Entry 2 – weeks 2 & 3 - Financial statements & important concepts

Study session 8

Reading 32: Understanding the Income Statement = 72%
Earnings per Share is the main topic covered in this reading. Overall I coped will with this subject matter. However I did need some clarification that prior year arrears of cumulative preference dividends are not relevant to the computation of the current EPS.

The question based approach identified that I struggled with the concept surrounding special cases of revenue recognition and mapping the features of each to each method. With 7city’s help I constructed (as part of my study session study summary) a matrix/flow diagram that captures the whole concept nicely.

Reading 33: Understanding the Balance Sheet = 72%
I put together my own summary table detailing how realised and unrealised gains of trading securities, assets held for sale, and assets held until maturity, should be reflected in Shareholders Equity.

Reading 34: Understanding the Cash Flow statement = 62%
Question practice identified that calculating dividends paid from Retained Earnings balances, Dividend Payout and net income refined.

Confusion between direct and indirect methods aided by treating everything as the indirect method and filling the gaps for NI or CFO, respectively.

Lastly, one of the key concepts I couldn’t grasp was rectified by using the tutor helpdesk. I was confused about things like wages vs. wages payable and why sometimes they were included in cash flow reconciliations and sometimes not. The key here, as explained to me, was identifying what was a balance sheet figure and what was an income statement figure, and how that related to the cash flow statement.

Reading 35: Financial Analysis Techniques = 82%
Following confusion with the cash conversion cycle, I used the tutor helpdesk and the phrase R.I.P (rest in peace) and letters S.C.C. to help to me remember the cash conversion cycle formula and the formulae for its components.

R + I – P = Receivables + Inventory – Payables

S. C. C. = Use the sales figure for receivables, the COGS for Inventory, and the COGS for Payables. S.C.C conveniently stands for Southgate Cricket Club, where I used to play cricket.

Hurdle Test #2 = 80%
As a first attempt, I was quite pleased with this, given the difficulty of the ‘accounts’ topics. The tutor helpdesk helped clarify that an exception to applicable accounting principles is not as severe as first thought, it means a slight departure from the code, so an auditor would issue a qualified opinion.

There were also a couple of cash flow reconciliation confusions stemming from what constitutes a balance sheet figure and what is an income statement figure.

Workshop #1 = 89%
I find the workshops provided by 7city particularly useful. It’s an evening session, (also posted online and recorded), whereby there are 18 exam style questions, you have 1.5 minutes per question, so 27minutes to complete, then there is 1.5 hours of debrief. Rather than go through each question monotonously, the topic is picked up from the question, a brief summary of knowledge set required in this area is discussed, and then related back to how you answer that particular question. Workshop #1 covers study sessions 2, 7 and 8. There will be 6 of these over the ‘tuition period’ and act as 6 ongoing mini revision sessions.