What is the difference between working capital and current
Working capital is a subtraction(current assets - current liabilities)
Current ratio is a division (current assets/current liabilities)
What is the lowest acceptable current ratio?
change in cost/change in activity=variable cost per unit; then calculate total fixed cost
for high and low.total cost=fixed (unknown) + variable -should be the same for both,
then calculate total = fixed from above + variable * units
Statement of Cash Flows
Shows the changes in cash for a period of time as that covered by the income
The cash flow statement shows all sources of cash and uses of
cash. What are sources and what are uses?
Sources: Inflows, cash receipts
Auditors are needed to prevent companies from using flexible
methods. Why would they want to manipulate their numbers?
To deceive investors and creditors into providing cash
Management bonuses and compensation are tied to firm performance
To avoid violati
Time Value of Money aka Compound Interest is the concept
that what is based off?
Measurement and recording of liabilities
How is Compound Interest different than Simple Interest?
SI: P x R x T only earns interest of the principle of money
CI: earns intere
Assets expected to be converted into cash within one year from the balance sheet date
Examples of Current Assets
Pre-paids (insurance, rent)
Any deposit banks will accept
Most susceptible to theft
What is the best way to compare TMV options?
Present Value! Today's dollars
Can there be both a lump sum deposit and an annuity in one
Example: Future Value = FV of Deposit + FV of Payments
Statement of Cash Flows
Shows the changes in cash f
What is the formula for end retained earnings?
Beginning Retained Earnings
= End Retained Earnings
Why aren't dividends considered an expense account?
Companies are not required by the law to pay it's owners. They could reinvest
also called plant assets or long-term assets that have physical substance
3 Accountable Events in the Life Cycle of P-P-E
1. Account for the acquisition of PPE (go out and buying)
2. Account for
What is a budget?
A comprehensive financial plan for achieving the financial and operational goals of an
What two aspects of a company affect budgeting? (assist in)
Planning and Control
What is "developing objectives for acquisition and use o
CHAPTER 1 MODULE 1
Professor Marc Smith
STATEMENT OF CASH FLOWS
The statement of cash flows shows the changes in cash
for the same period of time as that
What is Accounting?
The means by which we measure and describe the economic activities of a business
and communicate these results to interested users
List the 4 Major Financial Statements
1. Balance Sheet
2. Income Statement
3. Statement of Owners' Equit