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Chapter 14 Notes and Test Review

by: Rachel Moore

Chapter 14 Notes and Test Review ACCT 2102

Marketplace > University of Georgia > Accounting > ACCT 2102 > Chapter 14 Notes and Test Review
Rachel Moore
GPA 3.33

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About this Document

These notes cover chapter 14 as well as the test 3 review, which was covered in class April 25 - April 29.
Principles of Accounting II
Class Notes
ACCT2102, Farmer, uga, chapter14
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This 5 page Class Notes was uploaded by Rachel Moore on Sunday May 1, 2016. The Class Notes belongs to ACCT 2102 at University of Georgia taught by Farmer in Spring 2016. Since its upload, it has received 94 views. For similar materials see Principles of Accounting II in Accounting at University of Georgia.


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Date Created: 05/01/16
ACCT 2102 April 25, 2016 – April 29, 2016 Chapter 14 Notes Financial Statement Analysis Horizontal Vertical Describing Comparative Balance Sheet Accounts Assets: what you own. Current Assets: what is cash or what will be cash within a year. Accounts Receivable: when you sell something to someone and they still haven’t paid you yet. Inventory: what you have to sell to your customers. Prepaid Expenses: something you’ve paid for in advance but not used up yet. Fixed Assets: something that you own that you are stuck with for more than a year. Accumulated Depreciation: account that holds a long-term asset’s depreciation expense that keeps adding up as the asset depreciates. Liabilities: what you owe. Current Liabilities: something that you are going to pay off in a year. Accounts Payable: something you’ve bought that you haven’t paid for yet. Wages Payable: the wages that employees have earned but you still owe them. Long-Term Liabilities: something that will be paid off in more than a year. Created By: Rachel Moore Not for redistribution. Equity: what you own minus what you owe. Retained Earnings: accumulation of earnings over periods. Which column on the Balance Sheet represents horizontal analysis? • Cash ▯ ($4015.57) ▯ Did we expect it to go down? • A/R ▯ $2,135.40 ▯ Are we selling more? Are we not collecting? • Prepaid Expenses ▯ $6,387.83 ▯ Did we forget to make an adjusting journal entry? Did we pay for something this year that we didn’t last year? • Land ▯ ($10,234.00) ▯ Did we sell land? Did we have to sell off land to pay for operations? • A/P ▯ ($6,013.13) ▯ Was there an accounting mistake? • RE ▯ $2,288.48 ▯ Did we declare dividends? Which column on the Balance Sheet represents vertical analysis? • A/R ▯ 11% ▯ Compare to competitors. If we have industry standards and A/R equals 25%, then we could say… Good: We’re collecting more of our credit sales than the industry standard. Bad: We’re not selling as much and losing business; then look at revenue. • Inventory ▯ 7% ▯ What do my competitors hold? • Fixed Assets ▯ 41% ▯ Compare to competitors again. • Debt ▯ 9% ▯ Are we scared to take on debt? EPS ▯ Earnings per Share • Relevant for the shareholder ▯▯▯ ▯▯▯▯▯▯ • = ▯▯▯ ▯▯▯▯▯▯ ▯▯ ▯▯▯▯▯▯ ▯▯▯▯▯ ▯▯▯▯▯▯ ▯▯▯▯▯▯▯▯▯▯▯ o Net income ▯ income statement o CS outstanding ▯ balance sheet • EPS is increasing; shareholders should be getting more in return • EPS is decreasing; value of stock in the market could be decreasing • Limitation: not cash flow Current Ratio • Relevant for creditors (short term) • = ▯▯▯▯▯▯▯ ▯▯▯▯▯▯ ▯▯▯▯▯▯▯ ▯▯▯▯▯▯▯▯▯▯▯ o Current assets ▯ balance sheet o Current liabilities ▯ balance sheet • Typical ratio between 1-3 • Increasing current ratio ▯ appear stronger to a creditor (within a certain range) • Decreasing current ratio ▯ appear weaker to a creditor • When would a decreasing ratio be a good thing? When reinvesting in the company because liabilities could be higher than assets for a short period. Created By: Rachel Moore Not for redistribution. A/R Turnover • Relevant for creditors (short term) • How many TIMES we turnover • = ▯▯▯▯▯ ▯▯ ▯▯▯▯▯ ▯ ▯▯▯▯▯▯▯ ▯▯ o Sales on account ▯ income statement o AR ▯ balance sheet • Increasing AR turnover ▯ collecting AR faster (too high could mean that we are not extending credit to our customers) • Decreasing AR turnover ▯ collecting AR slower • Can we compare to credit terms? o Directly? No o Indirectly? Yes. Days’ Sales in Receivable • Relevant for creditors (short term) • How many DAYS to turnover • = ▯▯▯▯▯▯▯ ▯▯ ▯▯▯ ▯▯▯ ▯ ▯▯▯▯▯ o Average AR ▯ balance sheet o One day’s sales ▯ • Increasing days ▯ slower at collecting payments • Decreasing days ▯ faster at collecting payments • Can we compare to credit terms? Yes. Inventory Turnover • Relevant for creditors (short term) • How many TIMES we turnover ▯▯▯▯ • = ▯▯▯▯▯▯▯ ▯▯▯▯▯▯▯▯▯ o COGS ▯ income statement o Average inventory ▯ balance sheet • Increasing ▯ selling faster • Decreasing ▯ selling slower • What does it tell us about the industry? Perishable, seasonal, etc. Debt to Equity • Relevant for creditors (long term) • = ▯▯▯▯▯ ▯▯▯▯▯▯▯▯▯▯▯ ▯▯▯▯▯▯▯▯▯▯▯▯ ▯▯▯▯▯▯ o Total liabilities ▯ balance sheet o Stockholders’ equity ▯ balance sheet • Increasing ▯ financing with more debt • Decreasing ▯ financing with equity • Creditors like to see this ratio lower than a shareholder Created By: Rachel Moore Not for redistribution. $20.31/shr ? $15.73/shr paid in div* Very high 6.48 3.12 ratio; inc. 22.5 times ? Collecting high % of AR If 2/10, net 30… 16.22 days ? high % of customers taking discount Probably not 11.84 times ? perishable goods Extremely 0.10 0.19 low; financing through equity *Dividends paid can be calculated by subtracting retained earnings from operating income if it is not listed on the balance sheet. Created By: Rachel Moore Not for redistribution. Test 3 Pointers 1. Chapter 11 – Learn the long total DL formula ???????????????????? ???????? = ℎ???????? ???????????????????????? ???????????????????????? $ − ℎ???????? ???????????????????????????? ???????????????????????????????? $ 2. Chapter 10 – Interpreting ROI ???????????? = ???????????????????? ???????????????????????? × ???????????????????????????????????????? ???????????????????????????????? 3. Chapter 10 – “best interest of the company” = company and manager make the same decision; goal congruence has been achieved. 4. Chapter 14 – Change in account followed by “by” or “to” ▯ know the difference, not the same thing. 5. Chapter 14 – “highly perishable” = super high inventory turnover; at least 24. 6. Chapter 14 – ???????? – ???????????????? = ???????? 7. Chapter 11 – Slide 2; DM and DL ???????????? ???????????????? ???????????????? = ???????????? $ × ???????????????????? ???????????????????? 8. Chapter 14 – EPS calculation ???????????? ???????????????????????? ???????????? = ???????????? # ???????????????????????? ???????????????????? ????ℎ???????????????? ???????????????????????????????????????????? 9. Chapter 13 – ???????????? ???????? + ???????????????????? ???????? ???????????????????????????? − ???????????????????????????????? = ???????????? ???????? • End AR > Beg AR ▯ sold more than collected • Beg AR > End AR ▯ collected more than sold 10. Chapter 11 – ???????????????????????????????? ???????? ???????????????? = (ℎ???????? ????????????????????????????)(???????????? ????????????????) 11. Chapter 11 – Don’t assume for your DM variances that purchased = used! 12. Chapter 10 – Controllable margin; what we judge the manager on ???????? − ???????? = ???????? − ????????????????????????????????????,???????????????????????????????????????????????? ???????? = ???????????????????????????????????????????????? ???????????????????????? 13. Chapter 10 – Segment is judged based on segment margin. 14. Chapter 10 – By how much was our variable cost per unit higher or lower than expected? Actual UVC was $0.10 higher than expected. Created By: Rachel Moore Not for redistribution.


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