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Chapter 4

FIN 510 - Chapter 4.docx

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Ryerson University
ECN 204
Christopher Gore

Chapter #4 – Measuring Financial Performance ­ Assets: Financial, physical, and intangible items owned by the business ­ An entrepreneur should understand o How proper accounting procedures record sales and costs o How this determines whether the venture is making a profit. ­ The entrepreneur develops an understanding of how cash is generated and depleted 4.1 ­ Obtaining and Recording the Resources Necessary to Start and Build a New  Venture ­ Supporting an initial development stage usually requires minimal asset investments ­ Initial cash on hand should be adequate to cover expenses ­ Access to cash beyond what is needed to pay immediate expenses is important be- cause there will likely be no revenues during the development stage ­ The relationship of gathered resources to their associated financial footprint as a new venture moves from the development stage to the startup stage o They are recorded in its balance sheet and income statement - New ventures that succeed in getting to startup and launching a new product, service, or process are to be commended - As venture gains ground and experience, its historical financial statements can be a misleading measure of progress o There are many hidden assets created that dramatically influence the outcome of future battles of much greater magnitude 4.2 - Business Assets, Liabilities, and Owners’ Equity - Generally AcceptedAccounting Principles (GAAP): guidelines that set out the manner and form for presenting accounting information - AccrualAccounting: the practice of recording economic activity when recognized rather than waiting until realized o Accrual accounting procedures will recognize (accrue) an expense before the venture has to make the payment o They will also recognize (accrue) sales before the venture receives the associated revenue - Depreciation: reduction in value of a fixed asset over its expected life intended to reflect the usage of wearing out of the asset - Accumulated Depreciation: sum of all previous depreciation amounts charged to fixed assets - Balance Sheet: financia
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