Midterm Flashcards
If Sources of Cash > Uses of Cash, que pasa?
$ added to Checking Account
List some Assets (5)
Accounts Receivable, Cash, Inventory, Prepaid rent, PPE, Goodwill
List some Liabilities (4)
Accounts Payable, Accrued Salaries, Accrued Interest, Utilities Payable
Cash Inflow examples (4)
aka How you might finance stuff
Sales $$, taking out loans, issuing stock, selling used/old PPE
Cash Outflow examples (10)
Producing inventory, paying salaries, rent, paying off loans (/interest), taxes, buying PPE, acquiring companies, buying intangible assets, buying back stock, paying dividends
THE INCOME STATEMENT!
- earnings statement*
- sum total revenues for year (or accounting period)
- prepared using Accrual Accounting
- bottom line is Net Income
THE BALANCE SHEET
- statement of financial position
- shows ending balances of that year
- point in time!
Accrual Basis Accounting
recognizes receivables from making sales on credit &; liabilities for unpaid expenses (?)
Financial condition
assets vs. liabilities at end of period (measure this quickly by amt in checkbook at end of year)
Is COGS an expense?
Yes
Leasehold Improvements
improvements made to make space better for lessees (check this)
Salvage value and depreciation value…
If there’s a salvage value to be had from selling old PPE, we take that off before we calculate the depreciation value
Example of Impairment of Assets?
Blockbuster’s VHS tapes!
def: Intangible Asset
Provide economic value to the company for > 1 year, like a patent (that was purchsed)
def: Capital Stock (Common Stock)
$ investors paid to invest in the company. Like the original price of stock shares
Three sources of financing
- Borrowing / 2. Issuing shares of stock / 3. Reinvesting profits
Treasury Stock
when a company buys back its own stock
Advantages of Sole Proprietorships (3)
Disadvantages (2)
- easy to start up
- no incorporation fees to pay
- owner receives all profits
- hard to raise capital (can’t issue stocks/bonds)
- riskier - it’s all on the owner. in bankruptcy, creditors can take the personal assets of the owner
Advantages of Partnerships
Disadvantages
- relatively easy and inexpensive to form
- wider pool of knowledge, skills, contacts so better mgmt
- each partner is personally liable for all debts
- in bankruptcy, creditors can take the personal assets of the owner
- less stability - a partner cannot transfer interest in the business w/o unanimous consent of partners
Stuff about corporations
- ownership divided into shares of stock.
- in founding charter, authorized to issue a maximum number of shares of stock
- in bankruptcy, the most they will lose is the amt they paid for their shares
- obvi, easy to raise capital by selling shares of stock
Diff between investors and creditors
investors: don’t get paid back but share in the profits of the company (dividends)
creditors: will get paid back in full (+ interest)
External parties
Internal parties
E: creditors, investors
I: owners, employees
GAAP Four Assumptions
- Separate Entity
- Going Concern
- Measurement and Units of Measure
- Periodicity
GAAP Four Basic Accounting Principles
- Historical Cost
- Revenue Recognition
- Matching
- Full Disclosure
GAAP Four Constraints
- Objectivity/Estimates and Judgements
- Materiality
- Consistency
- Conservatism
Periodicity
Organization’s life is divided into cycles, financial statements for each period
T/F Financial statements include internally developed patents/trademarks (where the value cannot be measured)
False
Going concern
Company expects to operate indefinitely
Historical cost (principle)
Assets are reported at their initial historical cost (not current market value!)
Revenue Recognition (principle)
- revenue must be recorded when it is earned and measurable
- revenue is recognized when earned, even if the cash will not be received for a long time
Matching (principle)
-costs associated with producing a product must be recorded (matched to) the revenue generated from the sale of that product during the same period
Full disclosure (principle)
-companies must disclose all relevant economic information that will make a diff to their users to make an informed, rational decision aw
Materiality (constraint)
-only significant items need to be reported
Consistency (constraint)
-gotta use the same accounting principles over time so yoy comparisons are possible
Conservatism
ya know, don’t overstate assets/revenues; don’t understate liabilities/expenses
Interpret GM% of 35%
65c of every dollar made went into producing the product; 35c is left to cover other expenses like interest, etc.,
T/F The longer a company can stretch out the payable period, the better
True
T/F The longer the cash conversion cycle, the better
False. You want to be paid back for money lent out asap.
Amortization
Accumulated depreciation, for intangible assets
Goodwill
+
how does it get evaluated
An intangible asset that results when a company purchases another company for more than the book value.
It gets evaluated every year. So it can get written down.
Formula for book value
TA - TL
Period expenses
Not associated with a single product; listed as an expense in the period they occurred. Like salary, overhead.
Double entry accounting
xx
T/F
Expenses are matched to revenue when feasible
True
Is Inventory account based on the cost of the inventory or what was paid for the goods?
Original cost of the inventory
What does OE stand for
Owners Equity
