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What are Dividends?
Payments made to shareholders. When company earns profit, either gets reinvested into company (retained earnings) or paid to shareholders as dividends.
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What is Accounting?
A system that collects and processes financial information about an organization and reports that information to decision makers.
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Financial Accounting involve?
- External decision makers:
- Creditors
- Investors
- Suppliers
- Customers
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Equations for Balance Sheet
Assets = Liabilities + Stockholder's Equity
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Assets
- Economic resources owned by the company.
- Item of future economic value.
- Acquired resources the entity can use to operate in th future.
- Accounts with "receivable": amounts owed or received from others.
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Example of Assets
- Cash
- Short-Term Investment
- Accounts Receivable
- Notes Receivable
- Inventory (to be sold)
- Supplies
- Prepaid Expenses
- Long-Term Investments
- Equipment
- Buildings
- Land
- Intangibles
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Current Assets
- These will be used or turned into cash within one year.
- Inventory is always under this regardless of time.
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Liabilities
- Companies debts or obligations.
- Item of future economic debt or sacrifice.
- Result from an entities past transactions.
- Will be paid for with assets or services.
- Accounts with "Payable"
: amounts owed to companies in future.- From creditors; lenders to the business.
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Examples of Liabilities
- Accounts Payable
- Accrued Expenses
- Notes Payable
- Taxes Payable
- Unearned Revenue
- Bonds Payable
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Stockholder's Equity
- Amount of financing provided by owners of the business and earnings.
- A residual amount: what is left over after your assets cover your liabilities.
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Contributed Capital
- The investment of cash and other assets in the business by the owners.
- Common Stock, Preferred stock
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Examples of Stockholder's Equity
- Contributed Capital
- Retained Earnings
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Retained Earnings
Earnings that are not distributed to owners but instead reinvested into the business by management.
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Income Statement
- All the revenues earned from sales to customers are listed
- along with the expenses incurred to produce those revenues.
- *Shows results of operations over a period of time.
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Equation of Income Statement
Revenues - Expenses = Net Income
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Revenues
- Value of a service provided or product delivered.
- -Nothing to do with cash; It's the amount you will technically have that get's recorded.
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Examples of Revenue Accounts
- Sales Revenue
- Fee Revenue
- Interest Revenue
- Rent Revenue
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Expenses
- "Cost" incurred to generate current revenue.
- -Supplies needed to provide service etc..
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Example of Expense Accounts
- Cost
- of Goods Sold
- Wages Expense
- Rent Expense
- Interest Expense
- Depreciation Expense
- Advertising Expense
- Insurance Expense
- Repair Expense
- Income Tax Expense
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Net Income
The excess of total revenues over total expenses.
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Example of Income Statement
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Statement of Retained earnings
The earnings of the firm minus the dividends in the corporation.
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Equation for Statement of Retained Earnings
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings
- Either increases or decreases ending earnings
- Decreases Retained earnings
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Example of Statement of Retained Earnings
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Statement of Cash Flows
Reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing.
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Operating Activities (CFO)
Directly related to earning income. What the company does on day to day basis.
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Investing Activities (CFI)
- Relates tot he acquisition or sale of the company's productive assets.
- Bonds, investments, stock, expansion of company.
- These are generally Long term assets.
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Financing Activities (CFF)
- Directly related to financing of enterprise itself.
- Activities that involve borrowing.
- These are long term liabilities.
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Example of Cash Flow Statement
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Relationships among Net Income and Retained Earnings
- Net income from the income statement results in an increase in ending retained earnings on the
- statement of retained earnings.
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Ending Retained earning and SE
- Ending retained earnings from the statement of retained earnings is one of the two components
- of stockholders’ equity on the balance sheet.
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Cash flow and Balance Sheet
- The change in cash on the statement of cash flows is added to the beginning-of-year balance in cash
- to arrive at end-of-year cash on the balance sheet.
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