Accounting Midterm 2
Internal Controls
policies and procedures implemented by a business that are designed to safeguard assets and insure accurate accounting records
Which ONE of the following is a DISADVANTAGE of a HIGH DEBT RATIO?
If return on assets is lower than the interest rate associated with the high debt, profits can be reduced dramatically.
How are the rights of preferred shareholders to dividends in arrears disclosed in the financial statements?
Not a liability Dividends in arrears are disclosed in the footnotes to the financial statements
Bonds
Notes Payable arising from the borrowing of cash from the public.
important part of INTERNAL CONTROL?
Only authorized transactions occur Complete and accurate records are kept Assets are physically safeguarded
Book Value Per Share
Owners' Equity/#Shares of Stock Outstanding What each shareholder would get if the business was liquidated right then
Which of the following inventory costing methods most closely matches the actual physical flow of goods in a grocery store?
Perpetual FIFO The flow of inventory at a supermarket would most closely match FIFO, as supermarkets want customers to purchase the oldest inventory before the new inventory. For example, when you buy milk at the grocery store think about the shelves. Old inventory is the at the front of the shelves, so new inventory can be placed behind it.
At the time a company is purchased, the amount of goodwill to be recorded as an asset on the purchasing company's balance sheet
represents the costs associated with the purchase of the company in excess of the fair market value of its assets less any assumed liabilities.
Day Sales in A/R (Average Collection Period)
365/ AR Turnover
Measures of Liquidity
Current Assets(no long term!)/ Current Liabilities
Which of the following is considered a long-term liability?
Notes Payable Mortgage Notes Payable Bonds Payable
Debt Ratio (Debt to Total Assets)
Total Liabilities/Total Assets
The effect of computerized systems in accounting for inventories
1. Especially useful in managing seasonal inventories 2. Can help us discover interesting geographic and demographic trends relative to sales 3. Can help us identify relationships between different products purchased by similar customers
Steps to produce Financial Statements
1. Identify each business transaction 2. Analyze each transaction to determine its effect on the financial position of the business (A=L+O.E.) 3. Record the transactions and their effect on financial position in a journal 4. Summarize the effect of all transactions on each account by posting the journal entries to the general ledger. 5. Prepare a trial balance 6. Journalize and post to the general ledger any necessary adjusting entries at the end of the period 7. Prepare the financial statements 8. Journalize and post closing entries
Common Characteristics of Mortgage Notes Payable
1. Long term (15, 25, or 30 years) 2. Bears a fixed or adjustable rate of interest 3. Requires a monthly payment which includes interest and principal 4. Applied first to interest and then principal
Why would anyone ever make capital contributions to a company in exchange for preferred stock?
1. Preferred shareholders have dividend limitations but they also have dividend preferences over common shareholders 2. Preferred shareholders have preferences in the distribution of assets in the event of business termination 3. Some tax benefits to corporate investors
Basis Accounting for Operating Assets
1. Recording the acquisition of the asset 2. Allocation the cost of the asset to expense over its useful life 3. Recording any repairs or improvements to the asset 4. Recording the sale or disposal of the asset
Complicating Revenue Transactions
1. The providing of sales or cash discounts to our credit customers to encourage early payment on account 2. The acceptance of merchandise returns from our customer 3. The uncollectibility of customer accounts receivable
How does a preferred shareholder ever get their money back?
1. Wait until the business terminated 2. Sell to other investors
Day Sales in Inventory (Average Inventory Holding Period)
365/Inventory Turnover
Average Balance of A/R During the period
Cumulative Daily Ending Balance of AR/365 Cumulative Monthly Ending Balance of AR/12 Beginning Balance + Ending Balance of AR/2
Before closing entries at the end of any accounting period, Sales Discounts will typically have
A debit balance
Why does a stock's market price typically exceed its book value?
A stock's market price is typically NOT based on the liquidation of the company but is instead based on the assumption that the company will continue to operate and generate profits in the future.
Accrual Basis Accounting
Accrual basis accounting deals with the timing of revenues and expenses and comprises the revenue recognition principle and the matching principle.
How do you build equity in real estate?
Appreciation in property value over time
The issuance of stock affects the accounts reported on which of a company's financial statements?
Balance Sheet
Which ONE of the following is a common characteristic of a Mortgage Note Payable?
Can have either a fixed or an adjustable rate of interest Monthly payments typically include monthly interest and some portion for the principal on the mortgage note payable. Monthly payment amounts are first applied to interest due and any excess reduces the principal on the mortgage note payable. Long-term (typically 15 to 30 years)
Long-Term Assets are also known as
Capital Assets Operating Assets Non-Current Assets
Equity Financing
Capital Contributions (common Stock) Retained Earnings
Cash Only Acid Test Ratio
Cash Asset/Liability
Ratio Analysis
Comparisons of information provided in the financial statements designed to provide insights on a c company's financial status and prospects for the future
Measures of Management
Control of accounts receivable Management of Inventory
Average Inventory Balance During the Period
Cumulative Daily Balance of Ending Inventory/365 Beginning + Ending Balance of Inventory/2
The year adjusting entry to record bad debt expense is
DEBIT: Bad Debt Expense XXX; CREDIT: Allowance for Uncollectable Accounts Receivable XXX
Which of the following sequences of dividend-related dates is in the correct chronological order (earliest date first)?
Declaration date, record date, payment date
Sales Discounts and Sales Returns and Allowances are accounts that are (Choose all that apply)
Deducted from Sales Revenue in the determination of Net Sales Revenues. Closed to Retained Earnings at the end of an accounting period. Utilized to improve management information on lost revenues due to sales return policies and discount offers to customers. Not required under GAAP but are typically utilized by companies in their accounting for customers returns and discounts
Net Income as a % of Investment
EPS/Market Price per share
Measure of Profitability
Earnings Per Share (EPS): Net Income/#of shares of Stock Outstanding
Kinds of payroll taxes
Employee Payroll Tax Withholding Employers Payroll Taxes
Employers have two payroll related costs
Employee salary/wage expense Employer's payroll tax expense
Employer's Payroll Taxes
FICA Taxes (equal to employee amount) Federal Unemployment Insurance (FUI) State Unemployment Insurance (SUI)
In a period of **deflation** in the prices of inventory purchases throughout the period, which inventory costing method will yield the lowest income tax liability assuming there is a balance of inventory on hand at the end of the period?
FIFO In periods of deflation, FIFO would produce the lowest income tax liability because we will be selling the more expensive inventory first. (the inventory purchased is the most expensive inventory during times of deflation). This means that COGS will be higher, which makes both our NI and income tax liability lower.
T/F: Costs of research and development resulting in a patented technology should be capitalized as part of the cost of the patent and amortized over a 17 year life
False
T/F: Intangible assets are not reflected on the balance sheet because they have no physical substance and cannot be sold
False
A high P/E ratio is an indicator that the price of a company's stock is overvalued.
False A high P/E ratio (high market price relative to the company's earnings) is an indicator that the investing public is optimistic about the company's prospects for the future growth in profitability. Whether in fact the stock is overvalued will ultimately depend upon the company's future performance.
Dividends in arrears are always recorded as a liability on the issuing company's balance sheet
False A liability is recorded when a company DECLARES a dividend. A company's dividends in arrears is not a declared dividend, it represents the amount that once declaration is made, the company must pay first.
A mortgage note payable is an obligation collateralized or secured by a company's inventory or equipment.
False A mortgage note payable is an obligation collateralized or secured by a company's real estate through a document generally referred to as a trust deed.
Normal repair and maintenance costs incurred in the recurring maintenance of equipment should be capitalized as part of the cost of the asset. Only improvements that extend the useful life of the asset are capitalized.
False Normal repair and maintenance costs are expensed when incurred.
A company's book value per share is generally a good indicator of the market value of a company's stock.
False The book value per share is simply what each shareholder would get if the business was liquidated right then. The market value per share includes intangible assets that are often not shown on the balance sheet.
A capitalized expenditure is accounted for as an expense rather than an asset. Choose the best answer.
False When an expenditure is "capitalized" it means that it is accounted for as an asset rather than an expense. Meaning this expenditure will benefit the company for more than one reporting time period. The asset will be capitalized (put on the balance sheet) and expensed over multiple time periods (the time periods that the asset benefits the company)
Assuming a company reduced the sales price of its products from one year to the next in order to attract more customers and increase overall sales revenues, and at the same time the company's cost of goods sold as a percentage of sales revenues increased during the year, then the average cost from suppliers of the company's products must have increased during the year.
False With vertical analysis, each element of the income statement is divided by sales. Because of this and the sales price decreasing, even if the cost per unit stays the same, the cost of goods sold as a percentage of sales revenue still increases.
Perpetual LIFO inventory accounting means that the last costs are the costs reflected in ending inventory, assuming that not all inventory is sold during the period.
False: With perpetual LIFO we assume that the inventory we sell (COGS) is what we bought last, this means remaining inventory must be what was purchased first.
Employee Payroll Tax Withholding
Fica Taxes(Social Security & Medicare) Federal Income Taxes State Income Taxes Union dues
Recording the acquisition of an operating asset
GAAP requires all direct or incidental costs incurred in acquiring an asset and preparing it for its original intended use to be capitalized as part of the cost of the asset
Recording of any repairs, maintenance or improvements to operating assets
GAAP requires any costs incurred in normal recurring repairs and maintenance of property plant or equipment to be expensed in the period incurred
Measures of Stock Value
If a company stock price decreases from one day to the next, it is an indication that the investing publics expectation of the company's future profits have decreased. P/E ratio, Net Income as a % of Investment, Book Value Per Share
What would cash to have a credit balance?
If checks are written on cash checking account in excess of the account balance and the bank honors those checks, then a credit balance will result.
Cumulative vs noncumulative preferred stock
If preferred stock is designated as "cumulative" shareholders have an ongoing carryover preference for any prior year dividend shortfalls referred to as "dividends in arrears" "Noncumulative" preferred stock has no carryover rights on dividend shortages in any year
The par value of a company's common stock reflects
In the case of common stock, par value is a nominal per share amount established by a corporation's founders under requirements established by the state in which incorporation takes place. The par value bears no relationship to the issuance price of the stock or its subsequent fair market value. The only significance of par value on common stock is that the stock must be originally issued at a price in excess of the par value. As a result, most corporate founders establish the par value at $.01 per share or less.
Which of the following is generally NOT considered to be an operating expense?
Income Tax Expense
Who is ultimately responsible for the quality of and implementation of a business' internal controls
It is management's responsibility: The people who are actually running and operating the company
In a period of **inflation** in the prices of inventory purchases throughout the period, which inventory costing method will yield the lowest ending balance at the end of the period?
LIFO LIFO will produce the lowest ending inventory balance as we are selling the more expensive inventory first, leaving us with the less expensive inventory.
In a period of **inflation** in the prices of inventory purchases throughout the period, which inventory costing method will yield the lowest net income assuming there is a balance of inventory on hand at the end of the period?
LIFO When prices are rising LIFO leads to a lower NI because we are selling the more expensive inventory first (the inventory we buy last, which will be at a higher price than earlier inventory due to rising prices). This causes COGS to be higher which reduces NI.
Why would allocation of the purchase price between land and building be important for financial reporting and income tax purposes?
Land is not depreciable. The greater the allocation to the building which is depreciable, the higher the depreciation expense and lower resulting net income for financial reporting purposes. This would also result in lower income taxes.
Measure of Leverage
Leverage is the measure of a company debt relative to equity financing. Leverage is good! Making money on someone else's money. Risk vs Advantage Debt Ratio & Debt to Equity Ratio
Price Earnings Ratio (P/E ratio)
Market Price Per Share/EPS For every $1 of earnings the stock has a price(value) of P/E Ratio A stock is selling at a multiple of P/E ratio times its most recent earnings Measures a companys stock price relative to its earnings Serves as an index of the investors expectations of a company earnings potential in the future High one indicates that the investing public is optimistic about the company's prospects for future growth profitability
Accounts Receivable Turnover
Net Credit Sales Revenue/Average Balance of AR During the Period
Patrozza Company is raising capital to fund expansion. The Patrozza family, who has owned their namesake company since its inception over 100 years ago, is reluctant to sacrifice their voting rights in exchange for capital. Given this information, which of the following financing instruments would Patrozza Company most likely prefer? Select all that apply.
Preferred Stock issuance Bond Issuance
Long-Term Assets might include
Property, Plant and Equipment Intangible Assets Natural Resources
Real vs. Nominal Accounts
Real: all accounts that appear on the balance sheer, meaning to is a cumulative running balance (assets, liabilities, capital stock and retained earnings) Nominal: Accounts that are closed each period
Which of the following should a company do when recording its operating expenses?
Record operating expenses when it is consumed Record prepaid operating expenses as assets until their economic value is consumed Use estimates based on historical data to record operating expenses
Why is reduction in the number of days' sales in inventory a good management policy? Correct!
Reduction in the number of days' sales in inventory lowers both your cost of financing the inventory purchases and your cost of storing the inventory.
Is it possible for retained earnings to have a debit balance? What would cause such a balance?
Retained earnings it the net result of revenues minus expenses, less dividends. If expenses exceed revenues from inception then there will be a negative or debit balance in retained earnings, which we would call retained losses, cumulative losses, or retained deficient.
Revenue Timing
Revenues are to be recognized by the company and reported on the income statement when a performance obligation has been satisfied Performance Obligation: A contract to provide a product or service to a customer
Which of the following is NOT a characteristic of Common Stock?
Right to receive a guaranteed dividend
Loss/Gain on Disposal
Sale Price - Book Value
Which of the following is a contra-revenue account?
Sales Discounts Sales Returns and Allowances
Acid Test Ratio (Quick Ratio)
Selected Current Assets/Current Liabilities
Which of the following is considered to be an effective internal control?
Separation of duties Regular audits conducted by a third party Periodic vacations
Key Internal Controls in safeguarding cash
Separation of duties proper authorization for transactions adequate documentation and records independent checks on performance
For Unique Antiques, Inc. which carries an inventory of one of a kind antique items, which of the following perpetual inventory methods should be used?
Specific identification With unique/distinctive inventory specific identification is the most appropriate method. For example, think of a vehicle or a firearm. They have unique serial numbers or VIN numbers that distinguish them from all other models, which allow us to directly trace costs to that piece of inventory.
If cash has a credit balance at the end of the period, is it really an asset?
Such a credit balance is not really an asset. In fact, it is a liability because there is an obligation to the bank to deposit sufficient funds in the account to cover those checks.
Who is ULTIMATELY responsible for the quality and implementation of a company's internal controls?
The company's management
Why is allocation of an operating assets cost over time necessary?
The matching principle
In a period of **stable** prices for inventory purchases throughout the period, which inventory costing method will yield the highest income tax liability assuming there is a balance of inventory on hand at the end of the period?
They would all yield the same result When prices are stable the cost of inventory will not change, translating into an equal income tax liability.
Disadvantages of how to raise money
Through Common Stock: 1. Others are given a vote and say in the business 2. Others are given ownership rights to participate in the monetary benefits of ownership (dividends, increased stock values, and proceeds in the event of liquidation) Through Debt: 1. Capital borrowed must be paid back plus interest at scheduled times regardless of operating performance and ability to pay. 2. Potential forced liquidation of assets in the event of default
Which of the following is a reason why an investor might decide to invest in a company in exchange for preferred stock?
To receive priority dividend payments over common stockholders
Financial analysis is a process designed to examine a company's current financial position and performance in an attempt to project the company's prospects for the future. The ultimate goal is usually to determine the company's worthiness for continuing or future debt or equity financing/investment.
True Using ratios to analyze current financial statements helps to provide insight in a company's financial status and prospects for the future.
In times of INFLATION, FIFO results in the highest INCOME TAXES.
True
T/F: Amortization of intangibles and depletion of natural resources are both cost allocations to expense required under the matching principle
True
T/F: Depletion of natural resources is typically calculated based on a units production approach
True
T/F: Goodwill is only recorded on the books of a company that purchases another company
True
Some companies need less liquidity than others in order to operate effectively.
True Generally speaking companies that turnover their inventory quickly, converting inventory to cash in a short period of time (think McDonald's), need less liquidity than companies that have slower moving inventory (think a real estate development company). The rate of accounts receivable and inventory turnover can have a significant effects on a company's liquidity requirements.
It is possible for accounts receivable turnover to improve (or increase) form one period to the next but still be detrimental to the company's performance in terms of overall profit.
True If increasing accounts receivable turnover results from a lower average balance of accounts receivable due to stricter requirements of its credit customers then it is possible that those stricter requirements could negatively affect sales volume reducing the company's overall profit.
The principal portion of a note payable that matures (is due) within one year of the company's balance sheet date is classified as a current liability while the principal portion that matures more than one-year from the balance sheet date is classified as a long-term liability.
True Long term liabilities are obligations that are due after the next 12 month period while current liabilities are obligations that will be paid within the next 12 months.
A fully amoritizing mortgage note payable provides that the periodic payments under the note (usually monthly payment) include not only the amount of interest due but also a portion of the principal
True Part of the principal must be paid each month so that at maturity, the entire amount of principal will have been repaid in full. However, remember that interest must be paid first.
It is possible for selling and administrative expense as a percentage of sales revenue to decrease in a period of increasing sales.
True Selling and administrative expense can decrease in a time of increasing sales. It just means that less money is spent per dollar of sales revenue for selling and administrative expense. For example, if sales increase from $100,000 to $125,000 and selling and administrative expenses remain stable at $25,000 then they go from 25% to 20%.
As a general rule, it a company's stock price decreases from one day to the next, it is an indication that the investing public's expectation of the company's future profits have decreased
True The price of the stock is based on the investing public's expectations for the company's growth in the future, therefore, if the stock price decreases, then the public's expectations of the company's growth in the future has decreased.
Vertical analysis is an important tool in trying to project company's future profitability.
True Vertical analysis can help to compare changes in the company from year to year despite growth and, therefore, is able to see where revenues are going in terms of costs.
Major equipment refurbishment costs that extend the equipment's original anticipated useful life should be capitalized as part of the cost of the asset and then allocated to expense over time through revised depreciation calculations that take into effect the increased costs, longer expected useful life and any change in the anticipated salvage value.
True When the value of an asset increases that extends the life of an asset, the amount of depreciation must be reevaluated over the new life and/or the new value.
In perpetual inventory accounting not only is inventory accounted for perpetually but also cost of goods sold is likewise accounted for perpetually. In other words, under perpetual inventory accounting the amount of a company's cost of goods sold (expense) is updated with each transaction involving a sale of inventory.
True: COGS is updated along with transactions relating to the sale of inventory.
The primary reason behind a periodic physical inventory is to determine the accuracy of a company's perpetual inventory records and adjust those records if necessary.
True: Periodic counts are used to verify the accuracy of the perpetual records.
Under GAAP, any of these three inventory cost flow assumptions (FIFO, LIFO, Weighted average) can be used for financial reporting purposes, regardless of the actual physical flow of goods, as long as the method chosen is consistently used from year to year.
True: Under GAAP any of the 3 methods can be chosen as long as the method is consistently used. This allows for comparability.
Perpetual inventory accounting means that every transaction involving an inflow or outflow of inventory is recorded as it happens with a debit or credit to the inventory account.
True: Under the perpetual method the inventory account is updated whenever a transaction takes place.
Which of the following is a typical characteristic of a mortgage note payable?
Typically includes a monthly payment that includes both monthly interest and a portion of the principal Typically bears a fixed or adjustable rate of interest Typically long-term (15+ years)
What method would you use if you had not observed the actual physical flow?
Under GAAP you may use any method regardless of the actual physical outflow of inventory; however, the method selected must be consistently used over time
Recording the disposal of the asset
Upon sale or disposal of an asset, the book value of the asset must be removed from the accounting records. The different between the sales price and the book value of the asset with generate a gain or loss on the sale
Is it possible for a company to have an acid test ratio or even a current ratio less than 1 to 1 and still have adequate liquidity for ongoing operations?
Yes!
Mortgage Note Payable
a loan or note payable for which real estate has been pledged as collateral or security through a legal document referred too as a trust deed. A trust deed authorizes a third party to sell the property, in the event of default on the note payable, and disburse the proceeds from the sale to the lender. Usually created in conjunction with the purchase of real estate
contra revenue
a reduction of a revenue account (sales discount)
Long Term Assets
also called: non-current assets, operating assets, capital assets 1. Property, plant and equipment: land, improvements, buildings, machinery and equipment with an expected useful life longer than one year 2. Intangible Assets: patents, trademarks, copyrights, franchise rights, and goodwill with expected future benefit in excess of one year 3. Natural Resources: includes oil wells, mineral deposits, timber tracts, etc. with expected future benefits in excess of one year
The allocation of an **intangible asset's** capitalized cost to expense over its anticipated useful life is referred to as
amortization. Amortization is the term for the allocation of an intangible asset's capitalized cost to be expensed over its anticipated useful life.
Generally speaking, improved efficiency in managing inventory will be reflected in the inventory turnover ration by
an increase in the ratio from one period to the next.
Allowance for bad debt
contra-asset account Real Credit increases
Inventory Turnover
cost of goods sold/average inventory balance during the period
Dividends in arrears applies only to
cumulative preferred stock.
If fully depreciated equipment that had no salvage value is disposed of at no additional cost, then the journal entry to reflect the disposal would include a
debit to Accumulated Depreciation.
Internal controls are policies and procedures
designed to ensure accurate accounting records designed to safeguard a company's assets.
Long Term Liabilities
due after over a year long-term notes payable, mortgage notes payable, bonds payable, lease liabilities, deferred income taxes payable, pension liabilities
Internal Controls you might see at a grocery store
entering and exiting through designated areas large checks need management approval credit card devices security personnel rotation of vegetables
Perpetual Inventory
every transaction involving an inflow and outflow of inventory is recorded as it happens with a debit or credit to the inventory account.
Goodwill
exists if the business is actually worth more than the value of its assets less liabilities Recorded as an asset only when a business is purchased The amount to be recorded is the excess price paid in the purchase of a business above the fair market value of the assets purchased less any liabilities assumed
Dividends are recorded as a liability only
when declared by the board of directors.
Preferred Stock
form of equity ownership that is designed yo avoid the disadvantages of common stock without becoming debt that has to be repaid in the future 1. typically non-voting 2. limited in the sharing of dividend distributions 3. reflected as "owners equity" on the balance sheet because the company is not required to repay the amount of capital contributed by preferred shareholders except in the event of business termination
net sales revenue
gross sales revenue less any contra revenues, which are reductions in revenues
If a company improves their timely collection of accounts receivable reducing the average period of time receivables are outstanding then accounts receivable turnover has
increased.
With each monthly payment under a fully amortizing note payable the principal portion included in the payment
increases With each month, the amount of principal left decreases. Because of this, the amount of interest owed each month decreases, leaving more of each progressive payment to go to paying down the principal.
A company's P/E ratio
is used to measure a company's stock price relative to its earmings.
Closing Entries
made at the end of an accounting period to accomplish two objectives 1. All revenue, expense, and dividend accounts must be reset to zero to start the next accounting period 2. The Retained Earnings account must be updated to include the amount of net income(revenues-expenses) less dividends for the current year
Increased leverage in a business
means increased debt relative to equity financing. may create greater financial risk to a company. may result in lower net income.
In a period of increasing sales revenues, lower selling and administrative expenses as a percentage of sales revenues may reflect:
more efficient management of the business.
A debt to equity ration in excess of 1.00 means that
more than half of the company's assets have been financed with debt. he debt to total assets ratio exceeds .50 or 50%.
Is sales discount real or nominal? What kind of account?
nominal, contra-revenue
A credit balance in the Allowance for Uncollectible Accounts Receivable account at the end of the year prior to any adjusting entry for the current year's uncollectible accounts receivable means the prior year's estimated uncollectible accounts receivables were
overestimated.
In preparing its adjusting entries at the end of this year, Carson Company neglected to record an adjusting entry for employees' wages incurred but not yet paid. This error
overstates this year's net income, understates liabilities at year-end, and overstates owner's equity at year-end.
If gross margin as a percentage of sales revenues decreases over the year and the cost per unit of inventory purchases was stable throughout the year (no inflation or deflation in inventory costs), then
sales price per unit must have decreased during the year.
Allocation of the cost of an asset to expense over its useful life
terms: depreciation expense(property, plant and equipment) Amortization expense(intangibles) Depletion expense(natural resources) *contra-asset accounts
Common Stock
the right to vote in corporate matters, the right to share equally per share in corporate profits paid out as dividends and any distribution to owners in the even of business termination.
Matching Principle
timing of expenses Expenses are to be recognized in the period in which those costs provide benefit to the business operations. In other words, expenses are to be matched against the revenues that they helped produce and not necessarily in the period in which cash is paid.
Revenue Recognition Principle
timing of revenues Revenues are to be recognized/recorded in the period in which they are earned, not necessarily when the cash is received.
Bonds are issued by a company:
to borrow funds from financial markets.
Debt to Equity Ratio
total liabilities/total owners equity
Intangible Assets
trademark, patent, franchise rights, copyrights only reflected on the balance sheet if there is an identifiable historical cost attributable to it. Amortization Expense, and accumulated amortization
Cash Basis Accounting
used for personal income taxation allowed by IRS, ability to pay concept There are opportunities for income manipulation through cash basis accounting, so accrual basis is required for GAAP.