BUS X100 1nd Edition Lecture 12 Outline of Last Lecture I. Users of ‘Financial Accounting’ Informationa. factsII. Financial Accounting Annual Report and 10-Ka. audienceb. purposec. requiresd. results ine. responsibilityf. opinionIII. Cash-Basis Accountinga. factsIV. Accounting Environmenta. rulesb. GAAPV. The House of GAAPa. defineb. SECc. FASBThese 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.d. AICPAVI. Accrual Accountinga. factsVII. The Matching Principlea. factsVIII. Revenue Recognitiona. two main criteriaIX. Time Period Concepta. factsX. Key Terms Income Statementa. terms and definitionsXI. The Income StatementXII. Summary GAAP & Income Statementa. cashed-basedb. GAAPi. accrual-basedii. requiresIncome StatementOutline of Current Lecture I. The Balance Sheeta. assetsb. liabilitiesc. owner’s equityII. Key Terms- Balance Sheeta. terms and definitionsIII. Balance Sheet Limitationsa. factsIV. The accounting EquationV. Categories of Cash Flows a. operationsb. investmentsc. financingVI. Statement of Cash Flowa. cash inflows and outflowsVII. Cash Flow Cyclea. flowsVIII. Notes to the Financial Statementsa. four general types of notes to financial statementsIX. Tax Accounting - Important Considerationsa. factsX. Financial Statements – Summarya. key terms and definitionsCurrent Lecture – Accounting “The Financial Statements”I. The Balance Sheeta. Assetsi. company’s economic resources – cash, accounts, receivable, inventory, land, buildings, equipment, and intangible items.b. Liabilities i. creditor claims – accounts payable, notes payable, mortgages payable, …c. Owners’ Equityi. net assets ‘left over’ – for the owners after all obligation have been satifiedII. Key Terms – Balance Sheeta. assets – economic resources that are owned or controlled by the companyb. liabilities – claims of creditors on a company’s assetsc. accounts receivable – a current asset representing money due for services performed or merchandise sold on creditd. accounts payable – dollar value owned by a firm to otherse. intangible assets – long-lived assets with no physical substance that are used in the business such as acquired goodwill, licenses, patents and franchisesf. contributed capital – protion of owners’ net quity contributed by investor (the owners) in exchange for shares of stockg. dividends – profit distributions to the owners (stockholders)h. retained earnings – portion of a company’s owners’ equity that has been earned from profitable operations but has not been distributed to shareholders as dividendsi. stockholder’s equity – owners’ equity section – ‘what’s left over’III. Balance Sheet Limitationsa. assets are recorded at historical valueb. transaction must occur to recognize an assetc. recognizes only assets that can be expressed in monetary termsd. owner’s equity on the balance sheet is usually LESS than company’s ACTUAL market valueIV. The Accounting Equationa. assets = liabilities + owners’ equityV. Statement of Cash Flowa. Cash Inflows = operating activities(cash from sales), investing activities(interest earned), and financing activities(sell stock, new loans)b. Cash Outflows = operating activites(expenses), investing activities(buy equipment), and financing activities(dividend, pay loans, buy back stock)VI. Categories of Cash Flowa. cash flow is the difference between cash coming in and cash going out of a businessb. cash flow statement reports cash flow as it relates to a firm’s three major activities: i. operations – cash transactions associated with running of the businessii. investments – cash used in or provided by the firm’s investment activities in the companyiii. financing – cash raised from the issuance of new debt or equity capital, orcash used to pay past debts and stock holder dividendsc. The Cash Flow Cycled. customers(sales)  accounts receivable cash  inventory VII. Notes to the Financial Statementsa. four general types of notes to financial statements:i. accounting policies: summary of significant assumptions, estimates, and judgmentsii. additional information and details about the summary totalsiii. supplementary information required by the FASB or the SECiv. disclosure of important information that is NOT recognized in the financial statementsb. notes are an acceptable way to convey information to users when the information is too uncertain or needs further explanationVIII. Tax Accounting Important Considerationsa. tax accounting is driven by IRS and other tax regulations – which are different than GAAPb. resulting in temporary and permanent differences between tax and