ORIE 3150
September 1, 2009
Outline for Chapter 2
Note:
Tuesday’s section will begin at 2:45 PM
I.
Balance Sheet – a detailed look
a.
Assets - closest to cash listed first
b.
Current assets
c.
Long term assets
d.
Prepaid expenses are assets.
Common examples:____________ and ______________
e.
Difference between assets and expenses
f.
Liabilities are also broken into current and long term categories
g.
Unearned revenue is a liability.
Common example:___________________
h.
Retained earnings can be a positive or negative number.
II.
Earnings per share
A profitability ratio that measures the net income earned on each share of common stock.
It is
computed by dividing net income by the average
number of common shares outstanding during the
year.
The average is computed on the basis of time, so you have to know how many shares the
corporation had, and for how long.
By comparing earnings per share of a single company over time, one can evaluate its relative
earnings performance on a per share basis.
It is like normalized earnings.
A company can have
either earnings per share or loss per share, of course.
Or, it can break even exactly and have zero
earnings and zero earnings per share.
III.
Retained Earnings
We add net income to and subtract dividends from the beginning balance of retained earnings to
arrive at the ending balance of retained earnings.
Beginning Retained Earnings
+
Net Income
Dividends
̶
Ending Retained Earnings
Obviously if all earnings are paid out as dividends, then the Retained Earnings account does not
grow.
It is very possible to pay dividends when the company is operating at a loss.
This will further
reduce the balance in Retained Earnings, of course.
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- '08
- CALLISTER
- Balance Sheet, Revenue, Generally Accepted Accounting Principles
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