Accounting 02.pptVIP

* Complications: Cost vs Equity Two methods may be used to account for investments in other companies -- can make evaluation of a company’s financial condition more complicated If “significant influence” exists, the EQUITY METHOD is used If equity method is used, the income of the investee is recognized when earned instead of when received as dividends * SUMMARY Income Statement is important, but it is not the “be all and end all” statement Statement of Changes in Stockholders’ Equity can provide useful information for analysis Income Statement provides “fertile ground” for the savvy analyst to till! All in all, earnings are important!!! * Short-Term Notes Payable Promissory notes due within a year (or operating cycle if more appropriate) Usually are interest-bearing Usually reported at face value because of short-term nature * Accrued Liabilities Result from accrual basis of accounting Represent expenses that have been INCURRED and thus ACCRUED, but have NOT BEEN PAID in cash Examples are Interest Payable and Wages Payable In this case, cash flow follows expense recognition * Unearned Revenue Sometimes called “deferred credits” Results from a prepayment received in advance for services or products Under accrual accounting, revenue is recognized when EARNED, not when received in cash -- in this case, cash flow precedes revenue recognition * Current Maturities - LT Debt Represent principal payments on debt that are due within one year Confirms the old adage that nothing is long-term forever -- eventually it has to be paid as a current item! Now, how about those items that are STILL LONG-TERM LIABILITIES * Non-current LiabilitiesNotes or Mortgages Payable Represent any mortgages or notes payable that do not have any principal repayment requirements during the coming year * Bonds Payable Once again, represent items that do not have any principal payment requirements within the next year * Pension Lease Obligations Generally reported at the present value of expec