Introduction To Financial Statements

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a1/08/2012
Introduction to Financial Statements
Accounting System 1- Financial Transaction (input): a. Analyze b. Record c. Classify d. Summarize e. Report 2- Financial Statements (output) f. Companies prepare four financial statements from the summarized accounting data: i. Balance sheet ii. Income statement iii. Retained earnings statement iv. Statement of cash flows * GAAP – Generally Accepted Accounting Principles * FASB and SEC work together to form the GAAP * FASB- Financial Accounting Standards Board * SEC- Securities and Exchange Commission
Business Activities: * Financing * Borrowing money * Issuing shares of stock for cash * Investing * Use money to invest in long time assets to help run the business * Operating * Supplies, salaries, etc
Corporations are basically a different entity altogether- an "invisible" person.
Income statement= Revenue-Expenses (See examples in slides)
Operating Cycles: basically comes down to using money to perform services or create merchandise, sell product/merchandise, and receive money.
Assets= Liabilities + Equity
Financial Leverage: more borrowed money

01/15/2013
Current assets: accounts receivable, cash, inventory, supplies, prepaid expenses… * Accounts receivable vs notes receivables: * Accounts receivable: current customers owe money to you. You provide service/product on credit * Notes receivable: normally have some interest
Noncurrent assets: * PPE * Ex: machines, equipment, land, furniture * Natural resources * Ex: coal mine * Intangible assets * Ex: goodwill , copyrights, trademarks * Goodwill is only recorded when a company acquires other companies and builds good reputation. For example, Walmart buys "C" company for 20 mill. * Goodwill example: Walmart bought another corporation * Long term investments
Liabilities: financial obligations * Current liabilities: to be paid off within a year * Long term liabilities: notes payable (long term), all accrued expenses, long term loans, bonds payable
Retained earnings: earnings that are NOT distributed by the company
Dividends ARE distributed
Accounting Cycle: see slide
Normal Balance of account: * Assets: debit * Expense: debit * Liabilities: credit * Equity: credit * Revenue: credit

Ch. 6 * Goods in transit: goods not yet received * This would be shown in the inventory of whoever's hands it is currently in. * Ex: something being sent from NY to Miami * Consigned goods
1/22/2013
How to judge working capital management? * Current ratio= current assets/current liabilities * Current ratio= 1 means to pay all current liabilities, you must sell all current assets * Current ratio= 2 means you can sell assets to pay off all your liabilities, and you still have assets left
How to judge liquidity? (Ability of the firm to pay all current obligations) * Negative working capital means you're working with someone else's money locked in your business
Types of Receivables * Amounts due from individuals and other copmanies that are expected to be collected in cash * Amounts owed by customers that result from the sale of goods and services * Claims for which formal instruments of credit are issued as proof of debt * "nontrade" (interest, loans to officers, advances to employees, and income taxes refundable)
1/29/2013
* Revenue= sales + tax * Discussed bonds and taxes * Stocks * Issued stock: stock paid in capital * Outstanding stock: stock purchased/held by the company
02/05/2013
ROE: return on equity
How to calculate operating margin: * Operating margin profit= Operating profit/sales * Profit margin= Income from continuing operations/sales

Gross profit=
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