D196 - Module 3
cash assets
Coins, currency, checks
Dividends
Earnings that are not retained in the business are called ________
Retained Earnings
Earnings that are retained in the business
Comparitive Financial Statements
Financial statements that include information for both the current year and preceding year(s) that are prepared for users to identify any significant changes in particular items.
Owners' Equity
How much the owners originally invested in the business, in addition to profit left in the business ( = assets - liabilities)
inflows, outflows
In considering revenues and expenses, remember that not all __________ of assets are revenues; nor are all _____________ of assets considered to be expenses. For example, cash may be received by borrowing from a bank, which is an increase in a liability, not a revenue. Similarly, cash may be paid for supplies, which is an exchange of one asset for another asset, not an expense.
Inventory (Asset)
Items that are purchased or manufactured by a company that are being held for resale
net assets, retained earnings, owner's equity
Net income results in an increase in _________ and a corresponding increase in ___________, which increases ___________.
Liabilities
Obligations that will require probable future sacrifice of economic benefit in the form of transfer of assets or the providing of services
Sales − cost of goods sold − operating expenses
Operating income (formula) =
Assets
Resources owned or controlled by a company that will provide probable future benefit
Buildings (Asset)
Structures used in the operations of a business
supplementary
The FASB and SEC both require ___________information
income statement, retained earnings
The _________ explains the change in the ___________ balance in the balance sheet
Capital Stock
The amount given by shareholders to obtain shares of stock from a company
Earnings (loss) per share (EPS)
The amount of net income (earnings) related to each share of stock; computed by dividing net income by the number of shares of stock outstanding during this period.
60 days
The company is required to file its 10-K with the SEC within ____________ of the end of its fiscal year.
Gross Profit
The difference between sales and cost of goods sold; gross margin
stockholders or shareholders
The owners of a corporation are called
statement of cash flows, balance sheet
The statement of ______________ explains the change in the cash balance in the _____________
One accounting period to the next
The statement of retained earnings therefore displays the changes in retained earnings from _____________
dollar amount
To be summarized and aggregated on a balance sheet, each asset must be assigned a ______________
Current Assets
cash and other assets that are expected to be converted to cash within a year.
Captures cash inflows and outflows from Operations, Investing, and Financing
cash flow statement
publicly traded companies
companies whose ownership shares are trading on stock exchanges
selling goods or providing services, selling other assets, borrowing, and receiving cash from investments by owners.
What are common forms of cash inflows?
Getting the money you need to buy assets borrowing repaying loans get cash from shareholders paying dividends Not daily, but important!
What are financing activities?
buying and selling long term assets - investing in the long-term productive capacity of the business buildings equipment land machines Important, but not common
What are investing activities?
Normal business activities such as: Collecting cash from customers paying cash for inventory purchases paying for employee salaries paying rent
What are operating activities?
1. Summary of significant accounting policies 2. Additional information about the summary totals found in the financial statements 3. Disclosure of important information that is not recognized in the financial statements 4. Supplementary information required by the Financial Accounting Standards Board (FASB) or the Securities and Exchange Commission (SEC)
What are the four general categories of financial statement notes?
annual, quarterly
What are the most common intervals for income statements and cash flow reports to be published?
interest and income taxes
What are the primary non-operating expenses?
the balance sheet, the income statement, and the statement of cash flows.
What are the three primary financial statements?
10-K (annual) and 10-Q (quarterly)
What financial disclosures are monitored by the SEC?
The physical store itself
What is an example of a building asset?
The amount in a company's bank account
What is an example of a cash asset?
The loan associated with the purchase of a home or building
What is an example of a mortgages payable liability?
Corporate income tax or employment taxes owed but not yet paid
What is an example of a taxes payable liability?
The amount owed by a company for inventory that was purchased on credit and has not been paid for yet
What is an example of an accounts payable liability?
If you have a balance on your credit card, the credit card company classifies the amount you owe them as this type of asset
What is an example of an accounts recievable asset?
The items you see on the shelves in Walmart
What is an example of an inventory asset?
Magazines a company owes a customer who bought a 12-month magazine subscription
What is an example of an unearned revenue liability?
A company sells shares of stock to the public. The amount the company receives is capital stock. Partnerships and limited liability corporations (LLCs) also have forms of _______________ accounts that are adapted to the legal formation of these types of entities.
What is an example of capital stock?
If a company reports net income for the year of $100,000 and reinvests the entire amount in the business (does not distribute dividends to its owners), ___________________ are $100,000
What is an example of retained earnings?
1. Inventory makeup - raw materials, WIP, finished goods 2. Receivables - gross amount and allowance for bad debts 3. Pension liability - assumptions about interest rates. etc
What is contained in the Additional Information about Summary Totals section of the notes to the financial statements?
1. status of legal proceedings 2. subsequent events (event after the statements period)
What is contained in the Disclosure of Information Not Recognized section of the notes to the financial statements?
1. Business Segment Breakdown 2. Domestic/International sales breakdown
What is contained in the Supplementary Information section of the notes to the financial statements?
1. Revenue Recognition 2. Inventory Methods 3. Depreciation Methods 4. Use of Estimates
What is contained in the summary of significant accounting policies section of the notes to the financial statements?
What a business does (products or services, and markets of operation) Risks to which the company is exposed Significant properties owned by the company Significant Legal Proceedings Management's discussion and analysis of the company's financial condition and results The company's financial statements Other miscellaneous items
What is included in form 10-k?
= Sales−Cost of Goods Sold (COGS)
What is the Gross Margin (Profit) Formula
Balance Sheet = What do you have or owe right now? Income Statement = What did you make last month, last quarter, or last year?
What is the difference between a balance sheet and an income statement?
= Net Income / Outstanding Number of Shares of Stock
What is the earnings (loss) per share formula?
EDGAR
What is the name of the SEC search tool that allows interested individuals access to financial information about many different companies?
it does not reflect the current value or worth of a company some assets cannot be measured/quantified, therefore it is not equal to the market value of the company
What is the primary limitation of the balance sheet?
1933
When was the Securities and Exchange Commission created?
Central Index Key (CIK)
Which resource or tool is used to identify unique companies in the SEC's 10-K filing database?
many assets are recorded at cost, and som intangible assets are not recorded at all
Why does the balance sheet not reflect the current value or worth of a company?
Statement of Retained Earnings
a statement of the earnings that have been retained in the business reports how the company's retained earnings balance changed from the beginning to the end of the period Although this is not one of the three primary financial statements, it is important because it links the income statement and balance sheet together.
Long-term assets
assets that are expected to be used in business operations for longer than one year
Classified Balance Sheet
A balance sheet that distinguishes between current and long-term assets
Net Income
A line on the income statement that reports a company's operating income minus interest expense and taxes.
Operating Income
A line on the income statement that reports the results of what a company does on a daily basis
Accounts Payable (Liability)
Amount owed as a result of the purchase of goods and services on credit
Unearned Revenue (Liability)
Amount owed in services or products (not money) to a customer who paid in advance
Mortgage Payable (Liability)
Amount owed relating to the purchase of property
Taxes Payable (Liability)
Amount owed to federal and state governments resulting from the application of tax laws
Accounts receivable assets
Amounts owed to a company that sold goods or services to a customer on credit
Expanded Accounting Equation
Assets = Liabilities + [Capital Stock + Cumulative Net Income - Cumulative Dividends]
Liquid
Assets in the form of cash or can be easily converted into cash
Illiquid
Assets like undeveloped land that take time and effort to convert into cash
Assets = Liabilities + Owner's Equity
Balance Sheet Formula
Retained Earnings Equation
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
disclosure
does not include estimates and judgments in the financial statements but instead to explain them in the notes to the financial statements
recognition
include estimates and judgments in the financial statements
Revenues - Expenses = Net Income
income statement equation
operating, investing, financing
individual cash flow items are classified according to three main activities: (in order)
losses
money lost on activities outside the normal operation of a company
gains
money made on activities outside the normal operation of a company
Current Liabilities
obligations expected to be satisfied within a year
long-term liabilities
obligations that a company expects to pay after one year
file their financial statements with the Securities and Exchange Commission (SEC).
publicly traded companies are required to:
gross, net
revenues represent total resource increases; expenses are subtracted from revenues to derive net income or net loss. Thus, whereas revenue is a ______ concept, income (or loss) is a ________ concept.
Statement of Cash Flows
shows the cash inflows (receipts) and cash outflows (payments) of an entity during a period of time.
Revenues
the amount of assets created through the sale of goods and services.
articulation
the interrelationships between the financial statements
Stockholders' Equity
the owners' equity section of a corporate balance sheet is sometimes referred to as
Market Value
the price that would have to be paid to buy the same asset today. For example, if land was obtained ten years ago, it would still be reported on the balance sheet at its original cost, even though its _____________ may have increased dramatically
book value
the value of a company measured by the amount of owners' equity, usually less than the market value
pay current operating expenses such as wages, utilities, and taxes; purchase additional buildings, land, and otherwise expand operations; repay loans; and pay their owners a return on the investments that have been made.
what are common forms of cash outflows?
