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MD MBA Summer Session 1 - Coggle Diagram

- - - - Revenue Recognition -- revenue is recognized when the performance obligations are satisfied or when title transfers or services are performed
      - Materiality --- whether different treatment would likely influence a creditor or investor as well as via cost/benefit analysis to determine whether strict compliance is worth the cost, if it is not material it can be ignored
      - Matching Principle --- expenses are recognized in the same period as the revenues are generated
      - Full Disclosure* --- companies must disclose all events and circumstances that would make a difference to users even if it cannot be recorded. It must be disclosed in the notes of the financial statement.
      - Consistency --- the idea that companies apply their accounting standards consistently throughout time
    - - services are performed or goods are transferred
      - property is acquired or disposed of
      - cash changes hand
      - Other analyses indicate an entry is needed (also note that anything that affects the income statement affects retained earnings)
    - - unexpired costs (i.e. costs having future value for generating revenue or cash flows such as inventory making inventory an asset not an expense)
      - expired costs (i.e. costs having no future value for generating revenue or cash flows and must be recognized as an expense). This is where judgment comes in as the accountant's discretion determines how to categorize an item as either an unexpired or expired cost.
  - - - Current Ratio --- current assets/current liabilities, used in assessing liquidity (i.e. how well will the company be able to cover payment of current liabilities from its current assets)
      - Return on Assets --- net income/average total assets used to evaluate the profitability and efficiency (how efficiently is the company using its assets to generate profits); average total assets --- (beginning of year assets + ending of year assets)/2
      - Debt to Equity Ratio --- total liabilities/total equity used in assessing leverage (i.e. assets financed mainly via debt or equity or using borrowed capital to increase potential return of an investment)
      - Common-Size Income Statements --- Divide every amount by revenues so that the income statement is expressed as a percentage of sales, used to evaluate efficiency (i.e. how well is the company doing at controlling expenses as revenues increase or decrease)
    - - Balance Sheet (Statement of Financial Position) --- records the relation between assets (assets = liabilities + owner's equity) and claims on assets at a specific point in time. Though of in a different way it is how well the company is doing from a net worth perspective
        
        Liability are claims that non-owners have to the company's assets including accounts payable(payments due to vendors); wages payable (wages earned by employees but not yet paid), notes payable and loans payable
        
        Current Liabilities --- obligations to be paid within the coming year or operating cycle if greater than 1 year
        
        Long-Term Liabilities --- Obligations expected to be paid after one year
        
        Owner's Equity is the residual rights to the assets that owners have after liabilities
        
        Common Stock --- investments in the business by the shareholders in exchange for voting shares of stock
        
        Retained Earnings --- Net income that is "retained" by the business to fund future rather than distributed to the owners
        
        Assets being any resource that is owned by the business includes intangible assets such as patents or copyrights or tangible assets such as property and equipment or cash or accounts receivable including payments due from customers or inventory or marketable securities such as stock where excess cash is invested
        
        Property, Plant, and Equipment --- assets with relatively long useful lives and curetly used in operating the business sometimes called fixed assets. These assets are shown at their historical cost or acquisition cost and then depreciated (except land) over their estimated useful lives. Since these types of assets are used over more than 1 year the full cost is not expensed in the year of purchase. Instead, the cost is expensed over the estimated useful life via depreciation expense. The amount for Property, Plant, and E
        
        Intangible Assets --- assets that have no physical substance such as patents, copyrights, trademarks, trade names, or goodwill; amortization is the counterpart to depreciation for intangibles
        
        Current Assets --- assets that are expected to be converted to cash or used up in the business within one year or one operating cycle (the average time required to turn inventory into cash), whichever is longer. Current assets are listed in the order in which they are expected to be converted into cash (order liquidity)
      - Statement of Cash Flow --- provides information about cash receipts and cash payments for a specific period of time
        
        Investing -- buying and selling assets (ppe), investments (shares of stock) to park excess cash until needed
        
        Financing --- cash obtained from outside sources to start expand or operate a business
        
        Operating --- running the business, which generates net income (or loss)
      - Income Statement (Statement of Operations) --- records the results of a company's operations for a specific period of time or said in another way evaluation of company's ability to generate profits
        
        Revenue --- the increase in assets resulting from the sale of goods or performance of services
        
        Expenses --- cost of assets consumed or services used in generating revenues
        
        Revenue > Expenses = Net Income Expenses > Revenue = Net Loss
    - - Auditor's Opinion Letter --- assessment of the reliability to the presented financial data
      - Financial Statements
      - Management's Discussion and Analyses --- management's interpretation of the financial data; fear of lawsuits create an incentive for companies to document these details with integrity
      - Notes to the Financial Statements --- additional policies and information not contained in the financial statement
      - Background Information
    - - Liquidity and Solvency ---the ability to pay creditors and other obligations over the short (liquidity) or long (solvency) term
      - Profitability and Efficiency --- how well the company is able to generate profits and use its assets efficiently
      - Leverage --- using borrowed funds to generate returns the higher the leverage the more risky (the longer the lever arm the more leverage but more likely for arm to break the more we lengthen the arm from the fulcrum); the hopeful scenario is that the returns from the leveraged debt exceed payout for interest from the borrowed funds/liability
    - - investing activities (i.e. buying and selling of assets such as property, equipment or other things used to start the business or investments to keep excess cash and let it sit hopefully garnering a future return)
      - operating activities (i.e. all activities to operate/run the organization
      - The activities of any given organization include financing activities (i.e. borrowing from creditors = liabilities and issuing ownership to investors owner's equity);
  - - - financial reports need to be adjusted properly to be useful. tax accounting is an example of such an adjustment where financial data is adjusted to comply with tax laws. financial accounting is geared more so toward external reporting and external users while managerial accounting is geared so toward internal reporting and *internal users not-for-profit accounting concerns the financial transactions of not-for-profit entities which have special rules that must followed as it pertains to donations to the organization. Lastly, there is governmental accounting used by government entities.
    - - The principal executive and financial officers were now required to certify that the financial statements have been reviewed, do not contain untrue statements, do not omit important information and fairly present the company's financial condiiton and performance. Corporations now had to take more responsibility for errors found within financial reports.
      - Management had to ensure that there are adequate internal controls in place to ensure that the financial records are complete and accurate. The auditors must audit internal controls and issue an opinion.
    - - The International Accounting Standards Board (IASB) enforces and updates these rules and regulations for International Companies. These regulations are called International Financial Reporting Standards (IFRS). Applying these rules requires skilled judgment.
      - The Financial Accounting Standards Board (FASB) enforces and updates these rule and regulations for US domestic companies. These regulations are called Generally Accepted Accounting Principles (GAAP). Applying these rules requires skilled judgment.
- - - - Average Days to Collect Accounts Receivable = (365)/(accounts receivable turnover)
      - Inventory Turnover = (cost of goods sold)/(average inventory)
      - Accounts Receivable Turnover = (credit sales)/(average net accounts receivable)
      - Average Days in Inventory (365)/(inventory turnover)
      - Ratio of Net to Gross A/R = (Net accounts receivable)/(gross accounts receivable)
- - - - Freight
      - Installation
      - Taxes
    - - Overhead costs such as a project managers, accounting, and legal department
      - Interest on borrowed funds to construct assets