Property, Plant, and Equipment

Land
Buildings
Accumulated depreciation

Current Assets
Accounts receivable
Inventory
Supplies
Cash

Intangible Assets
Goodwill
Patent

Long-term investment
stocks
Land

Current Liabilities
Accounts payable
Income taxes payable

Long-term Liability
Notes payable
Bonds payable

Stockholders' Equity
Common stock
Retained earnings

Revenue
Sales revenue
Service revenue

Expense
Cost of goods sold
Interest expense
Selling and administrative expenses
Income tax expense
Supplies expense
Salaries and wages expense
Utilities expense
Auditor's opinion
An expression about whether financial statements conform with generally accepted
accounting principles.

Corporation
A business that raises money by issuing shares of stock.

Common Stock
The portion of stockholders' equity that results from receiving cash from investors.

Accounts Payable
Obligations to suppliers of goods.

Accounts Receivable
Amounts due from customers.

Creditor
A party to whom a business owes money.

Stockholder
A party that invests in common stock.

Partnership
A business that is owned jointly by two or more individuals but does not issue stock.
Relevant 攸關性
For info to be Relevant, it should have predictive and confirmatory value.
Information that makes a difference in a decision.
-Provides a basis for forecasts
-Confirms or corrects prior expectations
-Is timely

Comparability 可比性
Different companies use similar accounting principles.

Understandability
Information that is presented in a clear fashion

Reliability 可靠性/可靠
Information is free of error and bias
Verifiable 可靠
The quality of information that occurs when
independent observers,
using the same methods,
obtain similar results.

Consistency 一致性
means using the same accounting principles and methods from year to year within a
company

Faithful Representation 忠實表達

information that is complete, neutral, and free from error.
Means that information accurately depicts what really happened.

Predictive Value 預測值

Accounting information should help provide accurate expectations about future events.

Neutral 中立
Accounting information cannot be selected, prepared, or presented to favour one set of
interested users over another

Timely 及時
Accounting information must be available to decision-makers before it loses its capacity to
influence their decisions

Conservatism 保守
When preparing financial statements, a company should choose the accounting method
that will be least likely to overstate assets or income.
Allows the accountant to choose the accounting method that will be the least likely to
overstate assets and income.
Requires that companies write down inventory to market value if it is below cost
Requires that when the market value of inventory exceeds cost, the inventory is not
increased but instead it is kept at cost.

Materiality 重要性原则
Relates to a financial statement item’s impact on a company’s overall financial condition
and operations.
An item is material if it can influence the decision of an investor or a creditor.
Companies do not have to follow GAAP for small amounts.
Requires that accounting standards be followed for all significant items.

Going concern 持續經營

The business will remain in operation for the foreseeable future
Is the rationale for why plant assets are not reported at liquidation value.

Full disclosure principle 充分揭露原則

requires all circumstances and events that would make a difference to financial statement
users to be disclosed.
Ensures that all relevant financial information is reported

Matching principle 配比原則

Requires recognition of expenses in the same period as related revenues.

Cost principle 成本原則

Indicates that market value changes subsequent to purchase are not recorded in the
accounts.
Measurement basis used when a reliable estimate of fair value is not available.
Monetary unit assumption 貨幣计量假設
Include in the accounting records only those things that can be expressed in terms of money.

Economic entity assumption 經濟個體假設

Every economic entity can be separately identified and accounted for.
Indicates that personal and business record-keeping should be separately maintained.

Time period assumption 會計期間假設

Allows the life of the business to be divided into artificial time periods. These
periods can be months, quarters, semi-annual periods, or annual periods as required
by the business to evaluate its operations.

Periodicity assumption 會計期間假設

Separates financial information into time periods for reporting purposes.
Balance Sheet

Current Assets
Assets that are expected to be converted to cash or used in the business within a
short period of time, usually one year.
Examples of current assets include: cash, short-term investments, receivables,
inventories and prepaid expenses.
On the balance sheet, current assets are listed in the order in which the company
expects to convert them into cash (order of liquidity).

Long-Term Investments
Assets that can be converted into cash, but whose conversion is not expected
within one year.
Assets not intended for use within the business.
Examples are investments of stocks and bonds of other corporations.

Property, Plant, and Equipment

Assets with relatively long useful lives.
Assets used in the business.
Examples include land, buildings, machinery, delivery equipment, and furniture
and fixtures.
Most property, plant, and equipment assets are depreciated, and charged to the
income statement as an expense, to indicate their contribution to the revenue-
producing process for the period. Land is not depreciated.

Current Liabilities
Obligations that are supposed to be paid within the coming year.
Common examples are accounts payable, wages payable, bank loans payable,
interest payable, taxes payable, and current maturities of long-term bank loans
payable.

Stockholders' Equity
Common Stock — investments of assets by stockholders in the company.
Retained Earnings — earnings retained for use in the business.
Cash Flows
-presents information about cash inflows and outflows from:

Operating activities
Cash inflows and cash outflows associated with the primary operations of the
business.
Intended to indicate the cash-generating capability of a company.
Cash provided by operating activities
Fails to take into account that a company must
invest in new property, plant, and equipment to maintain its current level of
operations and
maintain dividends at current levels to satisfy investors.
Free cash flow= Cash provided by operations- capital expenditures-cash
dividends
provides additional insight
computed by subtracting capital expenditures and cash dividends from cash
provided by operations

Investing activities
Financing activities
Retained Earnings Statement
-Describes the events that caused changes in retained earnings for the period.
Add net income and subtract dividends from beginning balance of retained .
-Earnings to arrive at ending balance of retained earnings.

Reports all changes in stockholders' equity accounts including:

issuance of common stock
retirement of common stock
changes in retained earnings

Earnings per share= (net income-preferred dividents/ average

common shares outstanding)
Generally Accepted Accounting Principles
-are the agreed-upon accounting rules which most U. S. companies use in
preparing financial statements.
-The Securities and Exchange Commission (SEC) oversees U.S. financial markets
and standard-setting.
-The Public Company Accounting Oversight Board (PCAOB) determines auditing
standards and reviews auditing firms.
-In the U.S., the Financial Accounting Standards Board (FASB) is the primary
standard-setting body.
-The International Accounting Standards Board (IASB) issues standards (IFRS)
that have been adopted by many countries outside the United States.
Ratio Analysis 比率
Expresses the relationship among selected items
A ratio
Expresses the mathematical relationship between one quantity and another

Profitability ratios
Measure the income or operating success of an enterprise for a given period of
time.
Liquidity rations
The ability to pay short-term obligations as they come due.
Short-term creditors such as bankers and suppliers are most interested in.
Solvency rations
 The ability of a company to survive over a long period of time.

Working capital= current assets-current liabilities

Measure of short-term ability to pay obligations.
Excess of current assets over current liabilities.
Positive working capital indicates the likelihood for paying liabilities is favourable.
Current ratio= current assets/ current liabilities
Measure of short-term ability to pay obligations.
Computed by dividing current assets by current liabilities.
More dependable indicator of liquidity than working capital.
Does not take into account composition of current assets.
Debt to total assets ratio= total liabilities/ total assets
Measures the percentage of assets financed by creditors.
The higher the percentage of debt financing, the riskier the business.
Computed by dividing total debt (both current and long-term liabilities) by total
assets.
Free cash flow= Cash provided by operations- capital expenditures-cash
dividends
provides additional insight
computed by subtracting capital expenditures and cash dividends from cash
provided by operations
Earnings per share= (net income-preferred dividends/ average common
shares outstanding)