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FIN510 - Chapter #4.docx

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ECN 204
Christopher Gore

Chapter 4Measuring Financial PerformanceBasic Accounting ConceptsGenerally Accepted Accounting Principles GAAP guidelines that set out the manner and form for presenting accounting informationAccrual Accounting the practice of recording economic activity when recognized rather than waiting until realizedDepreciation reduction in value of a fixed asset over its expected life intended to reflect the usage of wearing out of the assetAccumulated Depreciation sum of all previous depreciation amounts charged to fixed assetsBalance Sheet financial statement that provides a snapshot of a ventures financial position as of a specific dateBalance Sheet EquationTotal AssetsTotal LiabilitiesOwners EquityAssets financial physical and intangible items owned or controlled by the businessListing Order of Assets oassets are listed in declining order of liquidity or how quickly the asset can be converted into cashoCurrent Assets cashother assets that are expected to be converted into cash in less than one yearCash amount of coin currency and checking account balances Receivables credit sales made to customersInventories raw materials workinprocess and finished products which the venture hopes to selloFixed Assets assets with expected lives of greater than one yearLiabilities shortterm liabilities are listed first followed by longterm debts owed by the ventureoPayablesshortterm liabilities owed to suppliers for purchases made on creditTypes of LongTerm LiabilitiesLongTerm Debts loans that have maturities of longer than one yearCapital Leases longterm noncancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipmentoAccrued Wages liabilities owned to employees for previously completed workoBank Loan Interestbearing loan of one year or less from a commercial bankOwners Equity equity capital contributed by the owners of the venture is shown after listing all l
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