[ECON 25000] - Final Exam Guide - Ultimate 34 pages long Study Guide!

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Chicago
ECON 25000
FINAL EXAM
STUDY GUIDE
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Chapter 1
Principle Financial Statements
Balance Sheet/ Statement of Financial Position
Provides information at a point in time on the firm’s productive resources
and financing used to pay for those resources
Liabilities, Assets and Shareholders equity
oAssets: economic resources with the potential to provide future
economic benefits
oLiabilities: creditor’s claims
oShareholder’s equity: amount of funds owners have provided by
buying shares or by reinvesting the net assets generated by earnings
Lists both the mount invested by shareholders for their
ownership interests and amount of retained earnings
Retained earnings: represent net assets (total assets – total
liabilities) a firm derives from its earnings that exceed the
dividends it has distributed to shareholders
Accumulated deficit: cumulative earnings less dividends are
negative
Equality of assets and liabilities plus shareholder’s equity
oASSETS = LIABILITIES + SHAREHOLDER’S EQUITY
oInvesting = financing
oResources = claims on resources
Balance sheet classification and aggregation
oCurrent assets: cash and assets a firm expects to turn into cash or sell
or consume within one year of balance sheet date (ie: accounts
receivable and inventory)
oCurrent liabilities: obligations a firm expects to pay in one year (ie:
accounts payable and employee salaries)
oNoncurrent assets: assets that will be used for several years (ie: land,
buildings, equipment)
oNoncurrent liabilities: sources of funds whose suppliers don’t expect
to receive payment in one year
Balance sheet measurement
oHistorical amount: reflects the acquisition costs of assets or the
amount of funds originally obtained from creditors
oCurrent amount: reflects some measure of current value as of balance
sheet date
Analysis of balance sheet
oCurrent assets finance current liabilities
Income Statement/ Profit and Loss Statement
Report’s a firm’s success in generating earnings during a given reporting
period
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NET INCOME = REVENUE – EXPENSES
Revenues: measure the inflow of assets from selling goods and providing
services to customers
Expenses: measure the outflow of assets incurred in generating revenues
oCost of goods sold: measure the cost of inventories sold to customers
oSelling and administrative expenses: measure the cost of selling
and administrative services received during the period
Relation between income statement and balance sheet
oIncome statement links balance sheet beginning and end periods
Statement of cash flows
Reports information about cash generated from operating, investing and
financing activities during the period
Operating activities
oProvide the largest source of cash
Investing activities
oCapital expenditures: the acquisition of buildings, equipment and
other noncurrent assets (can obtain from selling existing assets or
operating activities)
Financing activities: obtain financing to support operating and investing
activities by issuing debt or common shares
oFirm uses cash to pay dividends and to repay existing debt financing
Relation of statement of cash flows, income statement and balance sheet
oCash flow explains changes in cash between beginning and end of the
period
oShows relation between net income and cash flow from operations
Statement of shareholder’s equity
Displays components of shareholder’s equity, including common shares and
retained earnings and changes in those components
Supporting schedules and notes
Schedules: additional material to clarify financial statements
Notes: describe the accounting guidance that the firm uses to prepare those
financial statements
Financial Reporting Process
Managers and governing boards of reporting entities
Managers: agents of the shareholders and have responsibility for
safeguarding and properly using the firm’s resources
Governing board/ board of directors: responsible for selecting,
compensating and overseeing managers; for establishing dividend policy;
and for making decisions on major issues
Accounting standard setting and regulatory bodies
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Document Summary

Provides information at a point in time on the firm"s productive resources and financing used to pay for those resources. Lists both the mount invested by shareholders for their ownership interests and amount of retained earnings. Retained earnings: represent net assets (total assets total liabilities) a firm derives from its earnings that exceed the dividends it has distributed to shareholders. Accumulated deficit: cumulative earnings less dividends are negative. Equality of assets and liabilities plus shareholder"s equity: assets = liabilities + shareholder"s equity, investing = financing, resources = claims on resources. Balance sheet measurement: historical amount: reflects the acquisition costs of assets or the amount of funds originally obtained from creditors, current amount: reflects some measure of current value as of balance sheet date. Analysis of balance sheet: current assets finance current liabilities. Report"s a firm"s success in generating earnings during a given reporting period. Revenues: measure the inflow of assets from selling goods and providing services to customers.

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