Financial Accounting 03

Financial Accounting 03 - --rrrrl Accruols und Deferrols:...

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Unformatted text preview: --rrrrl Accruols und Deferrols: Timing ls Everflhing in Accounting Here's Where You've Been ln Chopter 2, you studied the quolities of the informotion in the finonciol stotements Accounting informotion should be useful. You olso leorned thot GAAP requires occruol bosis occounting-revenues ore recognized when earned ond expenses ore moiched to those revenues. Here's Where You're Goinq In Chopter 3, vou will leorn more obout how the finonciol stotements show tronsoctions in which the exchonge of the cosh ond the exchonge of goods ond services hoppen ot dlfferent times. These ore occruols ond deferrols Aanrw{4g W&t*flwws When you are finished studying this chapter, you should be able to: 1. Define accrual accounting and explain how income is measured' 2. Explain accruals and how they affect the fi.nancial statements; describe and per- form the adjustments related to accruals. 3" Explain deferrals and how they affect the financial statements; describe and per- form the adjustments related to deferrals. 4. Construct the basic financial statements from a given set of transactions that in- clude accruals and deferrals and recognize the effect of these transactions on ac- tual financial statements. 5" Compute and explain working capital and the quick ratio. 6" Explain the business risks associated with financial records and accounting information. 97 98 CHAPTER 3 . ACCRUALS AND DEFERRALS: TTMTNG rs EVERvTHING tN AccouNTtNG #ffng*s *F"{s"f{eys When John Rigas, the former chairman and CEO of Adelphia Com- munications, was found guilty of bank and securities fraud and sentenced to 15 years in prison, it was not just the case of a CEO who looted a publicly traded communications company. John Rigas was the company's founder. He and his son, Timothy Rigas, were convicted of stealing over $2 billion from the company. Some people believe that having someone like the founder of a company as part of the management team will help protect the company from management abuses. lf a firm's managers have some ownership in the company, their interests should be aligned with those of the shareholders. Al- though there may be some truth in this, one thing is clear from the case of Adelphia: There is no substitute for ethical behavior. In this case, the founder of the company drove the company into bankruptcy to support a life of ex- treme luxury. For John Rigas, over 80 years old, the only luxury he may have left is the luxury of spending the last years of his life in jail. Measuring Income After its first month, Tom's Wear prepared a set of financial statements to measure and re- port the company's activity during that first month and to measure and report its financial position at the end of that month. Tom's Wear did both again for the second month....
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This note was uploaded on 03/30/2010 for the course MGT 234132 taught by Professor Dunn during the Spring '10 term at UCSD.

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Financial Accounting 03 - --rrrrl Accruols und Deferrols:...

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