...ACCOUNTING IN CONTEXT POTTER I LIBBY I LIBBY I SHORT ACCOUNTING IN CONTEXT BRADLEY N. POTTER University of Melbourne ROBERT LIBBY Cornell University PATRICIA A. LIBBY Ithaca college DANIEL G. SHORT Texas Christian University Boston Burr Ridge, IL Dubuque, IA Madison, WI New York San Francisco St. Louis Bangkok Bogotá Caracas Kuala Lumpur Lisbon London Madrid Mexico City Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto Copyright © 2009 McGraw Hill Australia Pty Limited Additional owners of copyright are acknowledged in page credits. Every effort has been made to trace and acknowledge copyrighted material. The authors and publishers tender their apologies should any infringement have occurred. Reproduction and communication for educational purposes The Australian Copyright Act 1968 (the Act) allows a maximum of one chapter or 10% of the pages of this work, whichever is the greater, to be reproduced and/or communicated by any educational institution for its educational purposes provided that the institution (or the body that administers it) has sent a Statutory Educational notice to Copyright Agency Limited (CAL) and been granted a licence. For details of statutory educational and other copyright licences contact: Copyright Agency Limited, Level 15, 233 Castlereagh Street, Sydney NSW 2000. Telephone: (02) 9394 7600. Website: www.copyright.com.au Reproduction and communication for other purposes Apart from any fair dealing for the...
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...additional auditing effort should be spent. Calculating a ratio is easy, and usually is little more than dividing one number by another. Indeed, the calculations are so basic that they can be programmed into a spreadsheet. The real skill comes in interpreting the results and using that information to carry out a better audit. Saying that a ratio has increased because the top line in the calculation has increased (or the bottom line decreased) is rather pointless: this is simply translating the calculation into words. Use the mnemonic RATIO to remind yourself to keep asking the following questions: ¤ Reason – why has this change occurred? ¤ Accident – is the change real or simply an accident of timing? ¤ Test – what can be done to test our conclusions? What other work should we do? ¤ Implications – what does this change mean? Liquidity crisis? Poor management etc? ¤ Other information – is this consistent with other information? You should not write this out in the answer as this will waste time and will not gain you marks, but the five classes of question should always be at the back of your mind. There is a huge variety of businesses and this diversity will be reflected in their financial statements. To judge whether a figure or ratio is worth investigating, it is absolutely necessary to...
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...his case follows the performance-review and financial-statement-forecasting decisions of a Value Line analyst for the retail-building-supply industry in October 2002. The case contrasts the strong operating performance of Home Depot with the strong stock-market performance of Lowe's. Students examine a financial-ratio analysis for Home Depot that acts as a template for generating a comparable ratio analysis for Lowe's. The student ratio analysis is designed to build intuition with respect to interpreting individual ratios as well as ratio interrelationships (e.g., the DuPont framework). The historical-performance comparison suggests that investors are skeptical of the ability of Home Depot to maintain its performance trajectory, yet they project sustained improvements for Lowe's. Students are invited to scrutinize the analyst's five-year income-statement and asset-side balance-sheet forecast for Home Depot. The case expressly focuses on the asset side of the balance sheet as a preview for other cases using free-cash-flow forecasting. The Home Depot forecast exercise exposes students to the mechanics of financial-statement modeling and sensitivity analysis, which they can use in building their own forecast for Lowe's. Finally, the strong-growth assumptions for Home Depot relative to the modest-growth forecast for the industry suggest that the company can be expected to capture massive and perhaps unreasonable market share in the near term. The exercise provides a striking example...
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...CHAPTER 6 STATEMENT OF CASH FLOWS Questions, Exercises, and Problems: Answers and Solutions 6.1 See the text or the glossary at the end of the book. 6.2 One can criticize a single income statement using a cash basis of accounting from two standpoints: (1) it provides a poor measure of operating performance each period because of the inaccurate matching of revenues and expenses (see discussion in Chapter 4), and (2) it excludes important investing (acquisitions and sales of long-lived assets) activities and financing (issuance or redemption of bonds or capital stock) activities of a firm that affect cash flow. 6.3 Accrual accounting provides a measure of operating performance that relates inputs to outputs without regard to when a firm receives or disburses cash. Accrual accounting portrays the resources of a firm and the claims on those resources without regard to whether the firm holds the resource in the form of cash. Although accrual accounting may satisfy user’s needs for information about operating performance and financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. 6.4 The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets....
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...STATEMENT OF CASH FLOWS Cash flows are critical to a company’s success because among other things they measure the ability of a business to generate cash internally. Positive cash flows allow a company to meet its obligations with creditors and suppliers, take advantage of investment opportunities, replace assets, negotiate better pricing in purchases, and pay dividends; all these without the need of incurring in external financing. Net cash flow needs to be distinguished from Net Income, which includes accounts receivable, accounts payable and other items for which payment has not been received or made (Accruals). Cash flow is used to assess the quality of a company's income; that is, how liquid it is, which can indicate whether the company is positioned to remain solvent. Net income (Income statement) measures a company’s financial results after business operations and financing activities, and it is crucial for investors as this is the statement that determines if overall a business is profitable or not. But because most companies use the accrual accounting method (which I will not explain on this paper), the income statement may not reflect actual changes in cash position. This is why investors should not rely only on this statement to make decisions as should use it only as one “indicator” of revenues minus costs, but it does not give the whole picture of a company’s financial health. It is important for investors and management to analyze the four main financial statements...
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...-ACC5574.htm ACC 557 WK 2 Chapter 1 Quiz - All Possible Questions TRUE-FALSE STATEMENTS 1. Owners of business firms are the only people who need accounting information. 2. Transactions that can be measured in dollars and cents are recorded in the financial information system. 3. The hiring of a new company president is an economic event recorded by the financial information system. 4. Management of a business enterprise is the major external user of information. 5. Accounting communicates financial information about a business enterprise to both internal and external users. 6. Accounting information is used only by external users with a financial interest in a business enterprise. 7. Financial statements are the major means of communicating accounting information to interested parties. 8. Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process. 9. The origins of accounting are attributed to Luca Pacioli, a famous mathematician. 10. The study of accounting will be useful only if a student is interested in working for a profit-oriented business firm. 11. Private accountants are accountants who are not employees of business enterprises. 12. The study of accounting is not useful for a business career unless your career objective is to become an accountant. 13. A...
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...CHAPTER 6 STATEMENT OF CASH FLOWS Questions, Exercises, and Problems: Answers and Solutions 6.1 6.2 See the text or the glossary at the end of the book. One can criticize a single income statement using a cash basis of accounting from two standpoints: (1) it provides a poor measure of operating performance each period because of the inaccurate matching of revenues and expenses (see discussion in Chapter 4), and (2) it excludes important investing (acquisitions and sales of long-lived assets) activities and financing (issuance or redemption of bonds or capital stock) activities of a firm that affect cash flow. Accrual accounting provides a measure of operating performance that relates inputs to outputs without regard to when a firm receives or disburses cash. Accrual accounting portrays the resources of a firm and the claims on those resources without regard to whether the firm holds the resource in the form of cash. Although accrual accounting may satisfy user’s needs for information about operating performance and financial position, it does not provide sufficient information about the cash flow effects of a firm’s operating, investing, and financing activities. The latter is the purpose of the statement of cash flows. The statement of cash flows reports changes in the investing and financing activities of a firm. Significant changes in property, plant, and equipment affect the structure of assets on the balance sheet, for example, the age of the assets. Significant changes...
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...In order to complete this assignment you will need to access the FASB Financial Accounting Standards Codification database. The related information for this is posted on Blackboard for this course. The UH copy of the FASB Financial Accounting Standards Codification (“FASC”) can be accessed at: http://aaahq.org/ascLogin.cfm. The FASC is the ONE AND ONLY source of the technical GAAP standards. Other sources are no longer accepted as GAAP The student log in information is Username - AAA51654 and Password - 84xMeNP: Username and the Password are also available on Blackboard. After you sign in – click on “FASB Accounting Standards Codification” on the screen and the database will open. There is a “search” box in the top right of the screen. If you scroll over the topics (Assets, Liabilities, etc.) on the left side of the welcome page you will see the subtopics and contents – click on the subtopic and it will take you to the related Codification content. This assignment will be introduced and discussed in class in order to assist you with planning how to complete the assignment. The class assignment/project that you are responsible for is comprised of researching several of the more current technical topics in accounting and responding to several specific related technical standard questions about the topics. For some of the topics (see below) you will also be asked and responsible for interpreting how the technical standard is applied or what the objective(s) of the...
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...ACCOUNTING (STATEMENT ANALYSIS) 222/525 PRACTICE TEST SOLUTIONS SECTION A SECTION B Multi-Choice Questions True/False Questions | 1. |E | | |1. |T | | 2. |E | | |2. |F | | 3. |E | | |3. |T | | 4. |C | | |4. |T | | 5. |E | | |5. |T | | 6. |D | | |6. |F | | 7. |C | | |7. |F | | 8. |D | | |8. |T | | 9. |B | | |9. |T | | 10. |C | | |10. |T | | 11. |E | | |11...
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...Chapter 11: Reporting and Interpreting Stockholders’ Equity * Corporate Ownership * Shares of stock can be purchased in small amounts. * Ownership interests are transferable. * Stockholders are not liable for the corporation’s debts * Common stock – the basic voting stock issued by a corporation to stockholders. * Voting rights * Dividends * Residual claim – if the company ceases operations, stockholders share in any assets remaining after creditors have been paid. * Preemptive Rights – existing stockholders may be given the first chance to buy newly issued stock before it is offered to others. * Equity vs. Debt Financing * Equity financing – issuing new stock to investors * Debt financing – borrowing money from lenders * All transactions between a company and its stockholders affect the company’s balance sheet accounts only. * Common Stock Transactions * Contributed capital – reports the amount of capital the company received from investors’ contributions, in exchange for the company’s stock. * Retained earnings – reports the cumulative amounts of net income earned by the company less the cumulative amount of dividends declared since the corporation was first organized. * Treasury stock – reports shares that were previously owned by stockholders but have been reacquired and are now held by the corporation * Authorization, Issuance, and Repurchase of Stock ...
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...records after its expiration period. • Maintains office efficiency by planning and implementing office systems, layouts, and procurement of equipments. • Designs and implements office policies by establishing standards and procedures; measuring results against standards; making necessary adjustments. • Completes various tasks based on the requirements and follow up on work results. • Keep management informed by reviewing and analyzing special reports; summarizing information; identifying trends. • Maintains professional and technical knowledge by attending educational workshops on the web; reviewing professional publications; establishing networks; participating in professional societies. • Achieves financial objectives by preparing an annual budget; scheduling expenditures; analyzing variances; initiating corrective actions. • Contribute effort to accomplish related results as needed. • Renewal of Tenancy Contracts – Employee Residence, by having accurate information and proper documentation. • Arrange insurance for their accommodation being MPAM’s assets and renew the same on time. • Set up Insurance for the Office Premises, Assets, and Fidelity Guarantees. • Negotiate with the suppliers to get a competitive Pricing for all services required by the company...
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...Government of India. TITLE OF THE REPORT Investment Banking - Studying Private Equity, Financial Modeling and Private Equity trend analysis Internship Report submitted to SIU in partial completion of the requirement of MBA Banking Management at Symbiosis School of Banking Management Pune-412115. NAME OF THE STUDENT: PROJECT MENTOR(SSBM): PROJECT MENTOR Moulshree Mishra Ardhendu Shekhar Singh AT THE BANK: PRN: 12020941033 Mr. Pradeep Das APRIL 02, 2013 TO JUNE 01, 2013 ACKNOWLEDGEMENT I take this opportunity to convey my gratitude to Mr. Pradeep Das, Executive Director at CreedCap Asia Advisors, for streamlining the summer internship program for me at the firm and for providing the necessary guidance. I would like to express my gratitude to Mr. Vishal Pereira, Director at CreedCap Asia Advisors, for permitting me to accompany and assist him for investors meetings and for providing me guidelines regarding the e-commerce research indicating the correlation between US and Indian private equity trends. I’m thankful to Mr. Geeth Vaz, Senior Associate at CreedCap Asia Advisors, for providing me knowledge on building financial models and also for assessing my work on financial ratio analysis. TABLE OF CONTENTS BRIEF PROFILE OF STUDENT 6 BRIEF PROFILE OF...
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...THEORY OF ACCOUNTS ACCOUNTING CONCEPTS 1. Which of the following statements is/are true? I. Accounting is a service activity intended to fulfill a useful function in society II. Accounting involves the art of recording, classifying and summarizing transaction and events, and interpreting the results thereof. III. Accounting is an art but not a science IV. Accounting provides quantitative financial information intended to be useful in making economic decisions a. I, II, III, IV c. I, II, IV b. I, II, III d. II, III, IV 2. The branch of accounting concerned with the presentation of financial information primarily for use of third person outside of business enterprise. a. Financial Accounting c. Government Accounting b. Management Accounting d. All of the above 3. Accounting is an art because a. of the existence of a body knowledge governing accounting practice b. of accounting theory c. the necessity of applying creative skill and ability d. None of the above 4. Financial accounting is the branch of accounting that focuses on a. special purpose reports of financial position and results of operations b. financial statements c. the various need of statement users d. general purpose reports of financial position and results of operations 5. General-purpose information is a. not intended to satisfy the specialized needs of individual users. b. intended to satisfy the specialized needs of individual users c. not intended to satisfy the common...
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...Financial Statement Interpretation LeMoura Giddings, Rebecca Tessen, James Scheu FIN 571 May 30, 2016 Professor Arnold Harvey Abstract Learning Team C has chosen three organizations from three different industries. Team C has chosen CVS Health for service, Honda Motor Co., LTD for Manufacturing, and Starbucks Coffee for retail. Team C will calculate and explain the current ratio, quick ratio, net profit margin, asset utilization, and financial leverage. Team C will also discuss the DuPont Method. An analysis of the differences in the industries, the various conventions and how they affect these organizations, ISAB basis for accounting (IFRS) and FASB or GAAP accounting principles, the strategies for working capital for all three organizations, and analyzing the financial ratios and interpreting what they mean for each organization as well as future forecasts. Financial Statement Interpretation Differences in the Industries CVS Health operates in two segments: Pharmacy Services and Pharmacy Retail. While Pharmacy Retail may be what it is most widely known for, it is Pharmacy Services that is the most profitable segment for the health company. The Pharmacy Services division serves primarily employers, the managed care plan for Medicaid, and pharmaceutical contracts. CVS Health, the most integrated pharmacy chain in the United States, includes nearly 8,000 drugstores and over 1,000 clinics. Additionally, CVS Health has expanded their reach in both these fronts...
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...FNCE90013 Case Studies in Finance SUBJECT GUIDE July – August, 2015 Prepared by George Kester Department of Finance Faculty of Business and Economics Objective To develop an understanding of applied corporate finance including financial analysis and forecasting, financing sales growth, short-term versus long-term financing, capital structure policy, capital investment analysis, cost of capital, and company valuation. The course will be experiential and focus upon selected Harvard Business School cases describing actual business situations faced by financial managers, requiring analysis, and decision-making. Professor Professor George W. Kester Texts Robert C. Higgins, Analysis for Financial Management (10th Editon), McGraw-Hill Irwin, 2012. Cases You should read and analyze each assigned case. The cases are available on the LMS page for FNCE90013. Readings Selected readings will be distributed during the course. Group Study It is recommended that you form yourselves into small study groups for the purpose of routinely reviewing and discussing assigned before each class. Your learning experience will be enhanced by such interaction and you will be better prepared for class. Presentations Copies of the PowerPoint slides of the presentations are available on the LMS page for FNCE90013. It is recommended that you print them out prior to each class. Attendance The class attendance will be taken. Participation ...
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