Chapter 2- A Further Look At Financial Statements.docx

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Business Administration
Business Administration 2257
Amy Shuh

Chapter 2: A Further Look At Financial Statements September 11, 2013 Michael Hua ASSETS  Current Assets – assets that can be turned into cash within a year (listed in order of liquidity)  Operating Cycle – the average time it takes to go from cash to cash in producing revenue  Common types of current assets: cash, short-term investments, accounts receivable, accrued receivables, notes receivable, merchandise inventor, supplies, prepaid expenses  Account Receivable – amounts owed to the company by its customers  Accrued Receivable – amounts owed to the company for interest, sales tax, rent, and like items  Notes Receivable – amounts owed to the company by customers that are supported by a written promise to repay  **Inventory is a current asset because it will be sold and converted into cash or accounts receivable during the year  **Supplies are a current asset because we expect things to be used up by the business within the year  **Prepaid expenses are a current asset because they reflect unused benefits available for use during the year  Fixed Assets (Non-Current) – held in the company for a period greater than one year (ex. Store fixtures) (listed in order of permanency)  Common types of fixed assets: investments, property, plant and equipment, intangible assets and goodwill, other assets  Intangible Assets – Assets that cannot be seen or touched (ex. Patents, franchise rights, trademarks, copyrights, and licenses) LIABILITIES  Current Liabilities – items that the company should pay for within the next year  Some examples of current liabilities: bank indebtedness, accounts payable, accrued liabilities, notes payable – including bank loans payable, current maturities of long-term debt  Bank Indebtedness – a short-term loan from a bank – when a company uses an operating line of credit to cover cash shortfalls  Accounts Payable – amounts owed by the company to suppliers for purchases made on credit  Accrued Liabilities – amounts owed by the company for salaries, interest, sales tax, income tax, and like items  Notes Payable – amounts owed, usually to banks, but also to suppliers or others that are supported by a written promise to repay  Long Term Liabilities – debts that will take longer than a year to pay off (ex. Some loans, mortgages)  Examples of long-term liabilities: notes payable, including bank loans payable, mortgages payable, and bonds payable, lease obligations, pension and benefit obligations, deferred income tax liabilities EQUITY  Shareholders’ investments are recorded as common or preferred shares.  If preferred shares are issued in addition to common shares, the total of all shares issued is classified as share capital or capital stock  Retained Earnings – represents the accumulated total of after tax earnings and losses from operations over the life of the corporation; not paid
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