Finance Flashcards
GAAP
Generally Accepted Accounting Principles (accrual basis)
Cash Basis Accounting
Treats revenue when it is received and expenses when they are paid
Modified Cash Basis
Includes some accrual or GAAP concepts; this is the method most used by law firms
Balance Sheet (Statement of Net Assets)
Assets, Liabilities and Net Worth at specific point in time
Assets = Liabilities + Owners Equity
Depreciation: Straight Line
equal periodic changes
Depreciation: Declining Balance
MACRS = Modified Accelerated Cost Recovery System
Proportional depreciation (i.e. more in the beginning than at the end)
Assets =
Liabilities + Equity
Assets - Liabilities = Net Worth
Income Statement (Profit/Loss or earnings statement)
Period of Time
Revenue - Expenses = Net Income
Cash Flow Statement (Statement of Changes in Financial Position)
Period of Time
Shows sources and uses of case: operating, financing and investments : shows beginning & ending cash
Method of Accounting
Cash - generally used for tax purposes
Modified Cash - used for management purposes
Accrual GAAP - used for external reporting
Modified Cash Basis Records Expenses…
when paid, NOT when incurred
Statement of Changes in Owners Equity
How much a partner has contributed to firm & how much the firm owes them
Residual Value
What you expect to be able to sell item for at the end of your use
Depreciation: Sum of the Years
5 year asset deprecation: 5/15 = first year 4/15 = second year 3/15 = third year 2/15 = fourth year 1/15 = fifth year denominator is how many years (15) - numerator adds to this: 5+4+3+2+1
RULES
R=Realization
Converting work to $ collected
Billing Realization = Work 100,000, bill 90,000 = 90%
Collection Realization = Bill 90,000, collect 85k= 95%
Total = dollars worked (100k), $collected (85,500) = 85.5%
