1. How does QuickZoom which is a feature from QuickBooks help you further invest
ID: 2549708 • Letter: 1
Question
1. How does QuickZoom which is a feature from QuickBooks help you further investigate an income statement? What elements of an income statement are likely to require additional investigation? What important information is derived from the income statement and who would use this information?
2. Explain the one adjustment necessary to reconcile net income to cash provided by operations that were not initially a part of the statement of cash flows until changes are made in the report's layout. When adjustments are made to the financial reports, where are they noted? Why are these "notes" important for investors and other users of the financial reports?
Explanation / Answer
Quick Book
One of the most appealing features of QuickBooks is its reporting function, which is flexible, robust, and easy to use. Many end users are often surprised at how well QuickBooks turns seemingly disjointed and meaningless raw data into meaningful reports and graphs. Many accountants are surprised to learn how much QuickBooks reports can be customised and automated, and how powerful they are as tools to help small business owners make better business decisions. HOW TO ACCESS PRE-SET REPORTS AND GRAPHS IN QUICKBOOKS Access pre-set reports by selecting Reports from the QuickBooks menu. Once in the Reports menu, different categories of reports appear: · Company & Financial · VAT · Customers & Receivables · Sales · Jobs, Time & Mileage · Suppliers & Payables · Purchases · Stock · Employees & Payroll· Banking · Accountant & Taxes · Budgets & Forecasts · Lists · Custom Reports
Each category of report has sub-menus for the appropriate reports. For example, the report Profit & Loss Standard is accessed by selecting Reports > Company & Financial > Profit & Loss Standard. There are also three separate reports in the Reports menu that are listed underneath those aforementioned categories: · Quick Report · Transaction History · Transaction Journal
Quick Zoom
QuickZoom One of the most elegant facets of QuickBooks reporting is the ability to “drill down” from a balance on a report or area on a graph to find details or ultimately the originating transaction. This “drill down” function is accessed by double-clicking on a balance in a report (when placing the mouse pointer over the balance in a report, the pointer turns into a magnifying glass with a Z inside it, indicating that QuickZoom is possible) or on an area of a graph.
This QuickZoom function may be used sequentially on subsequently more detailed reports until, ultimately, the original transaction (or list entry, in the case of a List Report) is reached, if you wish.
An example of two sequential QuickZooms is shown in the screen capture below. While there are often several different methods of recording a particular set of debits and credits into QuickBooks, you can advise your clients on the optimal method to use in order to extract the most meaningful, informative reporting for them out of QuickBooks.
one adjustment necessary to reconcile net income to cash provided by operations
A company's net income seems like a simple concept that measures how profitable a business is. However, many investors have the misconception that net income automatically translates to an increase in net cash on a company's balance sheet. In reconciling net income to changes in net cash, several adjustments are needed to reflect items that are used in calculating net income but don't have an impact on cash levels. Specifically, there are four categories of accounting items you should look at when reconciling net income and net cash.
Non-cash transactions
Some accounting items are included in net income even though they don't involve actual cash changing hands. Examples include depreciation and amortization of assets, asset impairments, and unrealized gains or losses on foreign-exchange translations. In order to figure out changes in net cash, you have to back these items out of the net income figure.
Changes in the value of operating items
Cash isn't the only asset that a company has. In some cases, net income isn't converted into cash because of delays between the time the company bills the customer for a good or service and the time the company receives payment from the customer. Similarly, accrued expenses are included as a charge to net income, even if they're not paid until later.
To adjust for changes in operating assets or liabilities, add back any decrease in operating assets or any increase in operating liabilities. Then subtract any increase in operating assets or any decrease in operating liabilities. This accounts for the impact of operations on non-cash items like accounts receivable and accounts payable.
Asset and investment purchases and sales
Purchases and sales of business assets for internal investment have an impact on cash, even though they typically don't affect net income directly. In this case, any cash spent on business assets must be accounted for by decreasing the net cash line item, and any cash received from the sale of business assets will increase net cash. Note that to the extent that immediate deductions for certain business asset investments are available, the deduction to net income will match the cash spent, allowing the two to offset perfectly.
Footnotes
Footnotes to the financial statements refer to additional information provided in a company's financial statements. Footnotes to the financial statements report the details and additional information that are left out of the main reporting documents, such as the balance sheet and income statement. This is done mainly for the sake of clarity because these notes can be quite long, and if they were included, they would cloud the data reported in the financial statements.
BREAKING DOWN 'Footnotes To The Financial Statements'
It is very important for investors to read the footnotes to the financial statements included in a company's periodic reports. These notes contain important information on such things as the accounting methodologies used for recording and reporting transactions, pension plan details and stock option compensation information — all of which can have material effects on the bottom-line return that a shareholder can expect from an investment in a company.
Footnotes on financial statements serve as a way for a company to provide additional explanation of various portions of the statement. It functions as a supplement, providing clarity to those who require it without having the information placed in the body of the statement.
Information Contained Within Footnotes
Footnotes may provide additional information used to clarify a point. This can include further details about items used as reference, a clarification of any applicable policies, a variety of required disclosures, or adjustments made to certain values. While much of the information may be considered required in nature, providing all of the information within the body of the statement may overwhelm the document, making it more difficult to read and interpret by those who receive them.
The Use of Footnotes
Using footnotes allows the general flow of a document to remain appropriate by providing a way for the reader to access additional information if they feel it is necessary. It allows an easily accessible place for complex definitions or calculations to be explained should a reader desire the additional information.
Often, the footnotes will be used to explain how a particular value was assessed on a specific line item. This can include issues such as depreciation or any incident where an estimate of future financial outcomes had to be determined.
Footnotes may also include information regarding future activities that are anticipated to have a notable impact on the business or its activities. Often, these will refer to large-scale events, both positive and negative. For example, descriptions of upcoming new product releases may be included, as well as issues about a potential product recall.
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