Procopy concepts financial accounting chapter 4

Preparing the financial statements

Once the company has completed the adjusting entries and prepared an adjusted trial balance, the financial statements are prepared.

Assets

Listed in order of liquidity, provide future economic benefits to the company

Current Assets

Expected to be converted to cash or sed within 1 year of the operating cycle, whichever is longer

Non-current assets

Includes items a company expects to hold for longer than a year or the current operating cycle

Long term investnments

Investments in debt and equity securities, non-current notes receivable

Property, plant and equipment

Includes tangible assets used in a company's operations

Intangible assets

Non-current economic resources that a company uses, but are not tangible

other assets

Miscellaneous long term assets that do not "fit" in another category

Liabilities

Listed in order of time to maturity, a bet owed by the company

Current Liabilities

debt expected to be paid by using current assets, within 1 year or the operating cycle, whichever is longer

Long term Liabilities

Obligations a company does not expect to liquidate within 1 year or the operating cycle.

Owner's Equity

The residual interest of the owners (stockholders) in the assets of a corporation

Working Capital

Excess of a company's current assets over its current liabilities. Measures short term liquidity of a company.

The classified income statement

Revenues-Expenses=Net Income

Revenues or Sales

Inflows or increases in assets of a company during a certain period from rendering services (a service firm), selling a product ( a merchandiser) or producing and selling a product ( a manufacturer), or any other activities that are part of the company's central and ongoing operations

Expenses

Outflows or decreases in assets of a company during a certain period from rendering services (a service firm), selling a product (a merchandiser) or producing and selling a product (a manufacturer), or any other activities that are part of the company's central and ongoing operations.

Gains

Increases in Equity of a company from peripheral or incidental transactions (NOT part of central and ongoing operations and NOT investments by owners.

Losses

Decreases in equity of a company from peripheral or incidental transactions (NOT part of central and ongoing operations Not withdrawals by owners)

Discontinued operations

Occurs when a component of a business is discontinued or sold. Gains or losses with the discontinued component are reported on the income statement, after income from continuing operations.

Common size income statement

Shows all income statement lines as a percentage of net sales. Analysts use this calculation when evaluating a company from year to year.

Statement of Owners (stockholders) equity

Beginning balance+ Net Income-Withdrawals=Ending balance

Statement of Cash flows

Illustrates net change in cash for the period

Cash flows from operating activities

Cash flows associated with earning income

Cash flows from investing activities

Cash flows associated with purchase or sale of productive assets and investments

Cash flows from financing activities

Cash flows associated with the financing of debt and equity transactions

Notes to the financial statements

Required by GAAP to provide important information, additional details, or explanations to help clarify the financial statements.