Professional Documents
Culture Documents
Chapter
Review of Accounting
McGraw-Hill/Irwin
Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Income Statement Price-earnings Ratio Balance Sheet Statement of Cash Flows Tax-free Investments (Deprecation)
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Income Statement
Device to measure the profitability of a firm over a period of time
It covers a defined period of time It is presented in a stair-step or progressive fashion to examine profit or loss after each type of expense item is deducted
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Return to Capital
Three primary sources of capital:
Bondholders Preferred stockholders Common stockholders
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Flexibility in reporting transactions might result in differing measurements of income gained from similar events at the end of a time period
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Balance Sheet
Indicates what the firm owns and how these assets are financed in the form of liabilities or ownership interest
Delineates the firms holdings and obligations Items are stated on an original cost basis rather than at current market value
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Marketable securities
Temporary investments of excess cash
Accounts receivable
Allowance for bad debts to determine their anticipated collection value
Inventory
Includes raw materials, goods in progress, or finished goods
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Investments
Long-term commitment of funds Includes stocks, bonds, or investments in other companies
Short-term obligations
Accounts payable Notes payable Accrued expense
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Stockholders Equity
Represents total contribution and ownership interest of preferred and common stockholders
Preferred stock Common stock Capital paid in excess of par Retained earnings
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Cash flow analysis helps in combating discrepancies faced through accrual method of accounting
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Indirect method
Net income represents the starting point Required adjustments are made to convert net income to cash flows from operations
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Indirect Method
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Dividends
Maintain necessary payout on common stock and to cover any preferred stock obligations
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Corporation B
$400,000 0 _________ 400,000 160,000 _________ 240,000 0 _________ $240,000
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Exercise
13th Edition: #27 Crosby Corporation
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