Question

18. If a not-for-profit clinic has $70,000 in assets and $40,000 in liabilities, what is their equity balance?

12. What are the differences between the income statement and balance sheet in regard to timing and organization?

19. Should financial statement and operating indicator analyses be conducted only on historical data?

20. What is the difference between trend analysis and comparative analysis?

13. What are the three major categories of assets?

Answer 1

18. Equity = Assets - Liabilities, therefore equity of not for profit clinic will be $30,000 ($70,000 - $40,000).

12. Income Statement: A income statement is a statement which shows the net profit or loss generated by an organization during a given period of time. The income statement includes all the incomes and expenses. Expenses are reduced from overall income to arrive at profits. The income statement helps a investor in assessing the operating performance of an organization. A income statement can be prepared on quarterly, half yearly or on yearly basis.

Balance Sheet: It is a statement of company's assets and liabilities on a given date. Assets represents the claim of the organization, while liabilities represents the claims of outsiders towards the company. Balance sheet does not include any income or expenses, it only shows the assets owned by the company and liabilities owed by it, reducing the latter from former will give us equity which is also regarded as owner's funds. It is usually prepared on annually basis.

19. Yes, financial and operating indicator analyses must be conducted on historical data only. Applying these analysis on future data will not generate right kind of information and indicators which can help firm in taking sound as well as effective decision. Historical data can be used to make a proper comparison of the decision taken under those circumstances which impacted the data can be made, which will allow a firm to make better decision for future.

20. Trend Analysis is a tool which is used by analysts and investors usually for the purpose of assessing the trends (either long term or short term) of a company's profitability, sales, cash flows etc. Under this, first of all two or three years income or financial statement is taken, and then main items under those are compared in terms of percentage increase and decrease, the same is then matched with the previous few years to ascertain trend, if any.

Under Comparative analysis, only two particular period's income or other statement can be taken to compare the current performance with the previous one and what are the deviations within the same in an effective way.

13. The three major categories of assets are:

• Convertibility: Under this category, the assets are assessed on their strength to convert into cash. It includes Fixed and Current Assets
• Physical Existence: It includes Tangible and Intangible Assets.
• Usage: Operating Assets and Non- Operating Assets.