Accounting

Purchasing PPE (i.e. a building), purchasing a debt/equity investment (i.e. buying a bond/stock), selling PPE or the debt/equity investment

raising money from outside sources, borrow money (debt financing), issue share of stock for cash (equity financing), includes issuance of debt (i.e. issuing a bond), issuance of equity (i.e. issuing stock), repayment of debt, paying out dividends

generating revenue, operating assets, paying expenses, includes day-to-day operations (i.e. supplies, inventory, accounts receivable), accounts payable, interest payable, wages payable, sales taxes payable, property taxes payable, and income tazes payable

business owned by one person, simple to establish, owner-controlled, tax advantages; negatives: liable for debts & legal obligations

a business owned by two or more "persons", usually formed to combine economic resources or unique skills, simple to establish, shared control, broader skills and resources, tax advantages; negatives: liable for debts & legal obligations, partner disagreements

business organized as a separate legal entity owned by stockholders, easier to transfer ownership, easier to raise funds, no personal liability; negatives: double taxation

combines the tax advantages seen in sole proprietorships & partnerships with the limited liability of corporations

managers who plan, organize, and run a business; includes: marketing managers, production supervisors, finance directors, company officers; important for these users to have accurate and detailed information on a timely basis

anyone who has an interest or stake in the business; includes: investors, creditors, suppliers, customers, IR, labor unions

Income Statement, Retained Earning Statement, Balance Sheet, Statement of Cash Flows

shows how successfully your business performed during a period of time (revenue - expenses)

Indicates how much of previous income was distributed to owners of your business in the form of dividends, and how much was retained in the business to allow for future growth

presents a picture at a point in time of what your business owns (assets) and what it owes (liabilities)

Assets = Liabilities + Owners' / stockholder' Equity

assets expected to be converted to cash or used up < 1 year; ex. cash, investments (short term), receivables (account, note, interest), inventories, prepaid

investments in stocks or bonds from corporation that are held > 1 year, "long term" assets not used in operating activities (i.e. Land & buildings), "long term" notes receivable

property, plant, and equipment: assets with relatively long useful lies that are currently used in operating the business; land, buildings, equipment, delivery vehicles, furniture

obligations the company is to pay <1 year; goodwill, patents, copyrights, trademarks, trade names

obligations the company is to pay < 1 year; accounts payable, salaries & wages payable, notes payable, unearned revenue, interest payable, income taxes payable, current maturities of long-term debt

obligations a company expects to pay > 1 year; bonds payable, mortgages payable, long-term notes payable, lease liabilities, pension liabilities

#1 Common stock: represents the amount stockholders paid to have a "piece" of the business, #2 Retained Earnings: income retained for use in the business

expresses the relationship among selected items of financial statement data; must compare the ratio to another ratio to draw meaning from it

intracompany: ex. Apples EPS is higher this year than last year, industry-average: ex Apples EPS is higher than the average EPS in the tech industry, intercompany: ex.Apples EPS is higher than Microsofts

profitability ratios, liquidity ratios, solvency ratios

Measures the net income earned on each share of common stock; = (Net Income - Preferred Dividends)/(Weighted Average Common Shares Outstanding)

difference between current assets and current liabilities; = current assets -

= current assets / current liabilities; weakness: current ratio still does not consider the "composition" of the assets

measures the % of total financing provided by creditors rather than stockholders; = total liabilities / total assets, more risky than equity financing

gives authoritative guidance to the accounting profession, dictates the formatting of the financial statments

is the primary accounting standard-setting body in the US; basically they create & update GAAP

US government agency that oversees US financial markets and accounting standard-setting bodies; oversees both the FASB and the PCAOB

determines US auditing standards and reviews the performance of auditing firms, registers and inspect public accounting firms

international accounting standards for public companies

issues IFRS; FASB and IASB are working toward convergence

requires that only those things that can be expressed in money are included in the accounting records. This means that certain important information needed by investors, creditors, and managers, such as customer satisfaction, is not reported in the financial statements. This assumption relies on the monetary unit remaining relatively stable in value

states that every economic entity can be separately identified and accounted for. In order to assess a company's performance and financial position accurately, it is important to not blur company transactions with personal transactions or transactions of other companies

states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business. Notice that the income statement, retained earning statement, and statement of cash flows all cover periods of one year, and the balance sheet is prepared at the end of each year

states that the business will remain in operation for the foreseeable future. Of course, many businesses do fail, but in general it is reasonable to assume that the business will continue operating

when different companies use the same accounting principles, comparability results

the quality of consistency means that a company uses the same accounting principles and methods from year to year

for accounting information to have relevance, it must be _______. That is, it must be available to decision-makers before it loses its capacity to influence decisions. The SEC requires that large public companies provide their annual reports to investors within 60 days of their year-end

information has the quality of _________ if it is presented in a clear and concise fashion, so that reasonably informed users of that information can interpret it and comprehend its meaning

accounting information that provides information that has predictive value, that is, helps provide accurate expectations about the future and has confirmatory value, that is, confirms or corrects prior expectations

information accurately depicts what really existed or happened. Information must be complete, neutral, and free from material error