Ba10 Module 5 Accounting

Front 1

Sarbanes Oxley Act of 2002 (4)

Back 1

1. no more self regulation: established Public Accounting Oversight Board
2. limits non-audit activities: allows consulting, but must be approved
3. audit committees (some directors of firm) have more requirements: whistle-blower, must have one accounting expert, audit committee (not management) chooses auditors

4. CEOs and CFOs must sign financials

Front 2

5 factors for choosing the best form of business

Back 2

1. personal liability
2. taking profits
3. how taxes paid
4. raising capital
5. control

Front 3

short term uses of funds (3)

Back 3

buy inventory
pay for operations (wages)
extend credit (accounts receivable)

Front 4

short term sources (5)

Back 4

1. trade credit (no cost)
2. line of credit (borrow from bank for a month or so)
3. secured loan (ex: car dealership floorplan)
4. FACTORING (take copies of invoice to factor, and factor will pay invoice from manufacturers) best for furniture and clothing
5. "commercial paper" (firms loaning $ to other firms)

Front 5

long term uses of funds (4)

Back 5

-buy fixed assets (PPE)
-Make an acquisition (buy another firm)
-change capital structure (issue bonds, use money to buy back some shares of stock)

Front 6

long term sources (3)

Back 6

-retained earnings
-debt (ex: leasing, bonds)
-equity (ex: venture capital, preferred stock: stock before sold to public)

Front 7

angel investors

Back 7

invest small amts of $ to get company going in return for shares

Front 8

simple interest

Back 8

1000 x interest rate = future

Front 9

"present value" formula

and why is it important

Back 9

F= P x (1+r)^t

convert everything to "now" time

Front 10

Net Present Value Rule

and why is it important

Back 10

-select project with biggest NPV

convert future inflows to present time, and subtract investment needed

Front 11

Rule of 72

Back 11

the number of years it takes to double a sum of money

doubling time = 72/interest rate

Front 12

Annual Percentage Rate (APR)

Back 12

interest rate on loans and saving accounts usually stated in this form with a certain frequency of compounding

Front 13

Effective Annual Rate (EFF)

Back 13

used to make interest rates comparable

EFF= FV at the end of the year per dollar - 1= (1.004)^12 - 1.
or
EFF= (1+ APR/m)^m -1

Front 14

what happens to the price of "fixed income streams" when market rates fall?

Back 14

it rises

Front 15

key interest rates

Back 15

1. 10 year treasury note: 5%
2. 6 month treasury bill: 4.9%
3. 6 month certificate of deposit: 4.5%
4. "tax exempt" (typical) shorting stocks: 4.22%
5. commerical paper: 3.87
6. "money market": 2.7
7. checking account interest= 1.25

Front 16

risk premium

Back 16

the extra interest that companies pay investors above the gov't interest rate.

Front 17

total return

Back 17

interest + appreciation

Front 18

P/E Ratio

Back 18

current stock price/ annual earnings per share

Front 19

breakeven point

Back 19

fixed cost/contribution

Front 20

contribution

Back 20

selling price-variable cost

Front 21

accrual

Back 21

revenue - expenses

Front 22

net income

Back 22

income (profit) - tax (corporate income tax)

Front 23

double taxation:

the interst paid on bond is a ________. does it show up on income? therefore it is ____ _______________.

Back 23

interest paid on

Front 24

are dividends counted as expenses? what does this mean

Back 24

no. so means taxed at corporate level

Front 25

ALE

Back 25

Assets = Liabilities + Equity

Front 26

current assets (3)

Back 26

1. accounts receivable
2. merchandise inventory
3. pre-paid expenses

Front 27

owner's equity

Back 27

1. paid in capital: additional $ invested by owners
2. retained earnings