Chapter 1- Learning objective two + three
Example: Blue Diamond Corporation has current assets of $360 million; property, plant, and equipment of $600 million; and other assets totaling $220 million. Current liabilities are $210 million and long-term liabilities total $560 million. How much in resources does Blue Diamond Corporation have to work with?
$1180
Example Blue Diamond Corporation has current assets of $360 million; property, plant, and equipment of $600 million; and other assets totaling $220 million. Current liabilities are $210 million and long-term liabilities total $560 million. How much of the company's assets do the stockholders actually own?
$410
Example Blue Diamond Corporation has current assets of $360 million; property, plant, and equipment of $600 million; and other assets totaling $220 million. Current liabilities are $210 million and long-term liabilities total $560 million. How much does Blue Diamond Corporation owe creditors?
$770
What are considered liabilities
-accounts payable -income taxes payable -long-term debt
What are considered assets
-cash and cash equivalents -merchandise inventory -property, plant, and equipment
what are owner's equity
-insider claims -represents ownership by stockholders
What are liabilities
-outsider claims -debts payable to others
What are considered stockholder's equity
-paid in capital -retained earnings
retained earnings will increase if-->
-revenue increase -expenses decrease -dividends decrease
Example: Blue Diamond Corporation has current assets of $360 million; property, plant, and equipment of $600 million; and other assets totaling $220 million. Current liabilities are $210 million and long-term liabilities total $560 million. Requirements Use these data to write Blue Diamond Corporation's accounting equation.
Assests($1,180) = Liabilities($770) + Stockholders Equity($410)
Owner's Equity =
Assets - Liabilities
Ending Retained Earnings =
Beginning Retained + Net Investment - Dividends
Assets =
Liabilities+ Owner's Equity
define continuity assumption
a business entity will continue to operate indefinitely, or at least for another twelve months
Define historical cost principle
a measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company
if expense exceed revenue-->
a net loss results
define entity assumption
accounting data from the business is isolated and will be the same regardless of the personal finances of its owners
According to the entity assumption principle
all business forms are considered separate for its owners for accounting purposes
define retained earnings
amounts earned and kept by business
define paid-in capital
amounts shareholders have invested
What does assets mean in accounting
an economic resource that provides a benefit
what are the qualitative characteristics of accounting
comparability, verifiability, timeliness and understandability
what are the constraints of accounting
cost
define dividends
distributions of assets to stockholders (not an expense)
What is true in terms of assets when it comes to business and owners
for accounting purposes the business and owners do not have the same assets
define revenue
inflows of resourced earned by delivering goods and serves to customers
The primary objective of financial accounting is to
provide useful information to outside decisions makers (investors and creditors)
the fundamental qualitative characteristics of accounting include:
relevance and faithful representation
what are the fundamental qualitative characteristics of accounting
relevance and faithful representation
define expense
resources outflows from the cost of doing business
paid in capital is another term for
stocks
What is accountings objective
to provide financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity