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Financial Accounting 1.27.11

Financial Accounting 1.27.11 - Accounting Asset = Liability...

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Accounting 1/27/11 Asset = Liability + Equity Two types of equity account Contributed Capital Common Stock and Additional Paid-in Capital E.g. one million shares (decided by bankers) 1 dollar per share (par value) Now it’s 40 dollars per share Additional paid-in Capital = 39M dollars Retained Earnings Always on the balance sheet Use to invest by company using investors’ money Treasury Stock Lower share holders’ equity Common stock bought back from the investor A contra account, has a balance, debit or credit that is contrary to the normal balance Reasons o The belief that the market has undervalue the stock price o Stock option for compensation The option to buy the stock price at a lower price for manager to bond them to the company
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In addition to financial statements. Users of financial statements get other information. If you look at a company’s annual report online, you’ll see that this financial report has sometimes 80-90 pages (a lot more information than just those basic financial statements). Footnotes to the financial statements can be long and complex, but they explain what accounting methods the company was using. Footnotes also provide detailed information behind all of those numbers (cost to goods sold, taxes, revenues) Management Discussion Analysis (MDA) – gives management a chance to explain what happened through the year (problem), and explain how they might fix that problem. One of the important things that we’re going to see in the annual report for the shareholders is the auditor’s opinion. Auditor’s opinion is not from internal auditors but from independent auditing firms.
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