answer the following questions

  1. How does Peter Drucker define profit?

 

  1. Define the term “cash basis accounting”.

 

  1. Define the “matching principle”

 

  1. Describe the delivery company that purchased a truck in January and how it applies to the matching principle.

 

  1. Explain why the Income Statement does not account for the inflows and outflows of cash.

 

  1. Define the purpose of the Income Statement.

 

  1. List three alternative names for the Income Statement

 

  1. What time periods can the Income Statement cover?

 

  1. Public companies must follow GAAP in compiling financial statements TRUE/FALSE

 

  1. What is a Pro-forma Income Statement?

 

  1. Sales and Revenue on the Income Statement mean the same thing TRUE/FALSE

 

  1. Define the term “Cost of Sales”.

 

  1. Why are footnotes considered to be an important part of the financial statements?

 

  1. What is the “One Big Rule” when reading financial statements?

 

  1. In its simplest form, when can a company recognize a sale?

 

  1. In the example in the book, how did the software company manipulate revenue recognition?

 

  1. What is “channel stuffing”?

 

  1. “The most common source of accounting fraud has been and probably always will be _____________

 

  1. Define “deferred revenue”.

 

  1. “Above the line” on the Income Statement refers to what?

 

  1. “Below the line on the Income Statement refers to what?

 

  1. Define “Operating Expenses”

 

  1. Operating expenses are often thought of and referred to as ________________

 

  1. How did Waste Management Inc. use depreciation to manipulate earnings?

 

  1. Why is depreciation and amortization considered a “non-cash expense”?

 

  1. Give an example of a “one time charge”.

 

  1. Expenses should be listed on the Income Statement to assist management in analyzing the business. TRUE/FALSE

 

  1. Gross Profit varies by industry. TRUE/FALSE

 

  1. Compare the gross profit of a grocery business to a jewelry store.

 

  1. Define Operating Profit or EBIT

 

  1. List three ways Operating Profit can measure how well or poorly a company is being managed

 

  1. Define EBITDA

 

  1. Why is EBITDA favored over EBIT by financial analysts?

 

  1. Define “Net Profit”

 

  1. List the three legitimate fixes to a low net Profit

 

  1. What are the negative consequences of reducing Operating Expenses as a strategy to increase Net Profit?

 

  1. How can “exchange rates” adversely affect Net Profit?

 

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