AFM131 Midterm: AFM Midterm 1 Review.docx

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM131
• Professor: Robert Sproule

Document Summary

Chapter 1 business decisions and financial accounting. Dividends are reduced from r/e not an expense: dividends can: make $ for small companies; attract investors for bigger companies. R/e includes net income = revenue expense. R/e with net income, with dividends. Income statement statement of retained earnings . Relationships among financial statements: net income from income statement used in retained earnings, retained earnings listed in liabilities + s/e of balance sheet, cash from balance sheet end cash of cash flow statement. Chapter 2 - reporting investing and financing results on the balance sheet. 2: if ratio <1, do not have enough assets to cover liabilities, balance sheets do not measure what a company is worth; just what they own and owe. Items are recorded at cost conservatism can lead to decreasing asset value (generally not increasing: when recording a transaction, there must be at least 2 changes, a=l+s/e must hold true.