Final-Maggie - Profitability Ratios Measure operating...

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Profitability Ratios Measure operating success of a company for a given period. Earnings per Share (EPS) Net Income - Preferred Stock Dividend / Average Common Share Outstanding Profitability Liquidity Ratios Measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash. Working Capital Current Assets - Current Liabilities Current Ratio Current Assets / Current Liabilities Liquidity Solvency Ratios Measure ability of company to survive over a long period of time. Debt-to-total Assets Ratio Total Liabilities / Total Assets Solvency Lower value = favorable solvency Characteristics of Useful Information . Relevance . Reliability . Comparability . Consistency Relevance Predicts future events Provides feedback about prior expectations Timely Reliability Verifiable Faithful representation Neutral Accounting Assumptions
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. Monetary Unit Assumption . Economic Entity Assumption . Time Period Assumption . Going Concern Assumption Accounting Principles . Cost Principle . Full Disclosure Principle Book Value Difference between the cost of any depreciable asset and its related accumulated depreciation. Closing Entries Transfer net income (or net loss) and dividends to Retained Earnings, so the balance in Retained Earnings agrees with the retained earnings statement. Cost of Goods Sold Total cost of merchandise sold during the period. Gross Profit Sales Revenue - Cost of Goods Sold Perpetual Inventory System Maintain detailed records of cost of each inventory purchase and sale. Continuously show inventory that should be on hand for every item. Determines COGS each time a sale occurs. Periodic Inventory System Do not keep detailed inventory records of the goods on hand throughout period. Determine COGS only at the end of the accounting period. FOB Shipping Point Buyer pays the freight costs. FOB Destination Seller pays the freight. Credit Term: 2/10, n/30 2% cash discount if payment is within 10 days, otherwise invoice price is due 30 days from invoice date. Sales Returns and Allowances Contra Revenue Account
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Normal Balance of Debit Sales Discount Contra Revenue Account Normal Balance of Debit Net Sales Determining Cost of Goods Sold (Periodic System) Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sales - Ending Inventory = Cost of Goods Sold Gross Profit Rate Gross Profit / Net Sales Goods in Transit: FOB Shipping Point Ownership of goods passes to buyer when public carrier accepts goods from seller. Goods in Transit: FOD Destination
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This note was uploaded on 03/25/2012 for the course ACCT I S 100 taught by Professor Kopsy during the Fall '11 term at University of Wisconsin.

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Final-Maggie - Profitability Ratios Measure operating...

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