2-3040 2010 financial statements

2-3040 2010 financial statements - FINANCIAL STATEMENTS...

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FINANCIAL STATEMENTS
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FINANCIAL STATEMENTS 1. “Every business prepares statements that reflect the financial position of the company and the results of its operations.” 2. “The numbers in the financial statements, just like a score on a college students test, tell investors how a company has performed in comparison to expectations of management, the markets and competitors.” 3. “Most (financial statements) are prepared in accordance to…GAAP. But generally accepted accounting principles aren’t a rigid set of rules. They are subject to interpretation.” 1. In recent years, pressure has increased on companies to meet their “numbers.” One reason is that management compensation is now more closely tied to the price performance of the common shares.”
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FINANCIAL STATEMENTS The Balance Sheet Assets = Liabilities + Equity Investments Sources of financing Represents the firms investments and financing as of a moment of time Uses book values , based on historical costs (1) Market values can be substantially different for assets, liabilities, and equity (2) Asset economic value can be substantially different
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FINANCIAL STATEMENTS The Income Statement Represents performance over a period of time Matching principle (1) Matches revenue with costs associated with generating the revenue (a) The cost of purchasing goods recorded when the goods are sold (b) The cost of fixed assets recognized over time (depreciation), not when acquired
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Balance Sheet, December 31 (Millions $) Assets 2009 Liabilities & Equity 2009 Cash 10 Accounts payable 60 Short-term investments 0 Notes payable 110 Accounts receivable 375 Accruals 140 Inventory 615 Current portion of LT debt 20 Total current assets 1,000
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