Financial Accounting

Accounts Receivable Turnover

measures the number of times each that account receivable is converted into cash. how efficiently a company collects its outstanding debts and extends credit. A higher ratio —> faster collections and a more efficient credit management process.

Average Collection Period

the average time it takes a company to collect payments from customers after a credit sale; average daily sales (denominator) = total sales revenue/365 days

AR Equation

End AR = Beg AR + Credit Sales - Collections - Writeoffs

Allowance Equation

Beg Allowance + Bad debt Exp - Writeoffs = End Allowance

Net Recievables

Account Receivable - Allowance for Uncollectible Accounts

reinstate

reversing a previous write-off, they pay their outstanding balance

Inventory Equation

begining inventory + purchases = cost of goods sold + End inventory

cost of good available for saleco

cost of goods sold + End inventory

cogs fifo

= cogs lifo - change in lifo reserve (end balance - Beg balance of inventory)

lifo reserve

=end inventory fifo - end inventory lifo

gross profit margin

helps determine whether a firm’s sales provide sufficient revenues to cover its operation costs and generate profit. It is calculated by dividing gross profit (sales revenue - COGS) by sales revenue.

inventory turnover

measures how often inventory is sold and replaced over a period. It is calculated by dividing the cost of goods sold by the average inventory (beg +end /2) during that period. high inventory turnover indicates efficient inventory management.

average inventory days outstanding

the average number of days that a company holds inventory for before turning it into sales. measures different scale than inventory turnover with inverse, if company’s inventory turnover goes up, its average inventory days outstanding goes Down

gross profit

revenue - cost of goods sold

tangible assets

property, plant and equipment

intangible assets

non-physical assets that have some degree of uncertainty concerning future benefits

capital expenditures

refers to the money a company spends on assets (PPE) that are expected to provide benefits over an extended period, typically longer than a year. 

depreciation

systematic allocation of an asset's cost over its useful life, reflecting its gradual decline in value due to wear, tear, or obsolescence, and is used for accounting and tax purposes. 

useful life

the period of time over which the asset is expected to provide economic benefits to the company

salvage life

the estimated worth of an asset at the end of its useful life residual value

accumulated depreciation

a contra asset account that represents the total cost of the asset (USED UP) that has been allocated to expense since the asset was acquired

book value

cost - accumulated depreciation (remaining cost hasn’t depreciated)

(cost - salvage value)/useful life

straight line method

(cost-Accumulated Depreciation) x 2/Useful life

double-declining method

book value - salvage life

double-declining method last year

(cost-salvage value)/estimated total units produced x units produced

Units of production method

authorized shares of stock

maximum number of shares a company can legally issue (high)

Issued shares of stock

the total number of shares of stock a corporation actually sold or transferred to its shareholders (lower that authorized)

outstanding shares of stock

total number of shares of stock actually owned by OUTSIDERS, parties other than the corporation; treasury stock is issued but not outstanding

treasury stock

issues - outstanding

par value

the minimum price at which a corporation can legally sell its shares; independent of the market price

common stock

the residual interest in the company; the amount of assets common stockholders will receive after creditors and preferred stockholders are paid

preferred stock

special type of stock that allows its shareholdera to have preference over common stockholders in receiving dividends and assets.

treasury stock

shares that were issues by the firm but subsequently repurchased. not an asset but reported as a contra asset (reduction of SE) use new acquisition price,

retained earnings

retained earnings beg + net income - Dividends