Busi 101 1st EditionFinal Exam Study Guide Financial Lectures: 1 – 10, Managerial Lectures 11-27(lecture numbers in managerial section are off)Lecture 1 Father of Accounting – Luca Pacioli Financial Accounting – accounting done for external audiences- Conveyance of financial information to external parties so they can make good decisionsForms:- Proprietorship (majority) – one man show- Partnership – two or more individuals- “C” Corporation – two parts: contributing capital and retained earnings- Limited Partnership – at least one general partner- “S” Corporation – limited to 100 shareholders- LLCManagerial Accounting – accounting done for internal purposesWhy buy shares or stock?1. Price appreciation2. Dividends (quarterly)Return = (end of the year price−beginning ofthe year price)+annual dividendbeginning of the year priceEx. (114−100)+2100=16% ReturnEx. (188−200)+4(1.50)200=-3% Return (depreciation)Ex. An individual purchases shares for $80 on 10/1/1. A quarterly dividend was declared and paid by the corporation in November at 50 cents per share. On 12/31/1 the price of a share is $83. What is the annual return?((83− 80)+.5080)(4)=17.5 % ReturnThe following four statements must be included in the annual report:1. Income Statementa. Net Income = Revenues-Expenses2. Balance Sheeta. Assets=Liabilities + Owner’s Expenses3. Statement of Case Flows4. Statement of Owner’s EquityIncome Statement – represents a period in timeNI=R-ENominal or Temporary Accounts- Revenues – represents in flows (increases) in net assets from providing goods and/or services- Expenses – outflows or decreases in net assets from providing goods and/or serviceso Net Assets (Owner’s Equity) = Total Assets – Total LiabilitiesBalance Sheet - represents a point in timeReal or Permanent Accounts- Assets – economic resources- Liabilities – creditor’s claims, accounts payable- Owner’s Equity – owner’s claims- Contributed Capital- Retained Earnings – accumulated net income in excess of dividendsStatement of Cash Flows – represents a change in cash over a period of timeCategorize Change by: - Operating Activities – associated with income- Investing Activities – long-term assets- Financing Activities – long term liabilities and owner’s equityConnection between Income Statement, Balance Sheet, and Statement of Cash FlowsIncome Statement (12/31)Balance Sheet (1/1) Balance Sheet (12/31)Statement of Cash Flows (12/31)Statement of Owner’s Equity – the change from the beginning of the year to the end of the yeaLecture 2 A Corporation has:- Retained Earnings – accumulated net income in excess of dividends- Contributed Capital4 Statements1. Income Statement – period of timea. NI=R-E2. Balance Sheet – point in timea. A=L+OEb. Has real/permanent accounts3. Statement of Cash Flows4. Statement of Owner’s Equitya. Refers to net assetsb. Net Assets = Total Assets-Total LiabilitiesEx. A share’s quarterly dividend is $4.80. An individual purchased a share on 1/1 at $600 per share. On 12/31 the share was worth $612. What is the annual return?(612−600)+(4) (4.50)600=5 % ReturnEx. On 7/1 a share was worth $120. The share’s quarterly dividend was $2.00 per share. On 12/31 the price of the share was $126. What is the annual return?((126−120)+2(2)120)(2)=16.67 % Return*Multiply the quarterly dividend by two because there are two six months period in twelve monthsReal or Permanent Accounts – complete the balance sheet- Assets – economic resources- Liabilities – creditor’s claims- Owner’s Equity – owner’s claimsBalance Sheet: A=L+OEIncome Statement: NI=R-ETemporary Accounts – complete the income statement- Revenues – inflows/increases in net assets from providing goods and/or services- Expenses – outflows or decreases in net assets from providing goods and/or services- Net Assets (Owner’s Equity) = Total Assets-Total LiabilitiesStatement of Cash Flows – - Operating – income sheets- Investing – long term assets- Financing – long term liabilitiesStatement of Owner’s EquityInvestments- Errors – accidental- Fraud – intentionalMateriality – is it large enough to make a difference?- Knowledge of this would change your decision- Material that makes a difference*Uncertainty in elementsValue Investors – looks at assets before making investment decisionsGrowth Investors – look at earnings momentumRevenues occur when there is an increase in assets and/or a decrease in liabilitiesExpenses occur when there is a decreases in assets and/or an increase in liabilities5 Accounts (Debit-left, Credit-right)Assets: Debit +, Credit –Liabilities: Debit -, Credit +Owner’s Expense: Debit -, Credit +Revenues: Debit-, Credit +Expenses: Debit+, Credit-Journal EntriesAccount Debited, Amount DebitedAccount Credited, Amount CreditedCash:Beginning Cash 100+Cash Receipts 2000+Cash Available 2100-Cash Dispersements 1400=Ending Cash 700Retained Earnings:Beginning Retained Earnings 2500+Net Income 8000Retained Earnings 1050-Declare and Pay Dividends 1200End Retained Earnings 9300Ex. On 1/1 a company started a business with assets of $50 and liabilities of $22. 1. What are the retained earnings on 1/1? 2. What is the contributed capital on 1/1?*During the year, investors made additional investments of $10. The company declared and paid a dividend of $12.3. What is the contributed capital on 12/31? 4. What are the retained earnings on 12/31?5. What is net income? 1271/1 12/31Assets 50 200Liabilities 22 47Contributed Capital (Owner’s Equity)28 38Retained Earnings (Owner’sEquity0 115Lecture 3GAAP – rules based (approximately 25,000), used in the U.S.FASB – does not have congressional powerSEC – body that has congressional power, publicly trade companies file 10-K reports IFRS – principles based, not adopted in the U.S., over 100 countries have (2,000 pages)Big Four – represents the four largest accounting firms:- Deloitte- EY- KPMG- Pricewaterhouse CoopersAssets – economic resourcesLiabilities - creditor’s claimsOwner’s Equity – owner’s claimsBalance Sheet: A=L+OE5,000 = 3955+1045Revenues: inflows/increases in net assets from providing goods and/or servicesExpenses: outflows/decreases in net assets from providing goods and/or servicesNet Assets: Total Assets – Total LiabilitiesIncome Statement:
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