Term
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Definition
1. Operating Activities - related to day to day business activities
2. Investing Activities - related to acquisition and disposal of LT assets
3. Financing Activities - related to raising and retiring capital
-nature of a firm's operations dictates where certain transactions fall within these classifications |
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Term
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Definition
-sales of goods and services to customers
-cost of providing the goods and services
-income tax expense
-holding ST assets or incurring ST liabilities directly related to operating activities |
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Term
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Definition
-purchase or sale of assets, such as PPE
-purchase or sale of OTHER entities' equity and debt securities |
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Term
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Definition
-issuance or repurchase of the company's OWN preferred or common stock
-issuance or repayment of debt
-payment of distributions |
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Term
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Definition
-Assets (A), Liabilities (L), Owners Equity (E), --> on BS
-Revenue (R), Expenses (E) --> IS
-contra accounts: reduces the value of an asset account (e.g. depreciation) |
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Term
| Relationship of financial statement elements and accounts |
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Definition
-increase or a decrease in any of the accounting elements is recorded in a specific account
-ex) accounts receivable is an account that falls under the financial element of assets |
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Term
| Classification of accounts into of Assets Element |
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Definition
Assets: company's economic resources
Current assets
-cash and $ equivalents
-A/R, trade receivables
-prepaid expenses
-inventory
Non-Current Assets
-PPE
-investment property
-intangible assets
-financial assets, trading securities, investment securities
-investments accounted for by the equity method |
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Term
| Classification of Accounts for Liabilities Element |
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Definition
Liabilities: creditors claim on a companys' economic resources
-A/P; trades payable
-Financial liabilities (e.g. notes payable)
-Deferred tax liabilities
-LT debt
-Unearned Rev |
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Term
| Accounts recorded under Owners' Equity Element |
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Definition
owners' equity: owners' residual claim on a company's resources
-capital in the form of common and preferred stock
-additional paid-in capital
-retained earnings
-other comprehensive income |
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Term
| Accounts recorded under Revenues |
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Definition
revenues: flow of economic resources into the company
-Sales
-Gains
-Investment Income |
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Term
| Accounts recorded under Expenses |
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Definition
expenses: flow of economic resources out of the company
-COGS
-selling general and administrative expenses
-depreciation and amortization expenses
-interest expense
-tax expense
-losses |
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Term
| Basic Accounting Equation |
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Definition
| Assets = Liabilities + Owners' Equity |
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Term
| Expanded Accounting Equation |
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Definition
Onwers' Equity = Contributed Capital + Ending Retained Earnings
so...
Assets = Liabilities + Contributed Capital + End R.E.
End R.E. = Beg R.E.+Revenue - Expenses - Dividends declared
so...
Assets = Liabilities + Cont. Capital + Beg R.E.+ Revenue - Expenses - Dividends Declared |
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Term
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Definition
| -every transaction affects at least two accounts |
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Term
| Process of Recording Business Transactions |
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Definition
-based on double entry accounting
-must bring equation A=L+E into equality |
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Term
| Need for Accruals and other adjustments in preparing financial statements |
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Definition
-principal of accrual accounting: record revenue when earned; record expense when incurred irrespective of when the actual exchange of cash occurs
-need for accrual entries bc of timing difference between cash movements and recognition of revenues or expenses |
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Term
| 4 types of accrual entries |
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Definition
1) Unearned Revenue
-cash before earning revenue
2) Accrued Revenue
-earn revenue but no cash
3) prepaid expense
-pay cash prior to recognizing expense
-e.g. office rent
4) Accrued Expenses
-incur expense before paying cash
-e.g. salary |
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Term
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Definition
-most assets and liabilities are recorded on the balance sheet at their historical cost
-some items are required to be shown on BS at their CURRENT market values
-the upward or downward adjustments to the values of these assets and liabilities are valuation adjustments
-e.g. decline in the value of an asset --> decreased value is recorded on BS and amount of the decrease in value is recognized as a loss either on the I.S. or in other comprehensive income |
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Term
| Relationships among IS, BS, stmt of CF, stmt of owners' equity |
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Definition
1) The net income (in the absence of dividends) will R.E.. which is reflected on BS under Owners Equity as well as on the stmt of shareholders equity
2) The balance on the CF statement (shows the increase in cash over the period) will show an increase in cash on the BS under Current Assets
3) Capital Contribution is listed under CF from financing activities. CC is also shown under owners equity on BS |
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Term
| Flow of Information in Acctng System |
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Definition
1) Journal Entries
-all acctng entries sorted by date --> General Journal
-adjustments are made to journal entires to account for accruals that had not been recorded earlier
2) General Ledger
-acctng entries sorted by account (inv. A/R, etc)
3) Trial Balance
-shows total ENDING balances for all accounts
4) Adjusted Trial Balance
-makes any necessary adjustments to trial balance
5) Financial Statements
-use adjusted trial balance to create financial statements |
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Term
| Use of Results of accounting process in security analysis |
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Definition
-importance of looking at footnotes and MD&A
-companies can present information in a misleading manner
--> largest area for misuse is that co. try to overstate revenue
-analysts should be able to understand assumptions behind the numbers |
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