WGU C214 Financial Managment Topic 2
Accounting
is backward-looking and risk free
Finance
is forward-looking and involes massive uncertainty
Income Statement
- show results of operation over time;
- revenues - expenses = net income
- Think of the income statement as a video camera tracking performance for a period.
- usually regarded as the most difficult to analyze and interpret.
Balance Sheet
- a "snap shot" of a firm's assests & financing at a paticular point in time
- viewed as a still shot of what the firm has at one particular moment.
- Assets= Liabilities + Owner's Equity
Statement of Cash Flows
tracks all cash in and out of the firm
Cash Accounting
cash in =revenue
cash out=expense
Accrual Accounting
- revenues are recognized when the earnings process is complete;
- expenses are "matched" to recongized revenues
Cash-based income
- an informal metric based on cash in & cash out of the firm
- cash-based income is similar to what we call Cash Flow from Operations (i.e., CFO)
Income for tax purposes
based on the government's definition of income, this is the amount of income the government will tax
Accounting income
, - the income calculated using accrual accounting (aka, GAAP); best
- most complicated metric for understanding the operations of the firm
= reported on the firm's income statement as net income
On the Income statement
Revenues- Cost of goods sold= Gross profit
- Operating expenses= earning before interest & taxes
- interest expenses, - taxes= Net income
Revenue
- recognized when "earned"
- Management's discretion over revenue recognition is significant.po[
Cost of Goods Sold
direct costs of materials & labor
Gross profit
revenue - cost of goods sold
Operating Expenses
expenses not directly associated with production (office expenses, administrative expenses,
depreciation, research & development)
EBIT
Earnings before interest & tax; Gross profit - operating expenses
* also known as operating income
Net Income on balance sheet
EBIT - interest - taxes
Current Assets
cash, marketable securities, A/R, inventory= total current assets
Marketable securities
- short-term, high-quality securities such as US Treasury Bills and certificates of deposit (CDs).
Account receivable (AR)
Accounting
is backward-looking and risk free
Finance
is forward-looking and involes massive uncertainty
Income Statement
- show results of operation over time;
- revenues - expenses = net income
- Think of the income statement as a video camera tracking performance for a period.
- usually regarded as the most difficult to analyze and interpret.
Balance Sheet
- a "snap shot" of a firm's assests & financing at a paticular point in time
- viewed as a still shot of what the firm has at one particular moment.
- Assets= Liabilities + Owner's Equity
Statement of Cash Flows
tracks all cash in and out of the firm
Cash Accounting
cash in =revenue
cash out=expense
Accrual Accounting
- revenues are recognized when the earnings process is complete;
- expenses are "matched" to recongized revenues
Cash-based income
- an informal metric based on cash in & cash out of the firm
- cash-based income is similar to what we call Cash Flow from Operations (i.e., CFO)
Income for tax purposes
based on the government's definition of income, this is the amount of income the government will tax
Accounting income
, - the income calculated using accrual accounting (aka, GAAP); best
- most complicated metric for understanding the operations of the firm
= reported on the firm's income statement as net income
On the Income statement
Revenues- Cost of goods sold= Gross profit
- Operating expenses= earning before interest & taxes
- interest expenses, - taxes= Net income
Revenue
- recognized when "earned"
- Management's discretion over revenue recognition is significant.po[
Cost of Goods Sold
direct costs of materials & labor
Gross profit
revenue - cost of goods sold
Operating Expenses
expenses not directly associated with production (office expenses, administrative expenses,
depreciation, research & development)
EBIT
Earnings before interest & tax; Gross profit - operating expenses
* also known as operating income
Net Income on balance sheet
EBIT - interest - taxes
Current Assets
cash, marketable securities, A/R, inventory= total current assets
Marketable securities
- short-term, high-quality securities such as US Treasury Bills and certificates of deposit (CDs).
Account receivable (AR)
