WGU C214 Financial Managment Topic 2
Accounting
is backward-looking and risk free
Finance
is forward-looking and involes massive uncertainty
Income Statement
- show results of operation over time;
- revenues - expenses = net income
- Think of the income statement as a video camera tracking ...
is forward-looking and involes massive uncertainty
Income Statement
- show results of operation over time;
- revenues - expenses = net income
- Think of the income statement as a video camera tracking performance for a period.
- usually regarded as the most difficult to analyze and interpret.
Balance Sheet
- a "snap shot" of a firm's assests & financing at a paticular point in time
- viewed as a still shot of what the firm has at one particular moment.
- Assets= Liabilities + Owner's Equity
Statement of Cash Flows
tracks all cash in and out of the firm
Cash Accounting
cash in =revenue
cash out=expense
Accrual Accounting
- revenues are recognized when the earnings process is complete;
- expenses are "matched" to recongized revenues
Cash-based income
- an informal metric based on cash in & cash out of the firm
- cash-based income is similar to what we call Cash Flow from Operations (i.e., CFO)
Income for tax purposes
based on the government's definition of income, this is the amount of income the government will tax
Accounting income
, - the income calculated using accrual accounting (aka, GAAP); best
- most complicated metric for understanding the operations of the firm
= reported on the firm's income statement as net income
On the Income statement
Revenues- Cost of goods sold= Gross profit
- Operating expenses= earning before interest & taxes
- interest expenses, - taxes= Net income
Revenue
- recognized when "earned"
- Management's discretion over revenue recognition is significant.po[
Cost of Goods Sold
direct costs of materials & labor
Gross profit
revenue - cost of goods sold
Operating Expenses
expenses not directly associated with production (office expenses, administrative expenses,
depreciation, research & development)
EBIT
Earnings before interest & tax; Gross profit - operating expenses
* also known as operating income
Net Income on balance sheet
EBIT - interest - taxes
Current Assets
cash, marketable securities, A/R, inventory= total current assets
Marketable securities
- short-term, high-quality securities such as US Treasury Bills and certificates of deposit (CDs).
Account receivable (AR)
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LectDan. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.99. You're not tied to anything after your purchase.
