ch.3 notes - -Retained earnings – income that is retained...

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Fundamentals of Finance 1/29/2008 Chapter 3 I. BALANCE SHEET CURRENT ASSETS (= Working Capital) – Allows firm to buy materials to pay for production and buy new product -Cash -Accounts receivable – credit card purchases, businesses who accept crdit card report it as cash, -Inventory – how much inv. we have in the factory. Finished goods inv, FIXED ASSETS –Recorded at their cost in US -Land and Building -Machinery –trucks, etc. -other fixed assets CURRENT+ FIXED ASSETS = TOTAL ASSETS CURRENT LIABILITIES (must be paid back within 1 year) -Notes payable, bank (can only be current if they can be free of debt w/ bank for at least 1 day) -Accounts and notes payable (money owed to a supplier of credit) -Accruals – salaries, payroll, taxes withheld from employees but not yet paid (Accounts Payable and Acccruals are autonomous sources of funds.) LONG TERM LIABILITIES -Mortgage -Common stock – amount of equity you’ve sold to people for money. Amount you’ve received for stock you’ve sold. If you buy back stock amount goes down. If you sell stock it goes up.
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Unformatted text preview: -Retained earnings – income that is retained and then reinvested into company. Reflects all money earned retained and reinvested. Nothing you can do with retained earnings. Simply a record recognizing a claim the owner’s of the business have for money invested. Liabilities = claims of creditors. When the firm has losses your retained earnings go down. II. INCOME STATEMENT -Net sales- Cost of Goods sold – cost of inventory sold- Gross Operating profit – sales minus cost- Depreciation – non cash expense. Is deductable on taxes, the reason why we show it on cash flow. - Miscellaneous- Net income before Taxes minus Taxes = Net income. CASH FLOW STATEMENT (most important) OPERATIONS-operating activities (Net income before Dividends) SOURCES OF CASH-Depreciation-increase in accounts payable-Increase in accruals USES OF CASH-Increase in accounts receivable-Increase in inventories FINANCING ACTIVITIES-Increase in notes payable-Mortgage reduction...
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ch.3 notes - -Retained earnings – income that is retained...

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