Accounting and Finance
• Accounting Function: Gathering, processing, and reporting data. Preparation of a set of four financial statements
• 1- Balance sheet
• 2-Income statement
• 3-Statement of retained earnings
• 4-Statement of cash flow
Annual Report includes:
• Financial highlights: include key figures such as sales, net income, and EPS.
• Letter to stockholders from CEO: assessment of the firm performance and future plan.
• Management Discussion & Analysis
• Financial performance : Summary of financial ratios, Balance sheet, Income statement, Statement of retained earnings, Statement of cash flows
• Members of the management team and board of directors
• Provides a snapshot of a firm’s financial condition as of a particular date.
Major Components of the Balance Sheet:
• Total assets =Current assets + Fixed assets
• Total liabilities =Current liabilities + Long term liabilities
• Total Stockholders’ equity = paid in Capital + paid in capital in excess of par + retained earnings – treasury stocks at cost.
Total assets = Total liabilities + Total Stockholders’ equity
• Cash equivalents: T-bills, commercial paper etc.
• Accounts receivable
• Inventory: FIFO vs. LIFO. In inflationary setting firms use LIFO for tax purposes.
• Prepaid expenses
• Other current assets: for example, deferred income taxes
Deferred income tax
• Deferred income tax asset happen when income reported to stockholders is less than the income reported to tax authority.
• Deferred income tax liability happen when income reported to stockholders is more than the income reported to tax authority.
• Includes Property, plant, and equipment.
• Depreciation is the technique applies to reduce the tax burden.
Intangible and Other Assets
• Intangible: examples: Trademarks, Patents, Goodwill.
• Other Assets: Long-term assets that do not fit into other categories
• Current liabilities: includes Accounts payable, Short term Notes payable, Accrued liabilities and current portion due from long term debt.
• Long-term liabilities: includes long term bank loan, Mortgage bonds, Debentures, pension liabilities, and deferred taxes owed to the government.
Total Stockholders’ equity
• Paid in Capital: Preferred and Common stocks at par value
• Paid in capital in excess of par
• retained earnings: Income retained to the business
• Less: Treasury stocks at cost: Purchase of a company’s own shares
• Book Values Vs. Market Values
• Profits versus Cash Flow
• Single Step Income Statement
• Multiple Step Income Statement
STATEMENT OF CASH FLOWS
• Cash flows from Operating Activities
• Cash flows from Investing Activities
• Cash flows from financing Activities