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Fin Acct Exam1 notes - CH 2 A Further Look at Financial...

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CH 2 A Further Look at Financial Statements i. The Classified Balance Sheet a. Presents a snapshot at a point in time b. To improve understanding, companies group similar assets and similar liabilities together c. Standard Classifications i. Assets: current assets, long-term investments, property/plant/equipment, intangible assets ii. Liabilities and Owner’s Equity: current liabilities, long-term liabilities, stockholders’ equity d. Current Assets i. Assets that a co expects to convert to cash or use up within on year or the operating cycle e. Long-Term Investments i. Stocks and bonds of other companies ii. Assets that a company is not currently using in its operating activities f. Property, Plant, and Equipment i. Long useful lives ii. Currently used in operations iii. Depreciation—allocating cost iv. Accumulated depreciation—total amount of depreciation expensed thus far in the asset’s life g. Intangible Assets i. Patents h. Current Liabilities i. Obligations the co is to pay within the coming year ii. Usually list notes payable first, followed by accounts payable. Other items follow in order of magnitude iii. Liquidity—ability to pay obligations expected to be due within the next year i. Long-Term Liabilities i. Obligations a co expects to pay after one year j. Stockholders’ Equity i. Common stock ii. Retained earnings ii. Ratio Analysis a. Expresses relationship among selected items of financial statement data b. Current Ratio = current assets/current liabilities c. Profitability Ratios: measure the income or operating success of a co for a given period of time i. Earnings per share (EPS)—measures the net income earned on each share of common stock (net income – preferred stock dividends)/ average common shares outstanding
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d. Liquidity Ratios: measure short-term ability of the co to pay its maturing obligations and to meet unexpected needs for cash e. Solvency Ratios: measure the ability of the co to survive over a long period of time iii. Income Statement a. Revenues b. Expenses c. Revenue – Expenses = Net Income *current means within one year * balance sheets go in order of liquidity *difference between long-term investments and Property, plant, and equipment: PPE are used in day-to-day business *stockholders’ equity = Common stock (how much stock costs) + Retained earnings (amount of income a co makes that doesn’t get paid out as dividends) Accounting Ch 3 i. The Account a. Record of increases and decreases in a specific asset, liability, equity, revenue, or expense item b.
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