Manufacturing company
Give this one a try later!
produce products for resale.
,Period Costs:
Give this one a try later!
A cost incurred outside the factory or production facility.
These costs are reported as an expense in the period in which they are
incurred.
Explain the purpose of notes to financial statements.
Give this one a try later!
There are four main areas that must be covered in the financial statement
footnotes:
A summary of significant accounting policies. GAAP frequently allows firms to
make choices in preparing their financial statements and so GAAP requires
that those choices be reported in the footnotes. For example, the firm must
report the method they are using to calculation depreciation along with the
average useful lives for major classes of depreciable assets.
Additional information about the summary totals found in the statements. For
example if a firm as a notes payable account in their long-term liabilities, they
must list all the individual notes that make up the balance and present the life
of the loan and its interest rate.
Disclosure of important information not recognized in the statements. For
example, if the firm is the defendant in a lawsuit but the outcome of the suit is
unclear, the firm must report the existence of the suit in the footnotes. Since
the outcome is uncertain, GAAP does not require the firm to accrue a liability
for the possible loss thus the possible loss has not been recognized in the
financial statements (i.e., no liability has been reported on the balance sheet).
Supplementary information required by the Financial Accounting Standards
, Board (FASB) or the Securities and Exchange Commission (SEC). This is a
broad category. One example is reporting summary financial data for
different segments of the firm operates in different industries.
Identify components of the income statement.
Give this one a try later!
The Income Statement describes a company's financial performance for a
period of time. A company's expenses are subtracted from its revenues and
gains and losses are also factored in computing net income. Net income
helps explain the change in retained earnings between two Balance Sheet
dates, along with dividends and unrealized gains and losses.
A single step income statement lumps all revenues together and subtracts all
expenses to calculate net income. A multiple-step presents subtotals that
highlight key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
= Operating income or earnings before interest and taxes (EBIT)
+ Other income - other expenses + gains - losses
= Earnings before taxes (EBT)
- Taxes
= Net Income (Profit)
If the firm has experienced a discontinued operation or extraordinary item,
the effects of these events are subtracted from all the income statement line
items and the income statement will include another subtotal - income from
continuing operations that will be followed by a single line item that presents
to effects of the extraordinary item discontinued operations and then net
income.
, Identify motivations and common techniques used to manage earnings.
Give this one a try later!
Earnings management occurs when management attempts to manipulate the
impression the financial statements present to users. They can change the
timing of transactions, use aggressive accounting procedures, and alter
transactions to achieve these goals. Earnings management, exclusive of using
fraud to management earnings, is a gray area where there are no clear ethical
rules to determine when it is ethical or not.
Managers manage earnings to:
Meet internal targets - sometimes people that can influence the financial
results are also given bonuses based on those results, which gives those
employees an incentive to manage earnings.
Meet external expectations - Most publicly traded firms are followed and
stock analysts who make predictions about future performance for their
clients. Firms try to guide these analysts' expectations to prevent surprises
that might lower the firm's stock price.
Income smoothing - Investors like predictable earnings because they make
determining the firm's future performance easier to predict. Managers many
manage earnings to smooth out fluctuations that make future earnings harder
to predict.
Window dressing for an IPO or a loan - If a firm plans to raise outside capital
by selling stock or borrowing money, the firm's management has an incentive
to make the financial statement results more attractive to those outside
creditors and investors.
Describe the purpose of accounting.
Give this one a try later!
Give this one a try later!
produce products for resale.
,Period Costs:
Give this one a try later!
A cost incurred outside the factory or production facility.
These costs are reported as an expense in the period in which they are
incurred.
Explain the purpose of notes to financial statements.
Give this one a try later!
There are four main areas that must be covered in the financial statement
footnotes:
A summary of significant accounting policies. GAAP frequently allows firms to
make choices in preparing their financial statements and so GAAP requires
that those choices be reported in the footnotes. For example, the firm must
report the method they are using to calculation depreciation along with the
average useful lives for major classes of depreciable assets.
Additional information about the summary totals found in the statements. For
example if a firm as a notes payable account in their long-term liabilities, they
must list all the individual notes that make up the balance and present the life
of the loan and its interest rate.
Disclosure of important information not recognized in the statements. For
example, if the firm is the defendant in a lawsuit but the outcome of the suit is
unclear, the firm must report the existence of the suit in the footnotes. Since
the outcome is uncertain, GAAP does not require the firm to accrue a liability
for the possible loss thus the possible loss has not been recognized in the
financial statements (i.e., no liability has been reported on the balance sheet).
Supplementary information required by the Financial Accounting Standards
, Board (FASB) or the Securities and Exchange Commission (SEC). This is a
broad category. One example is reporting summary financial data for
different segments of the firm operates in different industries.
Identify components of the income statement.
Give this one a try later!
The Income Statement describes a company's financial performance for a
period of time. A company's expenses are subtracted from its revenues and
gains and losses are also factored in computing net income. Net income
helps explain the change in retained earnings between two Balance Sheet
dates, along with dividends and unrealized gains and losses.
A single step income statement lumps all revenues together and subtracts all
expenses to calculate net income. A multiple-step presents subtotals that
highlight key performance measures. Its categories include:
Sales or revenues
- Cost of goods sold (COGS) (Product costs of items sold)
= Gross profit
- Selling and Administrative expenses (also called operating expenses)
= Operating income or earnings before interest and taxes (EBIT)
+ Other income - other expenses + gains - losses
= Earnings before taxes (EBT)
- Taxes
= Net Income (Profit)
If the firm has experienced a discontinued operation or extraordinary item,
the effects of these events are subtracted from all the income statement line
items and the income statement will include another subtotal - income from
continuing operations that will be followed by a single line item that presents
to effects of the extraordinary item discontinued operations and then net
income.
, Identify motivations and common techniques used to manage earnings.
Give this one a try later!
Earnings management occurs when management attempts to manipulate the
impression the financial statements present to users. They can change the
timing of transactions, use aggressive accounting procedures, and alter
transactions to achieve these goals. Earnings management, exclusive of using
fraud to management earnings, is a gray area where there are no clear ethical
rules to determine when it is ethical or not.
Managers manage earnings to:
Meet internal targets - sometimes people that can influence the financial
results are also given bonuses based on those results, which gives those
employees an incentive to manage earnings.
Meet external expectations - Most publicly traded firms are followed and
stock analysts who make predictions about future performance for their
clients. Firms try to guide these analysts' expectations to prevent surprises
that might lower the firm's stock price.
Income smoothing - Investors like predictable earnings because they make
determining the firm's future performance easier to predict. Managers many
manage earnings to smooth out fluctuations that make future earnings harder
to predict.
Window dressing for an IPO or a loan - If a firm plans to raise outside capital
by selling stock or borrowing money, the firm's management has an incentive
to make the financial statement results more attractive to those outside
creditors and investors.
Describe the purpose of accounting.
Give this one a try later!
