: A snapshot of assets, liabilities, and equity at a specific point in time

The balance sheet shows what a company owns (assets), owes (liabilities), and the owners stake (equity) at a given date.

What is the purpose of financial ratio analysis?

Answer: To evaluate financial health and compare performance across periods or companies

Financial ratios provide standardized metrics for analyzing profitability, liquidity, efficiency, and solvency.

What is the difference between accrual and cash-basis accounting?

Answer: Accrual records transactions when earned or incurred; cash-basis records when cash changes hands

Accrual accounting recognizes revenue when earned and expenses when incurred, regardless of when cash is exchanged.

What is materiality in financial reporting?

Answer: Information is material if its omission could influence users financial decisions

Materiality determines whether information is significant enough that its inclusion or exclusion could affect decision-making.

What is the purpose of an audit of financial statements?

Answer: To provide independent assurance that statements are free from material misstatement

An audit provides reasonable assurance through independent examination that financial statements present a true and fair view.