test 1 review - CH 2 FURTHER LOOK AT STATEMENTS Assets...

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CH 2 FURTHER LOOK AT STATEMENTS Assets – things that equal cash listed in order of value, include cash investments receivables inventories supplies and prepaid expenses. Receivables $ due from customers. Inventory stuff we sell. Supplies used to run office. Prepaid expenses *** will get into later Long term investments – corp invests in another corporation, buying and holding, include land and buildings for operations, used for functionality typically Property plant and equipment – long life used to run business, land buildings machines delivery furniture fixtures, different for all businesses (depends on kind), SW type of these would include irrigation systems (equipment) Depreciation – long-term asset spread over x amount years , each year this thing is used costs a certain amount, land and buildings sometimes appreciate so this would not be listed, allocated full purchase price over a number of yrs instead of expensing full cost in year of purchase Accumulated depreciation – shows all depreciation that company has expensed so far in asset’s life, seen on BALANCE SHEET, reduces value of assets, COST different than VALUE. COST LESS is accumulated depreciation. ***Usage is not exact, solely for accounting records, generally worth more than what records say, appraisers all give different answers so it is best to list it as lower price, NOT MARKET VALUE IS ACCOUNTING VALUE ch 10 INTANGIBLE ASSETS – not current assets, no physical substance-- like patents copyrights trademarks franchise (LEGAL rights owned to do whatever), ie manufacture Velcro or own the rights to something, solely a piece of paper usually from gov’t CURRENT LIABILITIES things we expect to pay within a year, accounts payable wages payable bank loans payable interest payable taxes payable current maturities of long term bank loans payable. Current maturities car loans next year 5 payments to make (5 current 48 long term), assets = liabilities + equity , accounts payable $ owed to customers on short term basis (cell phone expense is a liability to accounts payable, $ regularly written checks) Long term liabilities debts paid after a year. Bonds payable (limited life, separate interest rate, certain restrictions ch 10) mortgages payable, long term notes payable, lease liabilities (cars), obligations under employee pension plans. Bonds very common for municipalities Stockholder’s equity – 2 accounts, common stock ($ people invested in business), retained earnings (kept $ for use in the business). RETAINED EARNINGS beginning add net income less dividends = retained earnings. **** very important equation memorize. Net income = revenues – expenses .
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Assets = liabilities + stockholders equity * (recurs) Statement of cash flows* Rules set by financial accountings standards board (not tested but referenced). US only. Sets all US rules on accounting. SECURITIES AND EXCHANGE COMMISSION SEC - oversee all publicly traded companies, quarterly and annual information must be reported and is a very very big deal, usually deadline is made on time. GAAP
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