A++ GRADE SELECTED ACCOUNTING STANDARDS AND SIMPLE GROUP STRUCTURES

Interpreting a Balance Sheet... - -... >Are balance sheet accounts temporary or permanent? - -Permanent >Assets... - -... >What are the two characteristics of assets that are reported on the balance sheet? - -1- must be owned or controlled by the company 2- it must confer expected future economic benefits that result from a past transaction or event. >When are intangible assets reported on the balance sheet? - -when the assets are purchased, not created internally. >Liabilities and Equity. - -... >Net working capital- - -reflects the difference between current assets and current liabilities = current assets- current liabilities. >do you prefer to see more current liabilities or more current assets? - -obviously more current assets to ensure that the company is liquid. >What does the net working capital that is required to conduct business depend on? - -the operating (or cash) cycle. >Operating/cash cycle- - -the time between paying cash for goods and receiving cash from customers. >why are assets like AR and inventory costly to hold? - -They tie up cash. >How can managers shorten the operating cycle? - -- decrease AR with tighter credit-grinding policies and more assertive collections - reduce inventory - increase trade credit to minimize cash invested in inventory >Trade credit- - -purchasing inventory from suppliers on credit. >Cash conversion cycle... - -... >What do analyst use the cash conversion cycle to measure? - -to evaluate company liquidity. >What is the cash conversion cycle? - -The number of days the company has its cash tied up in receivables and inventories less the number of days of trade credit provided by a company supplier. >What is the formula for the cash conversion cycle? - -Average Days sales outstanding + Average days’ inventory outstanding - Average days payable outstanding. = average cash conversion cycle. >What does a negative cash conversion number indicate? - -that the company is doing very well with cash conversion. a negative number (-50) for average cash conversion indicates that the company has 50 days to invest the cash it receives from sales before making payments to suppliers. Therefore, they realize sales income and investment income. >Non-current liabilities- - -obligations due after one year. >Examples: - -long term debt Other long term liabilities >Stockholder Equity... - -... >Stockholders equity- - -reflects financing provided from company owners. >What are some examples of items included in equity? - -Common Stock Additional paid in capital Preferred Stock Treasury Stock Retained Earnings Accumulated other comprehensive income or loss. >Common Stock- - -Par value received from the original sale of common stock to investors. >Additional paid in capital- - -amounts received from the original sale of stock to investors in excess of the par value of stock. >Preferred Stock- - -Value received from the original sale of preferred stock to investors; preferred stock has fewer ownership rights than common stock. >Treasury stock-0 - -amount the company paid to reacquire its common stock from shareholders. (share buyback) >Retained Earnings- - -accumulated net income (profit) that has not been distributed to stockholders as dividends. >Accumulated other comprehensive income or loss- - -accumulated changes in asset and liability fair values that are not reported in the financial statements. >What are the two basic sections of the equity section of the balance sheet? - -contributed capital earned capital