BA 103 Lec 3 - UGBA 103: Finance Lecture 3 (2/4/08) LECTURE...

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Unformatted text preview: UGBA 103: Finance Lecture 3 (2/4/08) LECTURE 1 SLIDES (CONT): PRELIMINARIES ACCOUNTING: THE ART OF ACCOUNTING Prof. is referring to external, not internal accounting Statement given to investors, providing a summary to those who have provided money Dont disclose too much because do not want to provide too much to competition Eliminate free-rider problem with patents Footnotes on financial statements, to help understand numbers Key distinctions Time matching- record expense in same time company is reporting revenue. Ex, $800 to produce $1000 revenue, but record revenue Year 1 and expense Year 2. Accounts Receiva ble for sale, but company is not yet paid On-going vs. extraordinary- separation between these, ex. If land in Hawaii down on balance sheet as cost, and then sold 100 years later. Recognize profit in year land is sold, not before. Suddenly you can see huge profit Tension between conflicting goals Use statement to see if stock price right or not Valuation at market Freedom from manipulation dont want anyone to lie to us Ex. Reporting worth of land, depending if they made a profit or loss that year Providing stock market-independent information Surplus, paid-in capital, company use stock price to figure out value, should figure out by themselves Based on verifiable transactions Comparability across firms, and consistency within the same firm US has GAAP, but problem for international investors. Want intertemporal and cross-sectional consistency for international investors....
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This note was uploaded on 05/11/2008 for the course UGBA 103 taught by Professor Berk during the Spring '07 term at University of California, Berkeley.

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BA 103 Lec 3 - UGBA 103: Finance Lecture 3 (2/4/08) LECTURE...

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