BMGT220H Notes

BMGT220H Notes - Income Summary 11,000 14,000 BMGT220H...

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Income Summary 11,000 14,000 25,000 0 0 BMGT220H – Financial Accounting Lecture 1 – 1/29/09 – Chapter 1 Managerial Accounting o For internal users o Used to manage the company’s resources 4 Financial Statements o Income Statement (profit/loss) o Statement of Retained Earnings o Balance Sheet o Statement of Cash Flows Financial Accounting: Preparation of financial statements in accordance to GAAP which provides users with information to make investment and credit decisions o For external users Investors Creditors: Who lend money to the firm o Done quarterly, and filed to the Securities and Exchange Commission (SEC) o CPA Firms Audits firms annually Makes sure the statements are prepared in a according to Generally Accepted Accounting Principles (GAAP) GAAP could be replaced by the International Financial Reporting Standards (IFRS) o 130 nations currently use IFRS o Measure, Process, Communicate (MPC) Firms need to have… o Profitability: Revenue exceeds the costs Measured by the income statement o Liquidity: Allows firms to pay day-to-day bills by turning assets into cash Measured by statement of cash flow and balance sheet Accounting Equation o Assets = Liabilities + Stockholder’s Equity Assets: Resources owned by the corporation that will provide future benefit Cash, equipment, land Liabilities + Stockholder’s Equity Claims on those assets Stockholder’s Equity is affected by… o Revenue earned: increase SE o Expenses: lower SE Increases the liabilities, or decreases the cash assets Revenue – Expenses = Net Income o Contributed capital: Initial investment from investors
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IPO: Initial Public Offering Selling new stock to public increases contributed capital, and SE o Dividends: Payments made to stockholders Reduces stockholder’s equity Reduces assets (pay cash) Statement of Retained Earnings o Net Income – Dividends = End Retained Earnings at given time Balance Sheet o Assets = Liabilities + Stockholder’s Equity o Must be balanced, both sides of the equation is equal Doubly entry bookkeeping Lehman Brothers Example Assets Liabilities Stockholder’s Equity -$100b Mortgage Backed Securities -$5b Cash -$100b borrowings -$5b If the MBS is actually $90b, SE is reduced to -$5b o Banks can’t have negative SE, which puts them in bankruptcy Government could loan $20b o Increases assets $20b, and SE becomes $15b o Firm would give the government company stock
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Chapter 2 – February 3, 2009 American Institute of Certified Public Accountants (AICPA): Organization that represents accounting firms. Public Company Accounting Oversight Board (PCAOB): Organization created by the Sarbains-Oxley Act to oversee accounting firms Recognition: Recording of the transaction o Deciding when a business transaction has occurred o Point of recognition is important because it affects the financial statements o Point of Recognition for Sales and Purposes –
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This note was uploaded on 09/07/2011 for the course BMGT 220h taught by Professor Staff during the Spring '08 term at Maryland.

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BMGT220H Notes - Income Summary 11,000 14,000 BMGT220H...

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