financial accounting

income statement

revenue - expenses

retained earnings statement

beginning retained earnings + net income - dividends = end retained earnings

balance sheet

assets = liabilities + equity

current

within 1 year

forms of business organization

sole proprietorship, partnership, corporation

sole proprietorship

can be sued personally, tax advantages, owner controlled

partnership

shared control, tax advantages, broader skills and resources

corporation

no personal liability, easier to transfer ownership, easier to raise funds

liabilities

payable/unearned

dividends

payment to stockholders

revenue

earned, not tangible items

examples of assets

cash, inventory, accounts receivable

examples of liabilities

notes payable, accounts payable, interest payable

examples of stockholders’ equity

retained earnings, common stock

intangible assets

patents, goodwill

current cash debt coverage ratio

cash from operations / current liabilities

examples of property, plant, and equipment

land, buildings, equipment

depreciation expense

income statement

accumulated depreciation

contra asset, subtract from other PPE

profitability ratio

earnings per share = (net income - preferred stock dividends) / average common shares outstanding

liquidity ratio

current ratio = current assets / current liabilities

solvency

debt to assets ratio = total liabilities / total assets

debits & credits

dividends, expenses, assets increase with debits

liabilities, equity, revenue increase with credits

GAAP

Generally accepted accounting principles

FASB

Financial accounting standards board

SEC

Securities and exchange commission

IFRS

International financial reporting standards

what’s on an income statement?

revenue and expenses

what’s on a balance sheet

assets, liabilities, and stockholders’ equity

accrual basis

revenue is recognized when services are performed, even if cash was not received

expenses are recognized when incurred, even if cash was not paid

cash basis

revenue is recognized only when cash is received

expenses are recognized only when cash is paid

interest

face x rate x time

net sales

Sales - sales r + a - sales discounts

gross revenue

Net sales - cost of goods sold

net income

Gross profit - operating expenses

cost of goods sold

Beginning inventory + purchases = cost of goods available - ending inventory

gross profit rate

gross profit / net sales

profit margin

net income / net sales

net realizable value

accounts receivable - allowance

direct write off

debit bad debit expense, credit accounts receivable

allowance “estimate” method

debit bad debt expense, credit allowance

allowance “write off” method

debit allowance, credit accounts receivable 

revenue expenditure 

Costs incurred that are expensed immediately with a debit to an expense account, income statement

capital expenditure

Costs included to acquire a plant asset (building, equipment) account. Debit to an asset account, balance sheet

depreciable cost

cost - salvage value

book value

cost - accumulated depreciation

straight line rate

100% / useful life

double declining balance rate

straight life rate * 2

intangible assets

patents, copyrights, trade names, trademarks