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