396.Present.Value.and.Bonds

396.Present.Value.and.Bonds - I.E.1 Stocks versus Flows A...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Stocks versus Flows A Stock is an amount of units of a good or an amount of dollars held by a firm or consumer at a given point in time. Example: inventory such as 400 bicycles on September 30, 2002 Example: current savings such as $10,000 today A Flow is an annual amount of units of a good or service produced by a firm or consumed by a consumer. Example: production such as 3000 bicycles per year Example: consumption such as 1460 popsicles per year (4 per day) A Flow is an annual amount of dollars received or paid. Example: income such as $50,000 per year Example: mortgage payments such as $10,000 per year Wealth is a stock and income is a flow. Capital is a stock and investment is a flow. Copyright © 2002 by Martin K. Perry I.E.1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Stocks versus Flows in Accounting Publicly-held corporations are required to submit Accounting Statements on their Stocks of assets and liabilities, and their Flows of revenues and costs. The Balance Sheet is a accounting statement of the current value of the assets and liabilities as of a particular date (end of the calendar or fiscal year). Assets include tangible assets such as plant, equipment, and inventory Assets include intangible assets such as patents and copyrights Assets also include financial assets such as cash, investment funds Liabilities include bonds, loans, and other contractual liabilities The Income Statement (revenues and costs and Cash Flow Statement (cash) are accounting statements of the flows that occurred during a specific time period (quarter or a year). Revenues include the cash from the sale and delivery of goods and services Revenues include income from financial assets Costs include the expenses for salaries, wages, inputs, energy, maintenance Asset purchases are NOT current costs, but depreciation of assets is a cost Copyright © 2007 by Martin K. Perry I.E.2
Background image of page 2
Methods of Accounting Fraud Section 10(b) of the Securities Exchange Act (1934) Securities Exchange Commission (SEC) regulates securities markets Rule 10b-5 (1942): Manipulative and Deceptive Practices (2) Unlawful to make any untrue statement of an material fact (3) Unlawful to engage in any fraudulent act, practice, or course of conduct Balance Sheet Fraud Over-Value Assets Financial assets (bonds) which have no market price (Banks, subprime bonds) Contractual assets using optimistic predictions on prices (Enron, oil and gas) Under-Value Liabilities: legal liabilities of product defects Income Statement Fraud Inflate Revenues Back-dating sales into the previous accounting period Channel Stuffing by forcing distributors to take excess goods (Coke, syrup) Premature recognition of revenues from long-term contracts (Xerox, copiers) Deflate Costs Report operating expenses as capital expenses (Worldcom, access charges) Copyright © 2008 by Martin K. Perry I.E.3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2011 for the course ECON 220:301 taught by Professor Shefflin during the Spring '11 term at Rutgers.

Page1 / 40

396.Present.Value.and.Bonds - I.E.1 Stocks versus Flows A...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online