Under FIFO, the costs assigned to the cost of goods sold come from the oldest purchases, leaving the newer costs in ending inventory. The main advantage is that the inventory value reported on the balance sheet reflects the most recent prices. This makes the asset value more representative of current replacement costs, especially when prices are rising. While COGS uses older costs, and FIFO doesn’t ignore price changes or guarantee tax minimization, the standout benefit is that ending inventory mirrors the latest costs.

Sales to Working Capital shows how efficiently a company uses its working capital to generate sales. It is calculated as Net Sales divided by Working Capital (where Working Capital = current assets minus current liabilities). A higher ratio means more sales are produced per dollar of working capital, indicating tighter, more productive use of short-term resources. This metric helps you compare operating efficiency across periods or between firms, keeping in mind that industry norms matter. The other options measure different things: Net Income divided by Net Sales is profit margin; Cost of Goods Sold divided by Average Inventory is inventory turnover; Net Sales divided by Current Assets is a form of asset turnover but ignores the financing component of working capital.

Negative cash flow means more cash is leaving the business than coming in during the period. It occurs when cash received (income) is less than cash paid (expenses and other outflows). For example, if a company collects 40,000 in lease income but pays 60,000 in operating expenses, debt service, and other costs, the net cash flow is -20,000. If cash received equals cash paid, the net cash flow is zero, not negative. And cash flow is directly related to expenses because payments reduce cash on hand and affect the overall cash position.

Executory costs are the ongoing, operating expenses required to run the leased property during the lease term. They include items like insurance, maintenance, and property taxes, regardless of who actually pays them or whether the lessee acts as guarantor. These costs are not tied to the asset’s purchase price and are not depreciation or acquisition expenses. Broker fees are upfront transactional costs, not ongoing operating costs. Depreciation relates to the asset’s use by the owner, not the ongoing operating costs of the lease. Acquisition cost is the upfront price to obtain the asset, not an ongoing operating expense.

Notes to the financial statements provide the additional information that accompanies the main statements to give users a complete understanding. They explain accounting policies and judgments, detail significant items such as leases, contingencies, and commitments, and disclose events after the reporting period, estimates, and other disclosures that aren’t evident from the numbers on the balance sheet or income statement alone. This extra context is what full disclosure hinges on, making notes the essential component for providing the necessary detail and transparency. The balance sheet and income statement show the financial position and performance, but they rely on the notes to explain how those numbers were determined and what they imply. Optional supplementary information may exist in some reports, but the notes are the standard, formal mechanism for providing additional information.