AFM 101 Lecture Notes [Full Course] File contains succinct and accurate summary of lecture notes taken during class. Arranged chronologically by date for ease of use. Contains notes for the entire semester.

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Accounting & Financial Management
AFM 101
Duane Kennedy

thSeptember 10 2008 AFM 101Financial StatementsBusiness DecisionsFinancial accounting focuses on the external users for internal users there is a separate accounting course called management accounting External users are profitoriented organizations and nonprofit organizations Hospitals and school count as nonprofit organizations A balance sheet shows the financial position of a company at a point in time while an income statement shows it over time The statement of retained earnings is almost identical to the statement of shareholders equity it shows the retained earnings of a company over time The cash flow statement reports the inflow and outflow of cash in an organization over time Nonprofit organizations have no shareholders Canadian Reserve Agency has authority to force organizations to create specific financial statements this power also extends to external users GAAP The four major statements are a part of GAAP GAAP differs across countries because principals evolve differently elsewhere The sources of GAAPs in Canada are the Accounting Standards Board AcSB In the United States it is the Financial Accounting Standards Board FASB Abroad it is the International Accounting Standards Board IASB which uses the International Financial Reporting Standards IFRS In their annual reports companies have notes that reconcile Canadian GAAPsInternational GAAPs Numbers remain in Canadian dollars This is because American investors want to compare them with American companies Companies also must do this is they want to trade on the New York Stock Exchange NYSE National vs International A decision has been made to change Canadian GAAPs to IFRS Canadian GAAPs and IFRS are very principal based so there is not too much of a discrepancy between the two US GAAP however is very rule based and so there is some controversy on whether or not to make the switch over to IFRS Currency The company can select whatever currency they wish to report in Balance Sheet Assets What does the company own and what do they owe Assets are resources a company can use to continue doing business Liabilities Obligations that a company must pay Owners Equity Includes Shareholders investment and retained earnings ConsolidatedStatements of a parent company and all her children thSeptember 12 2008 AFM 101 Income Statement Portraying the performance of the company organization entity etc for a period of time As opposed to a point in time like with the balance sheet RevenueIncreases in the net economic resources of the company during the period of time from your activities We record these revenues when they are earned Ex UW Bookstore records as revenue when they sell you a textbook If somebody purchases something with credit it still qualifies as revenue ExpensesReduction of the net economic resources over the period of time in the process of earning those revenues Ex Cost of the textbook for the UW bookstore Offsetting expense against the revenue even if something is bought on credit the expense is incurred at the time of purchase Net IncomeRevenueExpensesNet Income Net Income is a residual concept whats left over from the revenue Reports can be done quarterly annually etcNet incomeTotal number of sharesEarnings per share Companies have agreements where they may have to issue more shares if these agreements come to fruition then earnings per share become diluted Exercise 16 Case ANet Income18000 Owners Equity80000 Case BTotal Revenue92000 Total Liabilities52000 Case CNet Income6000 Owners Equity78000 Statement of Retained Earnings Links income statement and Balance Sheet Net income belongs to owners Beginning retained earningsNet IncomeDividendsEnding Retained Earnings Retained Earnings is income that has accumulated since the beginning of the company and has not been paid out to the shareholders Cash Flow Statement There are many parallels between the income and cash flow statement both measure performance of the company for a period of time In this case however it is the cash inflow and outflow that measures performance Credit is not counted on the cash flow statement until it is actually received This applies for expenses as well in regards to cash outflow The cash flow statement contains three sections Investing Financing and Operating activities Investing activities involves cash going in and out for investments that the company makes Ex Buying equipment Financing activities involve cash going towards financing the business Ex Dividends loans Operating expenses are cash inflows and outflows from daytoday operations Ex Operations Sales Fuel Direct Method vs Indirect Method Direct Reports cash received from sales for fuel for wages etc IndirectStarts with net income and adjusts for things that did not affect cash Ex Credit thSeptember 15 2008 AFM 101 PriceEarnings RatioMarket Value what is the entire firm worthNet Income OR Share Price market value per shareEarnings Per Share Valuation of public companies public companies are traded on the stock exchangeValuation of private companies private companies are not traded on the stock exchange We can use this ratio to find the value of a company that is not traded on the stock exchange We do this by finding similar companies that are traded on the stock exchange Take the PE ratio of the comparable companies and multiply it by the Net Income of the private company to
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