Question

·        What are cash dividends and how are they recorded?  What is a stock dividend?

·        What is the purpose of the cash flow statement and how do we prepare the indirect method?

·        What is an extraordinary item and how are they recorded?

·        What is horizontal and vertical analysis and how do you prepare?

Answer 1

A cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors, and they are taxable as income to the recipients.

A stock dividend is a dividend payment made in the form of additional shares rather than a cash payout. Companies may decide to distribute this type of dividend to shareholders of record if the company's availability of liquid cash is in short supply.

The indirect method is an accounting treatment used to generate a statement of cash flows which a company may use during any given reporting period. The indirect method uses accrual accounting information to present the cash flows from the operations section on their cash flow statement.

An extraordinary item consists of gains or losses included on a company's income statement from events, which are unusual and infrequent in nature. Extraordinary items are usually explained further in the notes to the financial statements, and they are the result of unforeseen and atypical events.

A good way to do some ratio and trend analysis work is to prepare both horizontal and vertical analyses of the income statement. Both analyses involve comparing income statement accounts to each other in dollars and in percentages. ... You can do the same types of analyses for balance sheet accounts.