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COMMERCE 1AA3 Study Guide - Comprehensive Midterm Guide: Gross Profit, Sept, Cash Flow


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Study Guide
Midterm

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McMaster
COMMERCE 1AA3
MIDTERM EXAM
STUDY GUIDE

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CHAPTER 1 - SEPT 6th
FINANCIAL ACCOUNTING
Accounting Words (to learn): GAAP - private companies, Equity, Sales, Capital, Stakeholder (umbrella-
everyone wants to know), Shareholders = investors, MDA, Deficit - more coming out than in
Assets (4 types)
1. Fixed: property, plant, equipment
2. Current
3. Intangible
4. Long term investments
Balance sheet measures the financial health of a company (mid term)
Basic objective of accounting = INFORMATION
Used to make decisions
See slides for "users of accounting information" (external and internal)
Financial Statements - output of one is input of the next
1. Income Statement (Statement of Earnings); revenue - expenses
Measures performance success
1. Statement of Retained Earnings; pool of all net income/net losses
2. Balance Sheet (Statement of Financial Health or Statement of Financial Position); asset, liability
and equity
3. Statement of Cash Flow: Operating, investing,
*need balance sheet from this year, last year and the income statement from this year to create a cash
flow statement
1
*You can have negative retained earnings - you have expenses but no revenue (most startups have this)
*most important amount in any financial statement that any stakeholder wants to know = profit
*income is an opinion (not cash), you want to know profit
*Fraud in companies is to overstate income (companies pay flat rate tax)
Sale:
1. Title of the good/service has been transferred
2. Risk and reward has transferred
3. Measurable
4. Reasonably assured for collection
3
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Asset = liability + equity
(see slides for exact equations)
Dividends: give back to shareholders (benefit from buying shares from a company)
Capital gain: selling a share for higher than what you bought (second shareholder benefit)
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