Week 1 FIN 305 Notes
Week 1 FIN 305 Notes FIN 305
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This 5 page Class Notes was uploaded by Alia Coughlan on Friday August 26, 2016. The Class Notes belongs to FIN 305 at Colorado State University taught by John D. Hopkins in Fall 2016. Since its upload, it has received 53 views. For similar materials see Fundamentals of Finance in Business at Colorado State University.
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Date Created: 08/26/16
Week 1 Notes for FIN 305 Fundamentals of Finance 8/22 Introduction and go over syllabus Begin Chapter 4 – Review of Accounting Chapter 4 – Review of Accounting Annual Reports Include: Income Statement Balance Sheet Statement of Cash Flows Statement of Retained Earnings (NOT TESTED ON) Income Statement (I.S.): Equations/Ratios to know for Income Statement: Revenues – Expenses = Net Income (sales) (taxes/salaries) *Net Income is divided into dividends and change in retained earnings Sales – Cost of Goods Sold (COGS) = Gross Profit Gross Profit – Depreciation Expense – S&A Expenses = Operating Income Earnings Before Interest&Taxes (EBIT) – Interest Expense (I) = Earnings Before Taxes (EBT) Earnings Before Taxes (EBT) – Taxes (T) = Net Income Net Income/Number of Outstanding Shares = Earnings per Share Balance Sheet (B.S.): Assets = Liabilities + Owners Equity *Assets is split into current assets and fixed assets *Liabilities is split into current liabilities and longterm liabilities *Owners Equity is split into common stock, capital in excess par, and retained earnings 8/24 Continuation of Chapter 4 – Review of Accounting Current Assets to know: Cash Marketable Securities Accounts Receivable Inventory Prepaid Expenses Fixed Assets Equation: Fixed Assets = Gross Fixed Assets – Accumulated Depreciation Current Liabilities to know: Accounts Payable Notes Payable Accrued Expenses *Accrued Expenses = when you owe someone money but there is no bill yet Owners Equity: Common Stock Common Stock = Par Value x Number of Shares *Par Value = stated value printed on the stock certificate Capital in Excess Par Price Stock = IPO – Par Value Capital in Excess Par = IPO – Par Value x Number of Shares IPO = Common stock + Capital in Excess/Outstanding Shares *IPO = Initial Public Offering Retained Earnings Statement of Cash Flows (S.C.F.): Finance is all about cash Cash Inflows – Cash Outflows = Change in Cash *Income is reported when earned *Expenses are reported when liability is established Three Parts to the Statement of Cash Flows: Operations Investment Activities Financial Activities Operations: Based on assumptions Adjustments needed add back noncash deductions ex: Depreciation and Amortization *Depreciation = Hard asset. ex: Real Estate and Buildings *Amortization = Intangible asset. ex: Patents and Copyrights Changes in other current assets besides cash (see list) Change in current asset = beginning current asset ending current asset * A decrease in a current asset increases cash *An increase in a current asset decreases cash * If the ending is bigger than the beginning, we got cash and vice versa Change in current liability = ending current liability beginning current liability *A decrease in a current liability decreases cash *An increase in a current liability increase cash Cash Received from Operations = Net Income from I.S. + Depreciation Expense ± ∆ in current liabilities ± ∆ in current assets 8/26 Continuation of Chapter 4 – Review of Accounting Investment Activities: Results from buying & selling long term assets ex: equipment, companies Assumptions Purchases use cash Sales are a source of cash Cash Received from Investment Activities = Fixed Asset Purchases + Fixed Asset Sales ±Long Term Securities Financing Activities: Sale of corporate securities is a source of cash Purchase of corporate securities is a use Borrowing is a source of cash Paying off debt is use of cash Dividends paid are a use of cash * Dividends are never deductible on income statements Cash Received from Financing Activities = + Sale of Corporate Securities Purchase of Corporate Securities ±Notes Payable Dividends Paid on Common Stock Depreciation: Accounting Depreciation = the allocation of an asset’s initial cost over time Matching Principle = expenses should be matched to the revenues they help generate Allowable depreciation expense is determined by established accounting rules Calculations Needed: Depreciable Basis = Total amount to be depreciated Depreciable Basis = Cost of Asset + Delivery Expense + Setup Costs Current Years Depreciation Expense Depreciation Methods: Straight Line Method – Financial Recording Divide the cost of the asset by the number of years of life for the asset & charge the result off as depreciation expense each year Modified Accelerated Cost Recovery System (MACRS) – Tax Use
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