Ch. 2 Reading Notes Acctcy

There are often large differences between the firm's reported profit performance and the amount of cash generated from operations

Except in cash sales, *revenues under accrual accounting generally do not correspond to cash received* during the period Frequently, however, accrual accounting earnings provide a *more accurate measure of the economic value added during the period than do operating cash flows*

Net Income Attributable to Noncontrolling Interests and Parent Company Shareholders

"bottom line," but net income is often not the last line item in an income statement This situation arises when the company has one or more subsidiaries in which it owns less than 100% "Net Income" "Less: Net income attributable to noncontrolling interests" "Net income attributable to Preston shareholders"

*intraperiod income tax allocation*

"net of tax" treatment both the income (loss) from operating the discontinued component and any gain (loss) from disposal or impairment are reported net of tax effects The reason for this treatment is to match the income tax burden or benefit with the item giving rise to it. The allocation of the tax burden or benefit across components of income makes the income figures more informative. - If income tax were not matched with the item giving rise to it, the reported income tax expense would combine taxes arising from both continuing and discontinued operations, which would make it difficult for financial statement users to forecast future tax outflows.

Adjustments for Accrued Revenues

DR Accounts receivable [+A] CR Consulting fees revenue [+OE] The DR reflects an asset for the amount the firm expects to collect as a result of consulting services rendered in January. The CR shows the corresponding increase in owners' equity that arises when the asset (Accounts receivable) is recognized.

Adjustments for Deferred Revenues

DR Deferred fee revenue [-L] CR Consulting fees revenue [+OE]

Adjustments for Prepayments

DR Insurance Expense [-OE] CR Prepaid insurance [-A] The adjusting entry has simultaneously accomplished two things: 1. The DR recognizes as an expense that portion of the premium that expired in January. This is the matching principle in action because the expense is matched against January revenues. 2. The CR reduces the carrying amount in the asset account by $250. As a result, the Prepaid insurance account is shown at $5,750, the portion of the insurance premium that has not yet expired.

Adjustments for Accrued Expenses

DR Salary and wages expense [-OE] CR Salary and wages payable [+L] *Accrual accounting recognizes expenses as the underlying economic event occurs, not when the cash flows out.*

Understanding Debits and Credits

Debit (abbreviated DR) means left side of accounts Credit (abbreviated CR) means right side of accounts. a journal entry reflecting the change in each account due to a transaction must have total debits equal to total credits

Revenues (that is, OE increases)

(DR) decrease the account balance (CR) increase the account balance

Expenses (that is, OE decreases)

(DR) increase the account balance (CR) decrease the account balance

Popular Earnings Management Devices

*"Big Bath" restructuring charges* *Miscellaneous "cookie jar reserves"* *Intentional errors deemed to be "immaterial" and intentional bias in estimates* *Premature or aggressive revenue recognition*

Adjusting Entries

*4 Categories* 1. Adjustments for prepayments. 2. Adjustments for deferred revenues. 3. Adjustments for accrued expenses. 4. Adjustments for accrued revenues.

Accrual accounting

*Accrual accounting decouples earnings measurement from operating cash flows* accrual accounting revenue for a period does not correspond to cash receipts for the same period accrual-basis expenses in a period do not correspond to cash outflows in that period accrual accounting better matches economic benefit with economic effort thereby producing a measure of operating performance—accrual earnings—that provides a more realistic picture of economic activities accrual accounting can result in large differences between the firm's reported accrual-basis earnings and the amount of cash generated from operations year by year accounting income for a given period may not always provide an accurate picture of underlying economic performance for that period

GAAP categorizes all items of comprehensive income as either

*Net income* - the "default" categorization - closed into *Retained earnings* *Other comprehensive income (OCI)* - an item of comprehensive income is considered part of net income unless GAAP specifically designates it as part of OCI - When it is part of OCI, *no gain or loss is reported in net income. Instead, the gain or loss is included in OCI for the year.* - Just as net income is closed into retained earnings at the end of each reporting period, OCI is *closed into an equity account*, *Accumulated other comprehensive income (AOCI)*, at the end of each reporting period. - OCI arises from certain foreign currency gains and losses, gains and losses on marketable debt securities classified as available-for-sale, certain other-than-temporary impairments, certain gains and losses related to retirement plans, gains and losses on certain hedging contracts, and fair value adjustments on a firm's own debt. - *Often arises from changes in the carrying amounts of net assets on the firm's balance sheet even though transactions have not been completed*. Because the firm has not yet sold or unwound its positions in these balance sheet items, fluctuations in carrying amounts remain unrealized and are therefore frequently reported as a component of OCI. - A feature of U.S. GAAP is that OCI amounts are "recycled" when the incomplete transaction that gave rise to OCI becomes complete. Other comprehensive income items frequently arise due to incomplete transactions accounted for using fair value measurements for selected assets or liabilities reported on firms' balance sheets.

*EARNINGS PER SHARE*

*One of the most commonly reported measures of a company's operating performance* All publicly traded companies must report EPS numbers on the face of their income statements. - Basic EPS - Diluted EPS

*contra account*

*an account that is subtracted from another account to which it relates* Contra-asset accounts *carry credit balances8 because they are subtracted from asset accounts that carry debit balances. (The Accumulated depreciation account represents a contra-asset account that is deducted from the cost of the building, as we shall see later.)

*accrual accounting*

*revenues are recorded (recognized) when the seller has transferred control over goods or services to a buyer* Expenses are the expired costs or assets that are used to produce those revenues. *Matching principle:* - *expenses are recorded in the same accounting period as the related revenues are recognized*

*fair value*

*the price that would be received to sell an asset or the price paid to transfer or settle a liability in an orderly transaction between market participants at the settlement date*

*"Big Bath" restructuring charges*

- To remain competitive and become more efficient, *companies often close plants, consolidate operations, reduce their labor forces, or sell off noncore business units.* - Once a decision to restructure has been made, GAAP requires companies to estimate the future costs they expect to incur to carry out the restructuring for such things as employee severance payments and plant closings. - These estimated restructuring costs are then charged to an expense account with an offsetting credit to a liability account (Restructuring reserve) in the current period. - In an effort to "clean up" company balance sheets, *managers have often taken excessive restructuring write-offs and overstated estimated charges for future expenditures. * *Why are companies tempted to overstate restructuring charges?* - The conventional wisdom is that investors look beyond one-time special charges and write-offs and, instead, value a company's stock based on sustainable operating earnings. - So, many believe that taking "big bath" charges does not adversely affect stock price. - These restructuring charges and associated liabilities are sometimes reversed in future years when earnings fall short of targets, thereby providing a boost to the bottom line at opportune times - Because of the subjectivity of restructuring charges and the ability to take charges by writing down assets, overstatement of restructuring charges cannot be completely eliminated.

*Miscellaneous "cookie jar reserves"*

Accrual accounting allows companies to estimate and accrue for obligations that will be paid in future periods as a result of transactions or events in the current period. Similar reserves are allowed for estimated declines in asset values. *Some companies use unrealistic assumptions to arrive at these estimated charges. They overreserve in good times and cut back on estimated charges, or even reverse previous charges, in bad times.* Become a convenient *income-smoothing device* - One critique of IFRS is that it might offer more opportunities for "cookie jar reserves" accrual accounting than U.S. GAAP - IFRS allows companies to reverse prior period asset impairments

*Premature or aggressive revenue recognition*

Another abuse is to *recognize revenues before it is appropriate to do so*. Under existing GAAP, that is at the point in time (or over a period of time) that the economic benefits of the goods or services being sold have been transferred to the customer. revenue recognition involves judgment

*comprehensive income*

GAAP defines comprehensive income as *a change in equity (net assets) of a business entity that occurs during a reporting period from transactions or events from nonowner sources* Comprises all changes in equity during a period except those resulting from - investments by owners (e.g., purchase of common stock) and - distributions to owners (e.g., dividend payments) Most of the items included in comprehensive income result from *completed* or *closed transactions* with outside parties. However, sometimes the carrying amounts of net assets change even though the transaction is *not yet completed or closed.* - Under GAAP, the investment is reported at *fair value*, so the balance sheet carrying amount must be adjusted at every balance sheet date.

Amounts Reported When Disposal Group Is Considered "Held for Sale"

If a component becomes a discontinued operation in a reporting period but *has not been sold by the end of the period, the income effects of the discontinued operations are reported in 2 elements:* - *Operating income or loss* (that is, revenue minus expenses) from operating the component, net of tax effects. - *An impairment loss* (net of tax effects) if the book value of the net assets in the disposal group is more than the net assets' fair value minus cost to sell.

SUMMARY

In most instances, accrual-basis revenues do not equal cash receipts and accrual expenses do not equal cash disbursements. The principles that govern revenue and expense recognition under accrual accounting are designed to alleviate the mismatching of effort and accomplishment that would occur under cash-basis accounting. The matching principle determines how and when the assets that are used up in generating the revenue or that expire with the passage of time are expensed. Relative to current operating cash flows, accrual earnings generally provide a more useful measure of firm performance and serve as a more useful benchmark for predicting future cash flows. Predicting future cash flows and earnings is critical to assessing the value of a firm's shares and its creditworthiness. Multiple-step income statements are designed to facilitate this forecasting process by isolating the more recurring or sustainable components of earnings from the nonrecurring or transitory earnings components. Auditors and financial statement users must be aware of the incentives to manage earnings and the ways in which this is accomplished. Public companies must report EPS numbers on the face of their income statements. All firms report basic EPS based on the weighted average number of shares actually outstanding during the period, while firms with complex capital structures also disclose diluted EPS, which reflects the EPS that would result if all potentially dilutive securities were converted into common shares. Certain changes in net assets resulting from incomplete or open transactions bypass the income statement and are reported as direct adjustments to stockholders' equity. - These direct adjustments are called other comprehensive income components. Under U.S. GAAP, firms are required to report either (a) net income and other comprehensive income in a single statement of comprehensive income or (b) net income and other comprehensive income in separate statements.

Income Tax Expense

Income from continuing operations is after deducting income tax expense The income tax expense amount that is subtracted to arrive at Income from continuing operations is only the income tax expense related to continuing operations. Any income tax expense or benefit that arises due to *discontinued operations is not included* in the line item Income tax expense - it is incorporated into the amounts presented for discontinued operations

Articulation of Income Statement and Balance Sheet

Interrelationship between the income statement and the balance sheet: - whenever income or loss is recognized, there is a corresponding increase or decrease in net assets (assets minus liabilities) that did not arise due to a transaction with an owner of the business As a result, when income (loss) is recognized, retained earnings is increased (decreased) and the balance sheet equation (Assets = Liabilities + Owners' Equity) is preserved. Net income is the change in owners' equity not due to transactions with owners Net income recognition triggers an increase in the book value (carrying value) of net assets; that is, *net asset valuation and net income determination are inextricably intertwined.*

Unusual or Infrequently Occurring Items

Material events that arise from a firm's ongoing, continuing activities but that are unusual in nature or infrequent in occurrence are *reported as a separate line item within continuing operations.* EXs: - Write-downs or write-offs of receivables, inventories, equipment leased to others, and intangibles. - Gains or losses from foreign transactions or that arise when a foreign subsidiary's financial statements are remeasured in U.S. dollars. - Gains or losses from the sale or abandonment of property, plant, or equipment. - Special one-time charges resulting from corporate restructurings. - Gains or losses from the sale of investments. - Losses from floods, fires, or other disasters. Presenting unusual or infrequently occurring items separately puts financial statement users on notice that these items are fundamentally different from other components of Income from continuing operations.

Expense Recognition

Once revenue for a period has been determined, the next step in determining income is to *accumulate and record the costs associated with generating the revenue.* traceable costs period costs

*Posting* Journal Entries to Accounts and Preparing Financial Statements

Posting means the DR (CR) is entered in the left (right) side of the affected T-account. A separate T-account is maintained for each asset, liability, and owners' equity account. There is also a T-account for each revenue and expense account, the balances of which are closed out, or transferred, to owners' equity at the end of the period. The adjusting entries are also posted to T-accounts.

COMPREHENSIVE INCOME AND OTHER COMPREHENSIVE INCOME

xxxxx

Closing Entries

Revenue and expense accounts have served their purpose. So, balances in these accounts are "zeroed out" (or closed) To get the revenue and expense account balances to zero, a closing entry is made. All revenue account balances (which are credits) are debited (to get them to zero); all expense account balances (which are debits) are credited (to get them to zero). The *difference between the closing entry debits and credits* to these income statement accounts is equal to *Net income.* That amount is *credited (when Net income is positive) to Retained earnings.*

*Intentional errors deemed to be "immaterial" and intentional bias in estimates*

Sometimes, companies *intentionally misapply GAAP*, for example by capitalizing an expenditure that should be expensed. If the auditor subsequently catches this incorrect treatment, *management might justify the error by arguing that the earnings effect is "immaterial" and, therefore, not worth correcting.* *a series of "immaterial" errors spread across several accounts can, in the aggregate, have a material effect on earnings* even an immaterial error might be enough to bring earnings per share to the next penny, which may also be the firm's earnings target *Intentional misstatement of estimates is another area of abuse* Estimates abound in accrual accounting. - ex. useful lives and salvage values for fixed assets, estimates of bad debts, and the amount of write-down for obsolete inventory - Management can often *shade these estimates in one direction or the other to achieve a desired earnings target.* - As long as these estimates fall within "acceptable" ranges, the biased estimate is unlikely to draw attention from the external auditor.

T-Accounts Analysis as an Analytical Technique

Start with beginning and ending balances in various balance sheet T-accounts (which are available from comparative balance sheets). Know the types of transactions or events that cause increases and decreases in individual T-accounts. Know how various accounts and financial statement items articulate with one another. T-account analysis also can be used to gain insights into why accrual-basis earnings and cash flows differ. This is because each balance sheet account will have transactions on one side of the T-account related to income statement recognition of a revenue or expense and on the other side related to a cash inflow or outflow. Thus, the change in the account balance over a period is equal to the difference between the amount recognized on the income statement and the related cash flow.

Frequency and Magnitude of Various Categories of Transitory Income Statement Items

Subdividing earnings into *3 transitory components:* - unusual or infrequent items - discontinued operations - extraordinary items (when they existed) and disclosing these amounts separately so that they are distinguished from the income that comes from continuing operations *improves forecasts of future earning*

REVIEW OF ACCOUNTING PROCEDURES AND T-ACCOUNT ANALYSIS

The basic accounting equation: A = L + OE at all times, the dollar sum of a firm's assets (A) must be equal to the dollar sum of the firm's liabilities (L) plus its owners' equity (OE) Assets don't materialize out of thin air; they have to be financed from somewhere. Only 2 parties can provide financing for a firm's assets: - Creditors of the company—for example, a supplier provides inventory (an asset) to a firm on credit. - Owners of the company—for example, owners buy newly issued shares directly from the firm for cash (an asset).

*journal entries*

The information required to determine accrual earnings and to prepare all the financial statements is compiled by means of journal entries *made to record each transaction as it occurs and at the end of each year to adjust for the passage of time.*

Revenue Recognition—General Concepts

The point at which revenue is to be recognized = the point at which the *entity has satisfied its contractual obligation to provide goods or services* to a customer by transferring control over those goods or services to the customer

GLOBAL VANTAGE POINT

U.S. GAAP and IFRS for OCI differ in many respects IFRS - allows, in some cases, more opportunities for managers to change the balance sheet valuation of certain assets even when managers do not intend to sell or dispose of those assets. - The resulting unrealized gains and losses will typically be found as a component of OCI. - IFRS allows (but U.S. GAAP does not allow) managers to revalue property, plant, and equipment to an appraised fair value periodically. - This IFRS-specific option seems to provide more relevant and timely information with regard to asset values reported on the balance sheet. - However, it introduces unrealized gains and losses (assuming the assets are not sold or transferred) that are typically reported in OCI. *Both U.S. GAAP and IFRS require firms to hire actuaries to estimate elements that affect the magnitude of the company's expected obligation to pay benefits to its retired employees.* Actuarial estimates, such as employee life expectancy, are often adjusted each period, which directly affects the reported balance sheet value of the net pension obligation. *Both U.S. GAAP and IFRS require companies to report these valuation changes in OCI each period.* - Since 2013, IFRS no longer requires firms periodically to recategorize ("recycle") a portion of these OCI changes into periodic net income, as does U.S. GAAP. *Recycling:* Under IFRS, entities are required to group items within OCI based on whether they will be reclassified subsequently into net income ("recycled"). Given that all OCI is subject to recycling under U.S. GAAP, such a distinction is unnecessary when U.S. firms present OCI.

INCOME STATEMENT FORMAT AND CLASSIFICATION

Virtually all decision models in modern corporate finance are based on expected future cash flows Financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise - One way to provide users with information about prospective future cash flows would be to present them with cash flow forecasts prepared by management. - However, financial reporting focuses on historical information, not forecasts, because forecasts of such numbers are considered to be too "soft"—that is, too speculative or manipulable Financial reporting seeks to satisfy users' needs for assessing future cash flows by providing financial information based on past and current events in a format that gives financial statement users reliable and representative baseline numbers for generating their own forecasts of future cash flows An income statement format that segregates components of income has evolved -- to classify separately *income components that are "transitory"* and to clearly differentiate them from income components believed to be *"sustainable," or likely to be repeated in future reporting periods* - multiple-step income statements are intended to subdivide income in a manner that facilitates forecastin

Amounts Reported When Disposal Group Has Been Sold

When the discontinued component is sold before the end of the reporting period, *companies must report 2 elements as part of discontinued operations*: 1. *Operating income or loss* - (revenue minus expenses) from operating the component from the beginning of the reporting period to the disposal date, net of related tax effects. 2. *Gain or loss on disposal* - the net sale price minus book value of net assets disposed of, net of related tax effects.

*Comprehensive income measures*

a company's change in equity (net assets) that results from all nonowner transactions and events It is composed of both net income and other comprehensive income. Firms are required to report comprehensive income in a statement that is displayed with the same prominence as other financial statements. - But firms are free to choose the presentation format, either as a separate statement or as part of a statement that is combined with the income statement.

The principles that govern revenue and expense recognition under accrual accounting are designed to

alleviate the mismatching that would exist under cash-basis accounting, making accrual earnings a more useful measure of a firm's performance

Discontinued operations

are reported separately after income from continuing operations and on an after-tax basis.

matching principle

associates expired costs (expenses) with the revenues recognized in a period.

Retained earnings

component of owners' equity, represents the accumulation of all the company's earnings since its inception, net of dividends.

Income from Continuing Operations

comprises the earnings of any portion of an entity's business that does not qualify as a discontinued operation amounts that are unlikely to recur or that are not predictive of future amounts are highlighted Net sales Costs of goods sold = Gross profit Selling, general, and administration expenses *Gross profit* is a key number for assessing the performance of an enterprise and for predicting future profitability. Analysts often focus on it as a percentage of Net sales, a quantity referred to as gross margin or gross margin percentage. - Gross margin is useful for understanding how competitive pressures affect profit margins. - ex. more price competition in an industry generally leads to "thinner margins." *Selling, general, and administrative expenses* - include marketing costs like advertising and sales commissions, accounting and legal costs, depreciation on corporate offices, and salaries of corporate management. - These are essentially all the costs of operating the business other than manufacturing costs, which are included in Cost of goods sold, and interest expense.

*Basic EPS*

computed by dividing *income attributable to common shareholders* (that is, net income minus dividends to preferred shareholders and net income attributable to noncontrolling interests) by the *weighted average number of common shares outstanding for the period* (Net Income-Preferred Dividends)/Weighted Avg of Shares Outstanding

*The income statement separates earnings into 2 components:*

continuing operations discontinued operations

*Traceable Costs*

costs that are *easily traced to the revenue earned* Matching: traceable costs are *recognized in expense in the same period as the corresponding revenue is recognized* ex. *product costs:* Costs of physically producing a good - Include manufacturing overhead, such as factory maintenance, insurance, and depreciation - Although it is difficult to associate overhead costs with specific units of production, they are generally allocated to inventory costs (and thus expensed as part of cost of goods sold) on some rational basis.

depreciation

decline in service potential value

Discontinued Operations

discontinued operations *will not generate future operating cash flows* Under U.S. GAAP, a *component of an entity* comprises operations and cash flows that can be clearly distinguished, both operationally and for financial reporting purposes, from the rest of the entity. *If the component has been disposed of,* it is *treated as a discontinued operation if ". . . the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results."* *If the component has not yet been disposed of*, it must first be *determined whether it is classified as held for sale.* A disposal group is *considered held for sale if the following 6 conditions are met:* 1. Management has committed to a plan to sell the component. 2. The component is available for immediate sale in its present condition subject only to terms that are usual and customary for such sales. 3. An active program to locate a buyer has been initiated, as have all other necessary actions. 4. The sale is probable, and is expected to be completed within one year (subject to certain exceptions). 5. The component is being actively marketed at a reasonable price. 6. It is unlikely that significant changes will be made to the disposal plan or that it will be withdrawn. If the component is deemed to be held for sale, then it also must meet the strategic shift criterion to be given discontinued operations treatment.

CASH FLOW VERSUS ACCRUAL INCOME MEASUREMENT

ex. Canterbury Publishing sells three-year subscriptions to its quarterly publication - receives the full subscription price of $300 (12 issues × $25 per issue) from each of the subscribers ($300 × 1,000 = $300,000) at the beginning of 20X1 If income were measured on a *cash basis*: - the entire $300,000 of cash inflow from subscription receipts would be treated as revenue in 20X1 - the year in which the subscriptions are sold and cash is collected, with no revenue recognized in the remaining two years of the subscription period. - the $33,100 of interest paid on December 31, 20X3, would be reported as an expense in 20X3 under the cash basis of accounting, with no interest expense recognized in the first two years - Canterbury Publishing would report a relatively high "profit" of $240,000 in 20X1 when the subscriptions are sold and collected, followed by "losses" of $60,000 in 20X2 and $93,100 in 20X3 when the costs associated with publishing the remaining issues and financing the operations are paid. *Distortion due to differences in the timing of when cash inflows and outflows occur:* - Clearly, using the cash basis to measure income would distort our view of Canterbury's operating performance on a year-by-year basis. - None of the annual cash-basis profit figures would provide a reliable benchmark for predicting future operating results. - Recognizing cash inflows as revenue and cash outflows as expenses would result in a cash-basis income number that failed to match effort and accomplishment properly. *Accrual accounting:* - recognizes $100,000 of subscription revenue in each of the years 20X1, 20X2, and 20X3 as the magazine is delivered to subscribers and Canterbury's obligation to provide the publication is satisfied. - recognizes interest expense in each year the bank loan is outstanding, not just in 20X3 when the interest is paid. ex. if Canterbury had purchased more paper than it used in a particular year, only the cost of the paper consumed would have been included in Publishing and distribution expense

Revenues result in owners' equity increases

expenses result in owners' equity decreases

EARNINGS MANAGEMENT

has become increasingly common in today's marketplace because of pressure to meet analysts' earnings forecasts Companies that miss analysts' earnings per share estimates by even a few pennies frequently experience significant stock price declines. One way to avoid a decline in stock price for reporting a loss is to make sure to report a profit. - Ideally, this should be accomplished through real economic events that are accounted for correctly. However, managers sometimes use the flexibility available to them under U.S. GAAP or IFRS to inflate earnings. - A recent study suggests that artificially inflating earnings is a common occurrence, especially for firms that would otherwise report small losses. When asked why their companies try to meet earnings benchmarks, more than 86% of the financial executives surveyed indicated that they did so to build credibility with capital markets. An emphasis on accounting profits can lead managers to focus on actions that drive annual or quarterly earnings even when they have a negative effect on cash flow

*Period Costs*

important in generating revenue, but their *contribution to a specific sale is difficult, if not impossible, to quantify* Matching: expensed in the period the benefit was derived ex. interest expense

Unusual or infrequently occurring items that are considered material

must be disclosed separately as part of pre-tax income from continuing operations

The criteria for revenue and expense recognition are intended to

provide general guidance for accrual accounting income determination. these general criteria leave ample room for judgment and interpretation that create flexibility in GAAP Analysts and investors must be alert for management's attempts to exploit this flexibility in ways that push the boundaries of acceptable revenue and expense recognitio

"recycled"

reclassified subsequently into net income

Revenue

recognized when an entity satisfies its contractual obligation to transfer control over goods or services to a customer.

*Diluted EPS*

reflects what basic EPS would have been if all potentially dilutive (i.e., EPS-reducing) securities were converted into common shares reported for firms with complex capital structures - firms with convertible debt, convertible preferred stock, options, or warrants outstanding

*Other comprehensive income comprises*

selected unrealized gains and losses on incomplete (or open) transactions that bypass the income statement and that are reported as direct increases or decreases to stockholders' equity.

Book value or carrying value

the amount at which an account (or set of related accounts) is reported on a company's balance sheet.

*closed transactions*

those whose ultimate payoffs result from events that have already occurred and whose dollar flows can be predicted fairly accurately ex. the sale of an investment security a firm may have held for several years