Accounting Final
Non-disclosure agreements
creates a confidential relationship between your business and key management personnel so they can't take your proprietary information to a competitor
Company bylaws
private governing document for a corporation, e.g. provides procedures for the voting of board members and annual meetings
Meeting minutes
private, internal documents that provide the official account of the board's history of decisions (i.e., its institutional memory)
Corporations can issue shares of stock to
raise equity capital, separating ownership from control
Equity holders expect to earn a certain (blank) like debt holders receive interest and this is a real cost that influences managers' actions
rate of return
Equity investors' expected (blank) is the cost of equity capital
rate of return
Prospectus (Form S-1)
registration statement that is required by and filed with the SEC that provides details about an investment offering for sale to the public
Board of Directors
represents shareholder interests, hire & oversee management
Annual Report (10-K)
required annual report for U.S. public companies, provides a comprehensive summary of a company's financial performance with audited financial statements
Quarterly Report (10-Q)
required quarterly report for U.S. public companies; less detailed than the annual report, and financial statements are reviewed, not audited
IRS Form 1120
Reports the income, gains, losses, deductions, credits, etc. to determine the corporation's income tax liability Note: a corporate tax filing will include many additional forms and schedules
The balance sheet indicates the
'financial position' of the firm at a particular point in time ("stocks")
A liability should be reported if the following three conditions are met:
(1) future sacrifice is probable (2) amount of the obligation is known or can be reasonably estimated (3) transaction or event that caused the obligation has occurred ("in the past")
Primary source of accounting data
-Stock certificates -Employment contracts -Debt contract -Invoice -Lease agreement -Underwriter agreement -Purchase agreement -Bond indenture -Dividend declaration -IRS Form 1120 -Contract with valuation firm -Due diligence report
Current Liabilities
-accounts payable -accrued liabilities (e.g. accrued/unpaid wages)
Current Assets
-cash & cash equivalents -accounts receivable -inventory
Non-current Liabilities (long term, > 1 year)
-long term debt -other long term liabilities (e.g. pensions)
The Accounting Equation
Assets - Liabilities = Owner's Equity Assets= Liabilities + Stockholders' Equity Assets = firm's resources Liabilities + Stockholders' Equity = sources of the resources/represent legal ownership claims on the firm's assets
End Balance =
Beg. balance + inflows - outflows
Contract with valuation firm
Contract with outside firm that obtains information (e.g., financial info) from a target company and provides due diligence valuation services
Present Value =
FV/ (1 + interest rate (r))^n
For what fundamental purpose do we keep records?
Help make business decisions
Stockholders: (Blank) of the corporation, not usually involved in day-to-day business decisions
Owners
Non-current Assets (long term assets)
Property, plant & equipment (e.g. land, factories, office buildings, machinery, etc.)
Net Income
Revenues- expenses This shows the owners' residual claim
Fundamental demand for accounting
To help guide exchange
Pitch deck
a brief presentation of your business plan used to "pitch" potential investors to raise capital
Packing slip
a list of what the supplier included in the shipment delivered by a carrier
Expenses
costs incurred in order to generate revenues
Purchase contracts with chosen customers
agreement between a company and its customer to establish the delivery of a set of services, establishing responsibilities, timeframes, payment, and pricing
Contracts with chose suppliers
agreement between a customer and a supplier to establish the delivery of a set of products, establishing responsibilities, timeframes, payment, and pricing
Operating agreement
agreement between managers and owners regarding how the business will operate, how decisions are made, and responsibilities and rights
Contributed capital
amounts paid directly to the firm in exchange for shares of ownership
SAFE (Simple agreement for future equity)
an agreement between an investor and a company that provides rights to the investor for future equity
Debt contract
an agreement detailing the amount the bank is providing today, the amounts you repay at certain future dates, and the rights and obligations of both parties
Asset
anything of economic value that can somehow help the firm provide its goods and services to its customers, either directly or indirectly
Applications for trade credit
applications received from potential customers allowing companies to verify their creditworthiness to determine whether to extend trade credit as a new customer
'Stocks' " how much (blank) we have
at a given point in time (e.g. right now, beg. of the year, etc.) BALANCE SHEET Ex. How much lemonade we have
Listing agreement
authorizes the listing exchange (e.g. NYSE, Nasdaq) to represent the company
Creditors: Companies can also (blank) from a bank or another source to raise credit capital
borrow
Corporate finance informs
capital acquisition/maintenance
Retained earnings represent a (blank) on a portion of the firm's assets and are not an asset themselves
claim
Supplier
companies that supply you with raw material that you use in your business
Bond indenture
contract between a company and its bondholders which details of all the terms and conditions of the bonds, such as the exact day of their maturity, the timing of the interest payments and how they are calculated, and the details of any special features
Underwriter agreement
contract providing details of the arrangement between a company and its underwriter, who guarantees payment and accepts the financial risk related to that guarantee
The two primary categories of equity:
contributed capital and retained earnings ("earned" capital)
Dividend declaration
declaration by the Board of directors to shareholders announcing the date and amount of a forthcoming dividend payment
Employment contracts
defines the roles, responsibilities and rights of your employees; helps resolve disputes in case of a disagreement
Due diligence report
detailed report from valuation firm about the target company, includes detailed information on the fair value of all identifiable assets and liabilities
Investors' demand for greater returns on risky stocks (blank) the company's expected future returns to be a lower present value
discounts
Accountants (blank) allow internally developed intangible assets to be recorded
do not (e.g. value from a pizza party)
Bill of lading
document issued by a 'carrier' that details the type, quantity, and destination of the goods being carried, and serves as a shipment receipt when the carrier delivers the goods at a predetermined destination
Reply to request for proposal (RFP)
document that solicits potential suppliers to submit proposals to compete with other suppliers for a contract to provide products or services
Banking Agreement
documents all legal rights and obligations regarding the company's operating accounts (checking, savings, etc.)
Stock certificates
documents proof of ownership for stockholders
Shareholder agreements
documents provisions regarding shareholder involvement, such as protections and responsibilities for shareholders
Nature of Business
economic process businesses follow (1) obtain capital (2) to make investments (3) to generate a positive future return
The most fundamental demand for accounting arises when
entrepreneurs seek to profitably design, produce, market, and deliver products and services to customers
Corporate charter/Articles of incorporation
filed in the state of incorporation, details the major components of a company; approval is required for legal corporation
Purchase agreeement
final contract for the sale of one company to another
'Flows' how much (blank) we've sold
for a given period of time (e.g. this month, this year, since the inception of the business) INCOME STATEMENT Ex. How much lemonade we've sold
The amount paid in excess of the market value identified net assets is called
goodwill
Business licenses/permits
granted by the state and/or local government, required to provide services within the state and locality
Website terms of use
helps limit your liability in cases where there are errors in your own content or contained in any hyperlinks from your website; also lets visitors know what they can or can't do on your site
Potential Investors
individual investors, institutional investors, also credit rating agencies and security analysts (environment); use financial information to assess investment 'risk' and expected investment 'return'.
Public notice of board meeting
informs both Board members and relevant external parties of an upcoming meeting of the Board of Directors
Completion confirmation
internal document that evidences the customer's confirmation that the agreed‐upon services have been provided
Managerial accounting informs
investment decisions
Invoice
issued to a customer by a supplier, indicating the products, quantities, and agreed prices for products the seller has provided, requesting payment
Assets are presented on the BS in order of
liquidity (asset's nearness to cash)
Each liability item is presented on the BS in order of
maturity (when the obligation is due). current liabilities are obligations that must be paid within a year.
Revenues
monies the firm has received or is entitles to receive in exchange for goods and services
Term sheet
nonbinding agreement between a company and its investors setting forth the basic terms and conditions under which an investment will be made
Intangible assets
not not have any physical form (customer databases, patents, copyrights, or trademarks)
Liabilities represent the (blank) that a firm has to outside creditors
obligations
Offer letter
offer to acquire the target, providing proposed details from which the two companies can further negotiate
Purchase order
official offer issued by a customer indicating types, quantities, and agreed prices for services
Lease agreement
outlines the terms under which the company agrees to rent property; guarantees the company (the tenant/lessee) use of office space and guarantees the property owner (lessor) regular payments for a specified period of time
Financial Accounting: designed primarily for decision-makers (blank) the company
outside/external
Equity refers to the
ownership stake- what the owners have a claim to.
Income statement measures the firm's
performance over a period of time ("flows") (e.g. for the year ending....)
Tangible assets
physical form & substance
Sales presentation
planned presentation strategy for a product or service that is designed to persuade a customer and close a sale
Dividend policy/ schedule
policy and schedule a company represents it will use to structure its dividend payout to shareholders
Online privacy policy
policy that outlines what information about customers and website visitors is collected, how it will be used, and what options visitors have
Retained Earnings ("earned" capital)
portion of the 'income' that the firm has earned over the years that has not been distributed to the owners in the form of dividends
Investments in risky stocks are expected to earn higher returns than investments in low-risk stocks, and stocks are (blank) accordingly.
priced; the higher expected rate of return is compensation for accepting greater uncertainty in returns
Equity refers to
residual claim. owners don't have a claim to the value of the entire asset- only to the portion of the asset value that isn't owed to other parties (i.e. the residue)
The general group of (blank) owned by the firm are its assets
resources
Financial accounting measures the
returns
Marketing brochure
small document which describes and promotes a company and its products or services in order to persuade sales
As risk increases,
stock price decreases
As risk decreases,
stock price increases
Debt contract:
the acquirer generally finances the deal
Accounting is
the process of recording, summarizing, and analyzing financial transactions; help people make economic decisions; a system for providing financial information
Management's discussion and analysis (MD &A)
unaudited portion of the annual report in which management addresses the company's performance and outlook
Owner's equity is the
value of the firm to its owners
Managerial Accounting: designed primarily for decision-makers (blank) the company
within/internal
Business plan
written description of your strategy and how you plan to execute the strategy
Independent auitor's report
written opinion of the company's auditor regarding the annual financial statements, included in the annual report