CHAPTER 1 - Profitability —earning a sufficient return to maintain owner interest _ Liquidity —having enough cash to pay debts as they come due _ Operating —selling goods and services to customers; employing managers and workers; buying and producing goods and services; and paying taxes _ Investing —spending the capital a company receives in productive ways that help it achieve its objectives _ Financing —obtaining funds to begin operations and to continue operating _ Performance measures relate to achieving goals and assessing the management of business activities. _ Financial analysis is the evaluation and interpretation of the financial statements and related performance measures. _ Performance measures must be crafted to motivate managers to make decisions that are in the best interest of the business. _ Management accounting —accounting information for internal decision makers _ Financial accounting —accounting information for external decision makers; reports are called financial statements. _ Three use acc info: Management (internal users); Outsiders with a direct financial interest; People, organizations, and agencies with an indirect financial interest (tax, regulators, labor unions, etc.) _ Financial Statements : Income statement (also known as the statement of earnings or the profit and loss statement) Shows revenues earned and expenses incurred for a period of time Indicates profit or loss for an accounting period Statement of Retained Earnings Shows changes in retained earnings over a period of time Balance sheet (also known as the statement of financial position) Usually prepared as of the last day of the accounting period to show the organization’s financial position (or status) as of that specific date Reflects the accounting equation in its structure Statement of cash flows Presents significant financing, investing, and operating activities (cash-generating and cash-using activities) during a given period Explains the reasons for changes in the organization’s cash during an accounting period _ CPA Code : Integrity Objectivity Independence Due care Management accountants have a code of professional ethics that addresses competence, confidentiality, integrity, and objectivity. _ Annual Reports : Letter to the Stockholders Financial Highlights Description of the Company Management’s Discussion and Analysis CHAPTER 2 – Measurement issues - Recognition issue—When should the transaction be recorded? Valuation issue—What dollar amount should be recorded? Classification issue—Which accounts are affected? _ A sale is recognized when title passes to the buyer (recognition point). _ Transactions should be recorded at their original cost (historical cost). The fair value is the exchange price, which results from an agreement between the buyer and seller that can be verified by evidence at the time of the transaction. Assets are valued at the initial fair value or cost unless there is evidence that the fair value has changed and an adjustment must be made. _ Double-Entry Increases in assets are debited. Decreases in assets are credited. Increases in liabilities and stockholders’ equity are credited. Decreases in liabilities and stockholders’
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- Fall '08
- Balance Sheet, Generally Accepted Accounting Principles