accounting outline.docx - Outline I Intro to Accoutning...

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Outline 01/27/2015 ° ° I. Intro to Accoutning ° Case Study – Francis v. United Jersey Bank ° Case Takeaways Directors have an obligation to read and understand the company’s financial statements and make reasonable attempts to detect and prevent illegal conduct of officers & directors Reasonable knowledge of the business’ operations and specifics to the industry are necessary to “understand” the financial statements Directors that do not have the necessary knowledge and/or skills should either obtain that knowledge or resign ° ° II. Chapter 2 ° Balance Sheet Balance Sheet states Assets and Liabilities at a point in time or “Snapshot” Assets = Liabilities + Equity Equity = Assets - Liabilities Equity can be negative if Liabilities exceed Assets All Assets of a company are owned either by creditors (liabilities) or equity holders (equity) – note that creditors claims are fixed, but equity adjusts to the residual of Assets - Liabilities ° Balance Sheet – Assets Assets = economic resources or potential sources of future revenues through operating activities Current Assets (short-term) Defined as ability to be converted to cash typically in 12 months Support day-to-day operation
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Non-Current Assets (long-term) Relate to firm’s means of production Tangible or Intangible Tangible = physical form i.e. buildings & equipment Intangible = non-physical, non-current right that gives a firm an exclusive or preferred position in the marketplace i.e. intellectual property ° Balance Sheet - Liabilities Liabilities = probable future sacrifice of economic benefits arising from present obligations of a particular entity to transfer assets or to provide services to another entity in the future as a result of past transactions or events Duration – Liabilities also divided by Current and Non-Current “Current” typically defined as to be repaid within normal operating cycle of the firm or one year Examples Current = Wages and Utility bills to be paid Non-current = Long term debt i.e. 5 year term loan due to bank ° Balance Sheet – Another Look Split between Short and Long Term Assets & Liabilities Short-term = Day to Day operations Working Capital = Current Assets – Current Liabilities Long-Term = Capital assets and ability to support production Financed by long term debt & equity Examples Hospital – what would be short-term and what would be Capital or long term?
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