IEE final

IEE final - ~Chapter 17: Accounting Practices and Principles

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~Chapter 17: Accounting Practices and Principles *Accounting-identifies, measures, and communicates economic information -GAAP -Generally Accepted Accounting Principles -Governed by the FASB -Financial Accounting Standards Board -Two types: Financial and Managerial *Types of Accountants -Public Accountants-Provide services to: Individuals, Businesses -Private Accountants, All others. .Management, government, academia *Accounting Cycle *Commonly Used Terms Assets = Liabilities + Owner’s Equity Assets (property, cash) Liabilities (debts) Owner’s Equity (investments of owners) Revenues (sales, interest earned, etc.) Expenses (costs that produce revenue) Net Income (revenue -expenses) *Double-Entry Bookkeeping Entry of debits and credits to ensure transactions are properly recorded Debits recorded on the left, represents Increases in assets Decreases in liabilities, owner equity, expenses Credits recorded on the right, represents Decreases in assets Increases in liabilities, owner equity, expenses *Assets Current Assets Plant Assets Items that are usable for > 1 year Depreciation Amortization of cost of plant assets over their useful life 39-1/2 years for buildings 5 years for vehicles Liabilities-Debt owed to creditors Current Liabilities Obligations that will be repaid within 1 year
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Working Capital HCurrent Assets -Current Liabilities Revenues Sales, interest, rent, royalties, dividends Cost of goods sold Expenses used to produce goods or services for sale Net income (loss) Revenue -Expenses Chapter 17 11 *Statement of Cash Flows-flow of cash in/out during a period of time Operating activities measurement of cash results from revenue-generating activities Investing activities buying fixed assets or buying stock Financing activities issuance of new stock, paying dividends, borrowing, and repaying amounts borrowed ~Understanding Financial Statements Financial statements use accounting data to tell us how a business is performing Liquidity *Balance Sheet (Summary) Assets = Liabilities + Stockholder Equity Assets = $138,263,000 Liabilities = $75,851,000 Stockholder Equity = $62,412,000 *Financial Ratios *Debt Management Evaluating debt financing and ability to repay debt Debt Ratio Extent of debt financing Times-Interest-Earned Ratio Measures ability to meet annual interest payments Debt Ratio Total Debt / Total Assets $75,851,000 / $138,263,000 = 54.9% Times-Interest-Earned Ratio
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EBIT / Interest Expense EBIT = Earnings before interest and taxes $4,225,000 / $354,000 = 11.9 times *Liquidity Comparing assets to liabilities Current Ratio Extent that short term debts are covered by assets Current assets / Current liabilities $25,475,000 / $37,141,000 = 0.69 times Quick Ratio Ability of a company to pay short term debt without selling assets (Current assets -Inventories) / Current liabilities ($ 25,475,000 -$8,383,000) / $ 37,141,000 = 0.46 times
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This note was uploaded on 08/25/2011 for the course CHE 113 taught by Professor Burrows during the Spring '11 term at ASU.

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IEE final - ~Chapter 17: Accounting Practices and Principles

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