GARCIA, KYLA D.

12ABM-1
FABM REVIEWER

- follows the accounting equation where assets are listed on the left-
Account Form hand column of the report with the liabilities and owner’s equity
listed on the right-hand columns

Accrued Income - income already earned but not yet received

- the approximate number of days it takes a business to collect its

receivables from credit or account sales

Average Collection Period

- day’s sales outstanding

- the average time to convert inventory to sales

Average Sales Period

- Inventory conversion period

- a certificate of indebtedness under the seal of a corporation,

Bonds Payables specifying the terms of repayment and the rate of interest to be
charged
- short-term investments that are readily convertible to known
Cash Equivalents amounts of cash which are subject to an insignificant risk to changes
in value
- measures the ability of the business to pay its short-term obligations
Current Ratio as they fall due

Operating Activities- the cash inflows (receipt) and cash outflows

(payments) arising from the normal operations of the business
Receipts of Cash
- collections from customers for the performance of services or sale of
Components of the Statement goods
of Cash Flow classified - royalties, fees, commissions received
- interest, dividends, and other income received
according to Activities Payments of Cash
 - to suppliers for services and goods acquired
- employees’ salaries
- government licenses and taxes
- interest expense
- other operating expenses
Investing Activities- the cash inflows (receipts) and the cash outflows
(payments) from the purchase and sale of property and equipment,
investment in debt or trading securities, lending money and collection of the
principal amount of the money loaned.

Financing Activities- the cash inflows (receipts) and the cash outflows
(payments) from the owners’ creditors of the business
Receipts of Cash
- original and additional investments by owner
- proceeds of loan
Payments of Cash
- cash withdrawal of owner
- payment for the principal balance of loan

- represents the cost of merchandise inventory sold by the business to

Cost of Sales its customers

- measures business liabilities as a percentage of total assets

Debt Ratio
- measures the financing provided by the creditors against those
Debt to Equity Ratio provided by the owner

- represents the withdrawals made by the owner of the business

Drawing either in cash or other assets
- measures the percentage of total assets financed by the owner’s
Equity Ratio investment

Financial Ratios - analysis that describes the significant relationship between the
numbers presented in the financial statements
- otherwise known as the cost sales method, it is an income
Functional Form statement presents expenses according to function

- comparing the same account in the financial statements of two

Horizontal Analysis periods (current and past year) determining the amount of changes
and computing its percentage change using a base year as
comparison
Income Summary - a temporary account used at the end of the accounting period to
close income and expense accounts
- identifiable, nonmonetary assets without physical substance held for
Intangible Assets use in the production or supply of goods or services, for rental to
others, or for administrative purposes
Interest Receivables - the amount of interest collectible on promissory notes received from
customers and clients
 - measures the number of times a company’s inventory is solid and
replaced during the year

Inventory Sales Period

Liquidity - the ability of the company to settle its current obligations as they fall
due
- assets held by an enterprise for the accretion of wealth through
Long-term Investment capital distribution such as interest, royalties, dividends and rentals,
for capital appreciation or for other benefits to the investing
enterprise such as those obtained through trading relationships
Marketable Securities - stocks and bonds purchased by the enterprise and are to be held for
only a short span of time or short duration
Market Value or Valuation - measures the company’s potential for future earnings, dividend
payments and stock price growth
Mortgage Payable - a long-term debt of the business with security or collateral in the
form of real properties
Natural Form - otherwise called the nature of expense method, it is an income
statement presents expenses according to nature
- the first line after the heading of the income statement is the net
sales.
Formula:

Net Sales

Operating Profit Margin - measures the percentage of income earned after deducting the cost
of sales and the operating expenses
Prepaid Expenses - include supplies bought for use in the business or services and
benefits to be received by the business in the future paid in advance
Profitability - measures the company’s operating performance as a return on its
investment
Quick Ratio - measures immediate liquidity with the ability to pay current
liabilities with the most liquid assets
Report Form - shows on one straight column the assets, followed by liabilities and
owner’s equity
Return on Assets - measures the company’s efficiency in using its level of investment in
assets in order to generate income
Solvency - the ability of the company to settle its non-current or long-term
obligations and the interest related to these obligations
Statement of Cash Flow - summarizes the cash receipts and cash disbursements for the
accounting period
 - it summarizes the cash activities of the business by classifying cash
inflows (receipts) and cash outflows (payments) into operating,
investing, and financing activities
- it shows the net increase or decrease of cash in a given period and
the cash balance at the end of the period
- this allows management to assess the ability of the business to
generate cash and project future cash flows
- or Statement of Owner’s Equity shows the changes in the Capital or
Statement of Changes in Owner’s Equity as a result of additional investment or withdrawals
by the owner, plus or minus the net income or net loss for the year
Owner’s Equity
- measures the company’s ability to pay the interest charged to the

Time Interest Earned

company for its outstanding liabilities

- it measures the number of times operating income can cover
interest expense
- the higher the number of times the operating income ca cover
interest expense, the more favorable it is for the creditors because it
means the company is not struggling to pay its interests from loans.
Formula:

Trend Analysis
Unearned Revenues
Vertical Analysis
- an analysis that compares not only two years but covers three, four,
or five years’ financial statements
- represent obligations of the business arising from advance payments
received before goods or services are provided to the customer
- shows the relationship of each part to the whole in a single financial
statement where each item is expressed as a percentage of total
assets or total liabilities and owner’s equity in the income statement,
each item is presented as a percentage of net sales