Review Flashcards
What are investing activities?
Activities that consist of acquiring and disposing of resources (assets) that a company uses to produce and sell its products or provide its services.
Short-term v. Long-term assets
Short-term: Resources used quickly such as inventory
Long-term: Resources used over longer periods of time, such as buildings or equipment.
Creditors
Banks and other lenders that provide money that must be repaid.
Use financial accounting information to assess loan terms, loan amounts, interest rates, collateral.
Suppliers
Provide supplies, inventory, etc. needed for operations.
Use financial information to establish credit sales terms and to determine long-term commitment to supply-chain relations.
Shareholders
The shareholders of large corporations…
Provide resources such as cash to a corporation in exchange for stock ownership.
Not involved in day-to-day business operations.
Rely on financial statement information:
▪ To evaluate management performance
▪ Assess the company’s financial condition
▪ Predict future success
Operating activities
The use of company resources to produce,
promote, and sell its products or services.
Operating income = Revenues - Expenses
Balance sheet
Lists the company’s investments and sources of financing using the accounting equation.
Assets = Liabilities + Equities
Reports the company’s financial position at a point in time.
Income statement
Reports the results of a company’s operating activities over a period of time.
Revenues – Expenses = Net Income
Statement of stockholders equity
Reports on changes in equity over a period of time:
- Contributed capital
- Retained earning
- Other stockholder’s equity changes
Contributed capital
Amounts from issuing new stock during the period.
Common stock and additional paid-in capital.
Retained earnings
Cumulative income since the company began business minus dividends paid out to shareholders.
Statement of cash flows
Reports net cash flows from operating, investing, and financing activities over a period of time.
Note!
Operating cash flows differ from net income due to differences in the time that revenues and expenses are recorded and the time the cash is received and paid.
Financial statement linkages:
- How did cash (on the balance sheet) change?
- How did equity (on the balance sheet) change?
- How did operations affect retained earnings (on the balance sheet)?
- Look at statement of cash flows.
- Look at statement of stockholder’s equity
- Look at statement of income