FIN 301 1st Edition Lecture 5Notes are based off of power pointsFinancial StatementsI. What is GAAP?a. They have different ways for making money.b. They make financial statements comparable.c. Key: all viewed comparabled. The importance of GAAP is the standpoint in the financial world. All the principles in accountingII. Basic accounting concepts: The uses of financial statementsa. Administrative control: to make sure the governing body can look at the financial statementsb. Resource allocation: where you’re putting moneyIII. The balance sheet identitya. Middle < one yearb. Tangible- PP&Ec. Intangible – Goodwilld. L-T Debt- Bondse. Common Equity- Previous sales of stock + reinvested (retained) earningsf. Book value= purchase price - depreciationg. Assets- 21,634h. Liabilities + Stockholder’s Equity- 21,634IV. Notes to financial statementsa. Depreciation of Assets- straight line basis- shows better profitb. Compute taxes using accelerated basis- shows lower taxesc. Two separate booksi. Taxes (ACC DEP) and investors (SL DEP)V. The income statementa. Revenue – definition of profitb. Depreciation– why noncashc. Period costs– what is SG&AVI. Basic accounting concepts: what do earnings measure?a. Key Issue: both can be subjectiveb. First you look at their top line to see if they have growth in their salesc. Second look at gross profitd. Third take out SG&A to get operating profit (operating profit- EBIT)e. Fourth subtract interest to get net profitf. Big negative in 2009 because they paid too muchg. Wall street looks at diluted Earning Per Share on a per share basis (they are diluted for the number of shares given to exec)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.VII. Notes to financial statementsa. Key Metric: same store sales growthb. How much do they grow their sales on a year to year basis VIII. What are deferred taxes?a. There is a difference between what’s recorded taxes annually.b. The difference goes to the balance sheet and is recorded as differed taxes in liabilitiesIX. Case Studya. Jan 1 cash $10005- month Profit $2,500$3,500Where did it go?Increase in inventory(2,250-750) -$1,500Increase in A/R (3,000-1,000) -$2,000$0b. Basic thing to learn in