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14 Cards in this Set
- Front
- Back
Accounting is based on assumptionsUnderstand the incentives of management. A lot of managerswill do what they can with the numbers to beat analysts projection Balance sheets start with most liquid assets. 4 statements |
1)Balance sheet -financial position 2) Income Statement- Profit and Loss 3)Statement of Cash Flows - cash flow statement 4)Statement of Shareholders Equity |
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Basic Accounting Statement |
Resources=Sources of Resources Assets=Liabilities+Shareholders Eqtuiy Basically what you have= what you owe+ net worth or the residual claims by owners on assets after liabilities have been satisfied. |
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Income Statement |
Reports performance over a period of time. Net Income= Revenues-Expenses Revenues are inflow money reduction of liabiltiies. and expenses are visa versa Financing: cash from issuing debt or new capital- dividends |
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Balance Sheet at Dec 2013 Cash+Noncash Assets= Liabilities +Contributed Capital+ Retained Earnings Statement of Cash Flows |
Income statement gives you retained earnings Cash Flow Statement gives you changes in cash for a period |
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Asset Definition how can you value? |
1)Firm controls the right to use it 2)Right to use it arises from pat transaction 3)Future benefit can be quantified with reliability accounting assets does not equal 1)Cost value 2)Current Replacement 3) Net realizable value 4)MV |
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Current Asset |
Expect to convert to cash within one year or however long your business cycle |
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Liabilities |
Represents a future obligation for cash outflow. 1)Present obligation 2) Existing from past exchange 3)Requires future economic resource from the firm 4) can quantify with reliability If a loss is over 75% likely to happen then should be on the sheet |
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Shareholders Equity |
Residual claim on assets after settling claims of creditors. It's equal to total assets minues total liabilities. |
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Shareholders Equity-Contributed Capital and Retained Earnings |
Contributed Capital: investments made by shareholders in the firm -par or stated value of the shares -remaining amoun: Additional-Paid In Capital Retained Earnings: net accumulation of earnings of firm since inception. Increased by positive net income. Reduced by payment of dividends to the shareholders or net loss |
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How do the accounting pieces fit together? |
Assets= Liabilities + Shareholders Equity Balance Sheet: Assets= Liabilities +Contributed Capital+Retained Earnings Shareholders Equity Sheet: Change in contributed capital+ change in retained earnings Change in Retained Earnings: Net Income-Dividends |
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Income Statement |
Net income is change in assets during two periods Assets=Liabilities+Contributed Capital+Net Income-Dividends These are all change below Net Income= Assets- Liabilities-contributed capital+dividends Net Income= Revenue-Expenses+Gains-Losses |
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Statement of Cash Flows Formula |
Is the change in cash inflows and outflows between two periods z=change zCash=zLiabilities+zContributed Capital+Net Income-Dividends-zNon-Cash Assets |
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Double Entry RecordKeeping What is it? |
All transactions affect at least two accounts: 1) Increase an asset and a liability or shareholders equity by same amount 2) Decrease samsies 3)Increase and asset and decrease another by same amount 4) increase Liability or Owners Equity and decrease another owners equity or liability by same amount |
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T-Accounting And 3 accounting rules |
1)Every transaction must have at least one debit and at least one credit debit left side credit right. obviously liabilities and shareholders equity, credit side is positive/increases and debit side decreases. for assets is visa versa. so if decrease in liabilities, goes on left side of liability account Rules 1) Assets=liabilities+shareholders equity 2) Beginning balance+increases-decreases= ending balance 3) sum of debits=sum of credits |