Finance Chapters 1-3

Current Liabilities

-obligations the company is to pay within the next year, or operating cycle ex.) -payables -salaries -unearned revenue

Current Assets

assets expected to be converted to cash or consumed within one year or the operating cycle *need to be identified in order of liquidity -cash -short-term investments -receivables -inventories -prepaid expenses

Operating cycle

average time it takes from purchase of inventory, to a sale of goods, and then to collection of cash from customers

Corporations

business organized as a separate legal entity owned by stockholders/shareholders -individually you are protected -easier to transfer ownership -easier to raise funds -no personal liability

External Users

financial accounting -investors -creditors -taxing authorities -customers -labor unions

Internal Users

inside the company; managers who plan, organize, and run a business -marketing managers -production supervisors -finance directors -company officers

Users of Financial Statements

internal users external users

3 Types of Business Activity

1. financing activities 2. investing activities 3. operating activities

4 Financial Statements

1. income statement -how successfully the business performed during a period of time -revenues and expenses 2. retained earnings statement -how much of the previous income was distributed to the stockholders in the form of dividends and how much was retained in the business to allow for future growth during a period of time 3. balance sheet -presents a picture in a point of time -assets, liabilities, stockholder's equity assets = liabilities + stockholder's equity 4. statement of cash flows - shows where the company attained cash during a period of time and how the cash is used -operating, investing, and financing activities