retained earnings at the end of the period is equal to
beginning retained earnings
+net income
-dividends
asset
resources belonging to a company that have future benefit to the company
advantage of corporate business
1. its ownership is easily transferable via the sale of shares of stock
2. easy to gain capital
3. unlimited life
4. owner has limited liability (owners personal resources are not at stake)
disadvantages of corporate business
1. not easy to establish
2. double taxation
authorized shares
maximum number of shares a business may issue in each class
issued shares
number of shares actually sold to stockholders
outstanding shares
number of shares actually in the hands of stockholders
preferred stock
pays a regular dividend
similar to debt
less risky than common stock
recieves priority over common stockholders
common stock
stockholders recieve financial gain from profitable company (dividends, stock appreciation)
owner rights (vote)
treasury stock
corporation purchases its own previously issued stock
stock split
Changes in par value (lowered) and number of shares outstanding (increased) noted in corporation's records
long term liabilities
are generally those obligations that extend beyond one year
Face Value/Par Value/Principal
The amount of money borrower agrees to repay at maturity
Maturity Date
Date on which the borrower agrees to pay the creditor the face value (par value, principal)
Stated Rate/Coupon Rate/Contract Rate
Rate of interest paid on the face value (par value or principal)
Market Rate/Yield Rate
-Rate of interest demanded by creditors
-A function of economic factors and the creditworthiness of the borrower
secure debt
debt provides collateral for the lender
unsecure debt
debt does not have collateral
�Also called "debenture bonds
Callable Bonds
Borrower has option to pay off the debt prior to maturity
Convertible Bonds
Lender has option to convert the bond into other securities
usual sequence of steps in the transaction recording process
analyze, journalize, post to the ledger
double entry system requires that each transaction
must be recorded in a least two different accounts
asset normal balance
debit
liability normal balance
credit
stokholders equity normal balance
credit
expense normal balance
debit
revenue normal balance
credit
ratio measures the extent by which selling prices cover all of a companys expenses
profit margin ration (income/sales)
LIFO vs FIFO
all else being equal, FIFO will yield higher income tazes than LIFO
examples of internal control procedures
using prenumbered documents
reconciling the bank statement
insistence that employees take vacations
segregation of duties
amortization
cost allocation of an intangible asset
simple interest vs. compound interest
simple interest is computed on the principal balance only
5 elements of internal control
the control environment
risk assessment
control activities
information and communication
monitoring
revenue recognition
revenue is recognized when it is:
realized or realizable
earned
straight line depreciation method
rate: (1/useful life)
expense: [(cost - residual)/(useful life)]
double declining depreciation method
rate: [(1/useful life)x(2)]
expense: declining every time (rate x book value)
units of production depreciation method
(actual usage of asset/expected usage of asset)x(cost - residual)
depreciable cost
(cost - residual)