l03.fall10 - Lecture 3 FINANCIAL page 16 STATEMENTS, CASH...

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Lecture 3 page 16 FINANCIAL S TATEMENTS , CASH FLOW , AND TAXES Key points: The difference between income and cash. How “book” value differs from “economic” and “market” values. The various parts of a firm’s annual report and what each reveals. Balance Sheet Income Statement How management can compromise the integrity of the financial statements. Accounting vs. Finance Perspective Why is there a difference between accounting income and cash flow? Because of this, accounting income measures are only estimates a) b) - Richard T. Bliss, Babson University and Terry D. Nixon, Miami University
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Lecture 3 page 17 Example: I decide to start a simple business of selling beverages before class. Each week, I buy two cases of Diet Mountain Dew each week (sold at Jungle Jim’s for $5.99/case) and sell them in class for 50¢ each. What will my Income Statement look like for one week assuming I’m tax exempt? (This is my accounting income.) Sales revenue Cost of Goods Sold Profit Now, let’s consider Cash Flow under three different scenarios: 1. All my purchases and sales are made in $$. Cash outflow to purchase soda Cash inflow from sales Cash Flow 2. All my purchases made with my credit card; my sales are made in $$. Cash outflow to purchase soda
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This document was uploaded on 11/02/2011 for the course FIN 301 at Miami University.

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l03.fall10 - Lecture 3 FINANCIAL page 16 STATEMENTS, CASH...

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