Management 1A Lecture Notes (2)

Management 1A Lecture Notes (2) - Management 1A Lecture...

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Management 1A Lecture Notes Professor Gardner-Treloar Week 2, Lectures 5
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Cash versus Accrual Accounting Cash Method -The cash method is not GAAP (Generally accepted accounting principles) standard -In this method, you recognize revenue when you receive the cash and expenses when you actually pay -This is more appropriate for personal finances (like income tax returns) Accrual Method -In this, more corporate appropriate method, you recognize revenue when it is e arned, m easurable, and c ollectible -Think of the equation e=mc 2 as a mnemonic -By the matching principle, you would recognize an expense when it is incurred Statement of Cash Flows Examples Showing Different Activities (Example taken from Ace Race Case in Course Reader) -The Statement of Cash Flows shows whether tangible money coming in is positive or negative -It answers the question: “Does this company have enough capital to survive?” -The goal is to get from the beginning balance of cash to the ending balance of cash -For a brand new company in year one of business, the beginning balance will be zero -For a company older than a year, the beginning balance will be the previous year’s ending balance -Ace Race Example Cash Beginning Balance 0 Contributed Capital (F) 40,000 26,000 (I) 800 (O) Rent Expense 3500 (O) Lease Payment 8000 (O) Salaries Expense Collected Revenue (O) 10,000 300 (O) Ad Expense Bank Loan (F) 3,000 1400 (F) Drawings Ending Balance 13,000 -(O) = Operating Activity
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This note was uploaded on 12/08/2011 for the course MGMT 1A taught by Professor Litt during the Spring '08 term at UCLA.

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Management 1A Lecture Notes (2) - Management 1A Lecture...

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