Management 30A Mid Term

assets

economic resources of the firm with the potential to provide future economic benefits to a firm

cash

currency and bank deposits

short-term investments

marketable securities the company expetcs to sell within the year

accounts receivable, net

(after uncollectible accounts have been subtracted) amounts due from customers arising from the sales on credit

inventories

goods purchased or produced for sale to customers

prepaid expenses

costs paid in advance for rent, insurance, advertising, and other services

property, plant, and equipment (pp&e)

land, buildings, and equipment

long-term investments

investments the company does not intend to sell within the year

intangible and other assets

assets without physical substance such patents, trademarks, franchise rights, and goodwill

liabilities

are future economic sacrifices

current liabilities

obligations due within one year

accounts payable (accrued expenses)

amounts owed to suppliers for goods and services purchased on credit

accrued liabilities (deferred revenues)

obligations that have been incurred but not yet paid (such as wages earned by employees but not yet paid)

unearned revenues

cash paid by a customer in advance for goods or servcies to be delivered later

short-term debt

short-term loans owing to banks or other lenders

noncurrent liabilities

obligations due after one year

long-term debt

principal loan amounts that are scheduled to repaid more than one year hence

includes bonds, notes, debentures, mortgages, and other long-term loans

other long-term liabilities

such as pension liabilities and long-term tax liabilities, that will be settled a year or more into the future

stockholders’ equity

capital that has been invested by the stockholders

directly via the purchase of stock

indirectly in the form of retained earnings that reflect earnings that are reinvested in the business and not paid out as dividends

retained earnings

cumulative net income that has not been distributed to stockholders via dividends or share repurchases

accumulated other comprehensive income or loss

cumulative changes in asset and liability fair values that are not reported in the income statement

income statement

reports on the performance of the firm during a given period of time

flow of revenues and expenses (i.e. profit) during a period of time

net income formula

revenues (sales) - expenses

revenues

increases in income from delivering goods and/or providing services to customers or clients, as a result of the company’s ongoing major operations

expenses

decreases in income from producing and delivering goods, rendering services, and/or carrying out other activities part of the company’s ongoing major operations

what’s included in expenses

cost of goods sold (cogs)

operating expenses - costs of operating the business (advertising, salaries, utilities, rent, supplies, depreciation etc.)

interest expense - cost of borrowed money

income taxes expense

income (profit, earnings)

(revenues - expenses), during some reporting period

revenue recognition rule general

recognize revenue when the company transfers the good or service to the customer

when the customer obtains control of the good or service

it is not necessary to receive cash to recognize revenue

cost-to-cost method (revenues)

recognize revenue as a portion of total costs incurred to fulfill the contract

unearned (deferred) revenue

a liability created when a company receives cash before providing a good or service, which is reduced and recognized as revenue when the good is delivered or the service is performed

account receivable (a/r)

the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers

accounts receivable formula

a/r net = a/r gross - allowance account

a/r gross

amount owed to the company before any deductions, expenses, or costs are subtracted

allowance account

the amount of uncollectible accounts (doubtful accounts, bad debts) to be matched to the related revenue

gross profit formula

sales revenue - cost of goods sold = gross profit

fifo (first-in first-out)

assumes the first (oldest) units purchased are the first to be sold

lifo (last-in first-out)

assumes that last (newest) units purchased are the first units sold

average cost

assumes cost of each unit sold is the average cost of all purchased units, typically used for interchangeable and difficult to identify items (agriculture, chemicals, fuel)

long-term assets

resources held for an extended time, such as land, buildings, equipment, natural resources, and patents

tangible assets

physical items that can be seen and touched (ex. land, natural resources, buildings, and equipment)

intangible assets

rights or economic benefits that are not physical in nature (ex. franchises, patents, trademarks, copyrights, and goodwill)

goodwill

usually the largest “booked'“ intangible asset is an intangible asset that appears on a company's balance sheet when it acquires another business for a price higher than the fair market value of its net identifiable assets

property, plant, and equipment (pp&e)

a company’s physical or tangible long-term assets that typically have a life of more than one year (ex. buildings, machinery, land, and vehicles)

useful life

period of time over which the asset is expected to generate measurable benefits

salvage value

amount expected to be received for the asset when disposed of at the end of its useful life

depreciation method

estimate of how the asset will be used up over its useful life

straight-line method

depreciation expense recorded evenly over useful life of asset

annual depreciation expense = (cost salvage value) / useful life (in years)