A100 Midterm Review
A100 Midterm Review BUS-A100
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This 5 page Study Guide was uploaded by Brock Brenneman on Saturday February 7, 2015. The Study Guide belongs to BUS-A100 at Indiana University taught by Vivian Winston in Fall. Since its upload, it has received 489 views. For similar materials see Accounting in Business at Indiana University.
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Date Created: 02/07/15
Brock Brenneman A100 Midterm Review Financing activities transactions that raise funds for the company to operate common stock notes payable dividends nvesting activities transactions in which the company is investing in assets that it will keep in the business to use in its operations land equipment building Operating activities all of the other transactions that a business engages in which cannot speci cally be classi ed as nancing or investing payment of rent salaries insurance expenses etc Equity ownership sell shares of stock Debt borrowing money from investors or banks nterest the amount the creditor is charging the borrower Speci c requirements of loan spelled out in an agreement is called a l loan contract Maturity date the date by which the loan is to be repaid interest that will accrue and collateral Colateral assets that are pledged by the borrower to the creditor if the borrower is not able to repay the loans Default company being unable to repay its loans Securities and Exchange Commission SEC the basic purpose of the SEC is to maintain fair and truthful capital markets publicly held corporations only An independent auditor or external auditor is an accounting rm that specializes in public accounting Big 4 Accounting Firms 1 Deloitte 2 Ernst amp Young 3 KPMG 4 PricewaterhouseCoopers PWC Corporate governance mechanisms in place within a company which inspire managers to report the truth in their nancial statements Generally Accepted Accounting Principles GAAP accounting standards since SEC formed in 1930 s GAAP is the responsibility of the Financial Accounting Standards Board FASB Companies based in most other countries use a different set of standards called the International Financial Reporting Standards IFRS These are the responsibility of an organization called the International Accounting Standards Board lASB FRS is a principal based standard less guidance and interpretation handled on individual basis Reporting entities organizations that prepare nancial statements Company or rm pro t seeking business Leverage extent to which a company uses debt BALANCE SHEET Assets Liabilities Equity Assets what business owns Liabiities what it owes Equity portion of the assets that the company owns outright Assets Liabilities Equity Current assets cash and other assets that are expected to be converted into cash or used up in about 1 year or less from the Balance Sheet date Longterm investments assets purchased by the company to be held as an investment Fixed assets lntangibe assets asset that has no physical substance patents copyrights trademarks and goodwill Current liabilities debts that are expected to become due within one year of the Balance sheet date Longterm liabilities amounts that the company expects it will not need to pay until after one year from the date on the Balance Sheet Equity measure of the portion of a company s assets that are owned outright company does not owe for these assets Retained earnings total pro ts of the company minus any losses and minus any amounts that have been paid to stockholders over the lifetime of the company The liquidity of an asset is a measure of how fast it is expected to be converted into cash Certain date numbers rollover on Balance Sheet INCOME STATEMENT Revenues Expenses Net Income Revenues amount company earns Expenses amount used up in order to generate revenue lnvoice listing of all the charges the purchaser made during the period of total amount now due to the seller Accrual method of accounting recording revenue when it is earned regardless of when cash is received Cash basis of accounting revenue is recorded only when cash is received An expense is incurred when it is used up Matching Expenses are shown as deductions from the associated revenue Net income amount that is left after expenses have been deducted from revenue net loss if negative Period of time after period numbers eliminated don t rollover on Income Statement STATEMENT OF RETAINED EARNINGS Cash beginning of period operating cash ows nancing cash ows investing cash ows cash end of period If cash was decreased than the amount paid is deducted lf cash was increased the amount received is added Chapter 4 Salvage value when a building or a piece of equipment is purchased management must estimate the assets 1 expected useful life and 2 the value of the asset the end of its useful life Land never depreciates Borrowed funds 1 Principal amount borrowed 2 lnterest amount the borrower pays to the lender for the privilege of using the money Chapter 7 Accounts receivable Beginning accounts receivable sales cash collected ending accounts receivable Sales are added Analyze inventory account Beginning inventory inventory purchases cost of goods sold ending inventory ncrease when company purchases additional inventory and decreased when it s sold Prepaid amounts equation Beg prepaid amount additional payments expense ending prepaid amount ncreased as additional payments are made and decreased as time goes by and prepaid amount is used up Accounts payable equation Beg accounts payable inventory purchases amount paid ending accounts payable This liability is increased as additional inventory is purchased on account and decreased as payments are made to inventory suppliers Notes payable Beg notes payable additional funds borrowed payments made ending notes payable lncreased when additional funds are borrowed and decreased when payments are made lnterest payable Beg interest payable interest accrued payments made ending interest payable ncreased as time goes by and interest expense is incurred purchased but not yet paid for decreased when payments are made Prepaid thingl decrease expense Something payablel owes more expense increase expense Ratios Pro tability ratios compares net income to a number on the balance sheet Return on Equity net incomeaverage stockholder s equty Leverage ratios a measure of the extent to which the company uses debt Debt to Equity average total liabilitiesaverage stockholder s equity Solvency ratios a measure of the company s ability to pay its debts Current ratio current assetscurrent liabilities Asset turnover ratios a measure of the speed that assets move through operations lnventory turnover cost of goods sold average inventory Other ratios EPS net income of shares outstanding Equanns Beg retained earnings net income dividends ending retained earnings Stock RE Equity Assets liabilities Owner s Equity Revenue operating expenses net income from operations gain or loss on sales of investment assets net income Beginning balance expenses incurred amounts paid Ending balance Balance Sheet Assets Current assets Cash Accounts receivable nventory Shortterm investments Prepaid rent insurance etc Longterm investments stock bond Fixed assets equipment building land lntangible assets patents copyrights trademarks goodwill Liabilities Current liabilities Accounts payable Wages payable Utilities payable Shortterm notes payable Longterm liabilities Notes payable Bonds payable Stockholder s Equity Common stock Retained earnings
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