Operating cash flows based on cash flows (cash accounting) while net income based on wealth flows (accounting). Net income provides a better measure of change in wealth. Statement of shareholders equity: investment made by the owners of the firm. ARC: additional paid-in capital; Contributed capital= APPC+ common stock COCA: accumulated other comprehensive income; ROE= (return on equity)=Net income/Average common shareholder’s equity (current year+ last year) ROAR (return on assets)=Net Operating Profit After Tax (NONFAT)/Average total asset Trend analysis: is an “across-time” analysis.
Trend financial statements: for each line item, the amount for a given year is state as a percentage of the line item amount in the base year. Cash versus Accrual accounting: Accrual counting is better because it better matches economic effort with associated economic benefits(HUSKS). Accrual represents change in wealth, at some point there’s a change in cash. Gains: wealth generated from incidental activities (disposal of assets) Losses: wealth consumed by incidental activities (fire loss).
Primary choices for valuing accounts: Fair market value; net present value; Historical value. Earnings managements techniques: Accelerating revenues; taking a bath; cookie jar reserves; one time items Cost provides immediate beneficences; Costs provide future benefits capitalize Expenses incur cost n IS; capitalize incur cost on BBS; impairment: record lost(write off asset) on IS. Revenue cash collection; Expense Cash payment; Debit (Joe) credit(dad); Debits increase assets Trial Balance (T B) is a collection of all the account balances at the end of a particular period.
Unadjusted Trial balance is the TAB prepared before the adjusting entries; Adjusted trial balance is then the TAB prepared after the adjusting entries. Closing entries: transfer net income (or loss) to retained earnings; establish a zero balance in each of the temporary account to start the next accounting period. Income statement take account # from the adjusted TAB. Cash=L+C (contributed capital)+RE-non cash asset Revenue: inflows of assets or outflows of liabilities from delivering or producing goods, rendering services, or other activities that constitute the entity’s ongoing major or central operations.
Gain: Increases in equity from peripheral or incidental transactions of an entity and from all other events affecting the entity except those that result from revenues or investments by owners. Revenue up?cash up or account receivable up or unearned revenue down. Revenue recognition: persuasive evidence that an agreement exists; livery of goods or services has occurred; fee is fixed or determinable; collection is probable.