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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.
What is Accounting?
A system that collects and processes financial information about an organization and reports that information to decision makers.
Financial Accounting involve?
- External decision makers:
Equations for Balance Sheet
Assets = Liabilities + Stockholder's Equity
- 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.
Example of Assets
- Short-Term Investment
- Accounts Receivable
- Notes Receivable
- Inventory (to be sold)
- Prepaid Expenses
- Long-Term Investments
- These will be used or turned into cash within one year.
- Inventory is always under this regardless of time.
- 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.
Examples of Liabilities
- Accounts Payable
- Accrued Expenses
- Notes Payable
- Taxes Payable
- Unearned Revenue
- Bonds Payable
- Amount of financing provided by owners of the business and earnings.
- A residual amount: what is left over after your assets cover your liabilities.
- The investment of cash and other assets in the business by the owners.
- Common Stock, Preferred stock
Examples of Stockholder's Equity
- Contributed Capital
- Retained Earnings
Earnings that are not distributed to owners but instead reinvested into the business by management.
- 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.
Equation of Income Statement
Revenues - Expenses = Net Income
- 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.
Examples of Revenue Accounts
- Sales Revenue
- Fee Revenue
- Interest Revenue
- Rent Revenue
- "Cost" incurred to generate current revenue.
- -Supplies needed to provide service etc..
Example of Expense Accounts
- of Goods Sold
- Wages Expense
- Rent Expense
- Interest Expense
- Depreciation Expense
- Advertising Expense
- Insurance Expense
- Repair Expense
- Income Tax Expense
The excess of total revenues over total expenses.
Example of Income Statement
Statement of Retained earnings
The earnings of the firm minus the dividends in the corporation.
Equation for Statement of Retained Earnings
Beginning Retained Earnings + Net Income
= Ending Retained Earnings
- Either increases or decreases ending earnings
- Decreases Retained earnings
Example of Statement of Retained Earnings
Statement of Cash Flows
Reports inflows and outflows of cash during the accounting period in the categories of operating, investing and financing.
Operating Activities (CFO)
Directly related to earning income. What the company does on day to day basis.
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.
Financing Activities (CFF)
- Directly related to financing of enterprise itself.
- Activities that involve borrowing.
- These are long term liabilities.
Example of Cash Flow Statement
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.
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.
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.