Financial Accounting

Reporting to decision makers outside of the firm

Income Statment

Includes Revenue/Cost of Goods Sold and all expenses including depreciation

Statement of Cash Flows

Includes Cash inflow (sales) and cash outflow (expenses); excludes depreciation

Return on Equity

Net income/Contributed Capital

High Profit Margin

Net income/ Sales Revenue

Statement of Retained Earnings

Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings 

Effective Interest Amortization

Step 1: Interest Expense- Unpaid balance x market interest rate existed on that date

Step 2: Amortization amount- Interest expense - cash interest

Stock Splits

Increase in total number of authorized shares by a specified ratio; does not decrease retained earnings

Equity Method

Must be used when an investor can exert significant influence over the affiliate