Week 3: General Financial Statements Flashcards
Cash and cash equivalents
Assets that can be liquidated within 3 months
Receivables
When someone owes you something
Inventory
Merchandise that you are in the business of selling
Prepaid expense
Pay for something in advance, like rent. Becomes an asset when you buy it. Expires over time as it is used up
Current Assets vs Long Term Assets
Current assets you can turn into cash within the year
Long term assets take more than a year to turn into cash
Tangible
What you can see
Intangible
What you can not see
Goodwill definition
What a company pays for another company over its fair value
Right of use asset
Someone leased out the asset
Three types of investments by one company into another
0-20% investment - use the fair value method
20-50% Associate - use the equity method (every year you add your share of the subsidiary’s profit to your balance sheet, and reduce it when it makes a dividend)
50%+ Consolidated: financial statement is combined with the subsidiary as if it were one company
Content Assets
Media assets (like rights to movies and tv shows)
Straight-line vs declining balance
Assets like equipment and buildings need to be depreciated, meaning the value needs to be reduced
Straight-line means you subtract the same amount each year
Declining balance depreciated the same amount a year. Logarithmic
Current liabilities vs long-term liabilities
Current liabilities have to be paid within the year
Long-term liabilities have to be paid after the year
Accrued expenses
Not expenses, actually a liability
a past expense that has not been paid for yet
Deferred revenue
Liability
When you are paid in advance for a service you have not yet provided
Revenue Recognition
Recognize revenue when a company earns revenue, not necessarily when they are paid
Contingency liability
For when you do not know how much a liability will actually be, such as a lawsuit
How does preference go when it comes to paying back investors?
- Debt lenders
- Preferred stockholders
- Common stock investors
Par value*
Excess paid-in capital*
When you start a new venture, what do you issue?
Stock and debt
Where is most SEC fraud from? What percent does it take up?
60% of SEC fraud is on revenue regonition
What should one focus on in the income statement?
Gross profit, revenue, and net income
Extrodaniary item
Items which happen very infrequently, such as maybe winnings from a lawsuit or losses from a flood
Impairment
Loss in the value of an asset
The income statement is a story during a:
Period of time
The balance sheet is a story during a:
Point in time
Selling and general administrative expenses
operating expenses
NIBDT
Net income before depreciation interest and taxes
Marketable securities
assets that can be liquidated to cash quickly because they can be traded on an exchange
Worldcom
They pretended expenses were assets
Volkswagon fraud
Fraud on car emissions
Depreciation
Wear and tear
