Accounting Final

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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


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