Accounung Lxam noLes:

WhaL ls Lhe purpose of accounung?

- 1o provlde useful lnformauon for declslon maklng
- CuallLauve characLerlsucs of accounung lnformauon (undersLandablllLy, relevance, rellablllLy,
comparablllLy)
- 8ecognluon and MeasuremenL CrlLerla (deLermlne when lLems should be lncluded and
recognlzed, ouLllne how Lo measure or asslgn amounL Lo lLems)
ClCA: Canadlan lnsuLuLe of CharLered AccounLanLs
lAS8: lnLernauonal Accounung SLandards 8oard
ll8S: lnLernauonal llnanclal 8eporung SLandards
CAA's
Go|ng Concern: a company wlll conunue Lo operaLe ln Lhe fuLure. ?ou conunue Lo prepare your nanclal
sLaLemenLs followlng Lhe cosL prlnclple unul llquldauon has been conrmed and seL.
Monetary Un|t: only record daLa LhaL has a real value ln Lerms of money. Lx. ?ou cannoL record
employees as an asseL.
Lconom|c Lnnty: Lhe owner and Lhe buslness should be consldered separaLely. So Lhe owner cannoL
record any personal drawlngs and a company's expense
1|me er|od: economlc llfe should be dlvlded lnLo ume perlods, llke scal perlods.
Cost 8eneht: lf Lhe value of lnformauon exceeds Lhe cosL of provldlng lL. 1hls ls appllcable malnly for
small buslnesses
Mater|a||ty: an lLem's lmpacL on a rm's overall nanclal condluon and operauons. ?ou cannoL amoruze
a sLapler, for example.
Match|ng: expenses should be recorded ln Lhe same perlod as Lhe revenue lL helped earn.
Iu|| D|sc|osure: dlsclosure of clrcumsLances and evenLs LhaL aecL nanclal sLaLemenL users should be
noLed.
Cost: asseLs should be recorded aL CCS1, unless you geL lL appralsed.
kevenue kecogn|non: revenue should be recognlzed ln Lhe same perlod lL was earned
- !"#$% "' ()*+: should be recognlzed ln Lhe same perlod lL was earned
- ,-.#$/ 0."1-23"$: revenue recognluon ls posslble before producuon ls compleLed
o costs |ncurred]tota| esnmated costs= percent comp|ete x tota| revenue= revenue
recogn|zed
- 4"50*+3"$ "' 0."1-23"$: lf you are noL sure abouL Lhe cosLs, walL ull compleuon Lo recognlze
revenue
- 6$(%)*5+$% 7+%8"19 paymenL recelved perlodlcally, gross proL recognlzed ln Lhe perlod ln
whlch cash ls collecLed
o Cash Co||ecnon x Gross roht Marg|n= Gross roht kecogn|zed
! Cross roL Margln: Cross roL/1oLal Sales
Ad[usnng Lntr|es
!.+0)#1 :;0+$(+(: examples of prepald expenses are suppllers, adveruslng, lnsurance and renL.
uec 31 _____________ Lxpense xxx
(repald)_____________ xxx
8ecord ______ expense for Lhe year
<$+).$+1 =+>+$-+9 cash recelved before Lhe servlce has been preformed are unearned revenues. Lx.
8enL, magazlne subscrlpuon, cusLomer deposlLs. unearned revenue ls a llablllLy. Cnce lL has been
earned, lL musL ad[usLed.
uec 31 unearned 8evenue xxx
Larned 8evenue xxx
8ecord revenue for servlces provlded
?22.-+1 =+>+$-+(9 revenues earned for servlces buL no paymenL has been recelved.
uec 31 AccounLs 8ecelvable xxx
Larned 8evenue xxx
8ecord revenue LhaL has noL been bllled or collecLed
?22.-+1 :;0+$(+(9 expenses lncurred buL noL yeL pald or recorded. Lxamples are: lnLeresL, renL,
properLy Laxes and salarles. needed Lo record Lhe obllgauons LhaL exlsL aL Lhe balance sheeL daLe and Lo
recognlze Lhe expenses LhaL apply Lo Lhe currenL accounung perlod.
uec 31 __________ expense xxx
______________ payable xxx
8ecord accrued expenses.
@"$/ A+.5 ?1B-(3$/ :$%.#+(9 Amoruzauon, allocauon of Lhe cosL of caplLal asseLs Lo expense over Lhelr
useful llves**more on amoruzauon ln laLer chapLer**
uec 31 Amoruzauon Lxpense xxx
AccumulaLed Amoruzauon xxx
8ecord amoruzauon expense for Lhe year
Inventory:
7+.28)$1#(#$/ 4"50)$C9 has cosL of goods sold and operaung expenses. lor Lhe operaung cycle, lL
Lakes longer Lo go from cash Lo cash produclng revenues.
!+.0+%-)* 6$>+$%".C
- Conunuously shows Lhe lnvenLory LhaL should be on hand and Lhe cosL of goods sold, aL any
ume. used malnly for hlgh unlL cosL, low volume Lurnover goods
- CosL of goods purchased should be documenLed by a purchase order or a purchase lnvolce
- When lnvenLory ls boughL, lL ls added Lo merchand|se |nventory (asset account). When
merchandlse ls boughL, lL ls deducLed from merchandlse lnvenLory
- urchase 8eLurn and Allowances (conLra expense): a purchaser may be dlssaused wlLh Lhe
merchandlse and reLurn lL for a refund or credlL
- Sales revenues ls recognlzed when earned, CCCS ls recognlzed by deblung CCCS and credlung
Merchandlse lnvenLory
- When a cusLomer reLurns goods Lo Lhe seller for credlL/reLurn. lL ls recorded by decreaslng
CCCS and lncreaslng Merchandlse lnvenLory. When Lhe merchandlse ls unsellable, or Lhey
choose Lo keep Lhe lnvenLory, lL ls recorded under sales reLurns and allowances (conLra
revenue).
- lrelghL CosLs lncurred by Lhe seller on ouLgolng merchandlse are deblLed Lo lrelghL CuL or
uellvery Lxpense.
- lrelghL ln ls absorbed lnLo Lhe cosL of Lhe merchandlse lnvenLory
DEF G8#00#$/ !"#$%9 buyer pays Lhe frelghL cosL
DEF ,+(3$)3"$ !"#$%9 seller musL pay Lhe frelghL cosL
urchases under the erpetua| Inventory
Merchandlse lnvenLory x
A x
urchased merchandlse on accounL
Merchandlse lnvenLory x
Cash x
ald for frelghL on goods purchased
A x
Merchandlse lnvenLory x
8eLurned unsausfacLory goods
A x
Merchandlse lnvenLory x
8ecelved an allowance for damaged goods
A x
Cash x
urchase dlscounLs x
Made paymenL wlLhln dlscounL perlod
CCCS x
Merchandlse lnvenLory x
8ecord dlerence beLween lnvenLory records and physlcal
unlLs on hand
Sa|es under erpetua|
A8 x
Sales 8evenue x
Sold goods on accounL
CCCS x
Merchandlse lnvenLory x
value of goods sold
Sales 8eLurns and Allowances x
A8 x
CusLomer reLurned damaged goods
Merchandlse lnvenLory x
CCCS x
value of goods reLurned
Cash x
Sales ulscounLs x
A8 x
CusLomer pald wlLhln dlscounL perlod.
G+**#$/ +;0+$(+(: dellvery and shlpplng expenses LhaL help compleLe Lhe sale. Lx. Salarles, adveruslng,
amoruzauon, frelghL ouL.
?15#$#(%.)3>+ :;0+$(+(: relaLe Lo general expenses managemenL, accounung. Lx. Salarles, renL, uullues,
lnsurance.
H"$ E0+.)3$/ ?23>#3+(
- CLher revenue galns
o lnLeresL revenue
o ulvldend revenue from lnvesLmenLs
o 8enL revenue
- CLher expenses and losses
o lnLeresL revenue on noLes and loans payable
o CasualLy losses from recurrlng causes such as accldenLs and vandallsm
o Loss from Lhe sale of caplLal asseLs
o Loss from sLrlkes
!+.#"1#2 6$>+$%".C
- lnvenLory ls only updaLed perlodlcally
- Cwnershlp of goods musL be deLermlned before Lhey are lncluded ln Lhe lnvenLory
o Coods ln LranslL (lC8 shlpplng polnLs belong Lo Lhe buyer, lC8 desunauon belong Lo Lhe
seller)
o Coods on approval belong Lo vendor
o Coods on conslgnmenL belong Lo Lhe conslgner and are noL lncluded ln Lhe holder's
lnvenLory.
- lrelghL ln ls recorded separaLely as well as purchase reLurns and allowances.
urchases under the er|od|c System s
urchases x
A x
urchased merchandlse on accounL
lrelghL ln x
Cash x
ald for frelghL on goods purchased
A x
urchase reLurns and allowances x
8eLurned unsausfacLory goods
A x
urchase 8eLurns and Allowances x
8ecelved an allowance for damaged goods
A x
Cash x
urchase dlscounLs x
Made paymenL wlLhln dlscounL perlod
Sa|es under the per|od|c |nventory
A8 x
Sales 8evenue x
Sold goods on accounL
Sales 8eLurn and Allowances x
A8 x
CusLomer reLurned damaged goods
Cash x
Sales dlscounLs x
A8 x
CusLomer pald wlLhln dlscounL perlod
8eg|nn|ng Inventory + urchases - urchase keturns and A||owances= Net urchases + Ire|ght In =
Cost of goods Ava||ab|e for Sa|e - Lnd|ng Inventory= CCS1 CI GCCDS SCCCCLLLD!!!
1wo more closlng enLrles ln perlodlc lnvenLory sysLem: beglnnlng lnvenLory ls removed and endlng
lnvenLory ls lnserLed
CaplLal x
Merchandlse lnvenLory x
1o close beglnnlng lnvenLory
Merchandlse lnvenLory x
CaplLal x
1o close endlng lnvenLory
I|rst |n, hrst out: Lhe rsL lLems purchased ln Lhe year are Lhe rsL Lo be dols. 1hls meLhod closely
resembles how mosL companles sell Lhelr lnvenLory. 1hls meLhod ls beuer for Lhe balance sheeL because
lL has beuer lnvenLory represenLauon
Last In, Last Cut: Lhls meLhod ls no longer accepLable ln Canada. Conslders Lhe mosL recenLly purchased
lnvenLory ls Lo be sold rsL. 8euer for lncome sLaLemenL because lL maLches currenL expenses wlLh
currenL revenue.
Average Cost: average unlL cosL of all goods avallable for sale durlng Lhe perlod should be used Lo cosL
lnvenLory.
Spec|hc |dennhcanon: maLches each lLem sold wlLh lLs speclc cosL. Malnly used for companles who sell
expenslve producLs.
:I+2% "' 4"(% D*"J ?((-503"$( "$ %8+ D#$)$2#)* G%)%+5+$%(
r|ces CCGS G and NI Merchand|se |nventory
LIIC IIIC LIIC IIIC LIIC IIIC
8lslng PlghesL LowesL LowesL PlghesL LowesL PlghesL
lalllng LowesL PlghesL PlghesL LowesL. PlghesL LowesL
6$>+$%".C +..".(
Item Lrror Goods Ava||ab|e for
Sa|e
CCGS Gross roht and Net
Income
8eglnnlng lnvenLory
C8 CosL of goods
purchased
undersLaLed under under Cver
CversLaLed Cver Cver under
Lndlng lnvenLory undersLaLed Cver Cver under
CversLaLed under over

@"J+. "' 2"(% )$1 5).K+% L@47M
When Lhe markeL value of Lhe lnvenLory falls below lLs cosL, lL ls wrluen down Lo markeL value. MarkeL
value=neL reallzable value. Loss ls reporLed ln Lhe CLher Lxpenses secuon of Lhe lncome SLaLemenL.
Loss due Lo decllne ln neL 8eallzable value of lnvenLory x
Merchandlse lnvenLory x
7-*3NG%+0 6$2"5+ G%)%+5+$% $"J #$2*-1+(9
- neL sales: sales revenue-sales dlscounLs- sales reLurns and allowances
- Cross proL: neL sales-CCCS
- Cperaung lncome: gross proL- operaung expenses
Interna| Contro|: opumlzes resources, prevenL and deLecL errors, safeguard asseLs, malnLaln rellable
conLrol sysLems
1) AuLhorlzauon of Lransacuons and acuvlues
2) Segregauon of duues
3) uocumenLauon procedures
4) Safeguardlng asseLs and records (physlcal, mechanlcal and elecLronlc conLrols)
3) lndependenL verlcauon (by boLh lnLernal and exLernal audlLors)
6) CLher ConLrols: bondlng employees who handle cash, roLaung duues and requlrlng employees
Lo Lake vacauons (easy way Lo caLch any cons golng on)
@#5#%)3"$(
- 8easonable assurance resLs on Lhe premlse LhaL Lhe cosLs musL noL exceed lLs beneL.
- Puman elemenL (faugue, carelessness and lndlerence)
- Slze of buslness
!+OC 4)(89 used Lo pay small expenses
- 1o esLabllsh fund, u8 euy Cash and C8 Cash
- 8eplenlshlng: u8 all Lhe necessary expenses and C8 whaL cash ls needed
F)$K =+2"$2#*#)3"$ 8-4A
8ank 8ooks
+ deposlLs ln LranslL + collecuons by bank on our behlf
- ouLsLandlng cheques + lnLeresL earned
+/- errors - lnLeresL and oLher bank charges
- nSl cheques
+/- errors
Cash x
8ank Charges x
noLes 8ecelvable x
lnLeresL 8evenue x
8ecord collecuon of noLe recelvable by bank
Cash x
A x
CorrecL error ln recordlng cheque
A8 x
Cash x
1o record nSl
8ank Servlce Charge x
Cash x
8ecord bank charges/cheque prlnung charges
kece|vab|es:
- AccounLs recelvable (owned by cusLomers on accounL)
- noLes recelvables: baslcally you lenL ouL money. lL would be due ln 30-90 days
- CLher recelvables: CS1 recoverable, lnLeresL recelvable, loans Lo company omcers, advances Lo
employees, and recoverable lncome Laxes.
P)*-#$/ ?22"-$%( =+2+#>)Q*+(9 someumes cusLomers do noL pay back Lhelr loans on ume. CredlL losses
are deblLed Lo bad debLs expenses. When bad debLs are Loo low, Lhelr credlL pollcy ls Loo sLrlcL and Lhey
may be loslng buslness.
1) ulrecL WrlLe o meLhod: when Lhe accounL ls deLermlned Lo be uncollecuble, Lhe loss ls charged
Lo bad debLs expense. lf Lhey pay ln Lhe fuLure, Lhey can reverse Lhe enLry.
8ad uebLs Lxpense x
A8 x
1o wrlLe o an uncollecuble accounL
2) Allowance MeLhod: uncollecuble accounLs recelvables are esumaLed. lL ls LreaLed as an expense
and ls maLched agalnsL sales. LsumaLed uncollecubles are deblLed Lo bad debLs expense and
credlLed Lo ?**"J)$2+ '". ,"-QR-* ?22"-$%( (conLra asseL) Lhrough and ad[usung enLry aL Lhe
end of each perlod.
8ad uebLs Lxpense (operaung expense) x
Allowance for uoubuul AccounLs x
8ecord esumaLe of uncollecuble accounLs
Allowance for uoubuul AccounLs x
A8 x
1o wrlLe o accounL
A8 x
Allowance for uoubuul AccounLs x
1o reverse Lhe wrlLe o
Cash x
A8 x
1o record collecuon of accounL
a) ercenLage of Sales: managemenL lndlcaLed whaL percenLage of sales wlll be uncollecuble.
(Muluply percenL by Lhe LoLal sales). 1haL ls AuuLu Lo Lhe LoLal amounL ln Lhe accounLs
recelvables.
b) ercenLage of 8ecelvables: lncreaslng percenLs for each credlL Lerm perlod for whlch Lhe
recelvable has noL been wrluen o. 1he amounL of bad debL ad[usung enLry ls Lhe
dlerence beLween Lhe requlred balance and Lhe exlsung balance ln Lhe allowance accounL
4.+1#% 4).1 G)*+(9 ma[or advanLages are LhaL Lhe lssuer does Lhe credlL lnvesugauon, malnLalns cusLomer
accounLs, Lhey underLake any losses and Lhe reLaller recelves cash qulcker.
Cash x
CredlL Card Lxpenses (credlL card servlce fee) x
Sales x
1o record credlL card sales
A8- Amerlcan Lxpress x
CredlL Card Lxpense x
Sales x
8ecord Amerlcan Lxpress (non-bank) credlL card sales
Cash x
A8- Amerlcan Lxpress x
8ecord redempuon of credlL card bllllng
H"%+ =+2+#>)Q*+9 credlL may also be granLed ln exchange for a promlssory noLe. lL ls used when
lndlvlduals and companles lend or borrow money.
noLe 8ecelvable x
A8 x
8ecord accepLance of Company A noLe
Cash x
noLes 8ecelvable x
lnLeresL 8evenue x
8ecord collecuon of noLe
A8 x
noLes 8ecelvable x
lnLeresL 8evenue (oLher revenue and galns) x
8ecord Lhe dlshonourlng of Lhe noLe
- noLe may be sold Lo a Lhlrd parLy prlor Lo maLurlLy ln order Lo lmmedlaLely recelve cash on Lhe
noLe.
Cap|ta| Assets
- Subdlvlded lnLo properLy, planL and equlpmenL (land lmprovemenLs, bulldlngs, equlpmenL, land)
and naLural resources
,+%+.5#$#$/ %8+ 2"(%( "' 2)0#%)* )((+%(9
- Land= purchase prlce + closlng losLs (ex. Legal fees, accrued properLy Lax, and oLher llens) +
cosLs LhaL come from preparlng Lhe land for use.
- 8ulldlng= purchase prlce + closlng cosLs + cosLs of maklng Lhe bulldlng ready for lLs lnLended
use, cosLs relaLed Lo consLrucuon of a bulldlng= conLracL prlce + archlLecL's fees, bulldlng
permlLs, excavauon cosLs, lnLeresLs cosL
- LqulpmenL= purchase plece + frelghL charges + lnsurance + assembllng/lnsLalllng/Lesung cosLs
- When caplLal asseLs are purchased asseLs are purchased for a slngle prlce, lL ls called a baskeL
prlce. 1o gure ouL how much you record ln Lhe accounLs, you look aL Lhe falr markeL value and
glve Lhe same percenLage Lo how much you pald for lL.
?5".3S)3"$ 7+%8"1(
1) SLralghL Llne, maLches expenses wlLh revenues: Cost - kes|dua| Va|ue = Amornzab|e Cost]
Usefu| L|fe = Annua| Amornzanon Lxpense
a. Amornzanon expense]Amornzab|e Cost = Stra|ght L|ne kate of Amornzanon
2) uecllnlng 8alance produces a decreaslng annual amoruzauon expense over Lhe asseL's useful
llfe. 1he amoruzauon raLe remalns consLanL from year Lo year, buL Lhe neL book value Lo whlch
Lhe raLe ls applled decllnes each year. 8esldual value does llmlL Lhe LoLal amoruzauon LhaL can
be Laken respecLs maLchlng prlnclple (hlgher amoruzauon expense ln earller years when Lhe
hlgher beneLs are recelved)
a. Net book Va|ue at 8eg|nn|ng of the ear x (2 x Stra|ght L|ne kate) = Annua|
Amornzanon.
3) unlLs of AcuvlLy: useful llfe ls expressed as Lhe LoLal unlLs of acuvlLy or producuon expecLed
from Lhe asseL. 8esL used Lo asseLs llke machlnery, dellvery equlpmenL, planes.
a. Cost - kes|dua| Va|ue = Amornzab|e Cost ] 1ota| Un|ts of Acnv|ty = Amornzab|e Cost
per Un|t x Un|ts of Acnv|ty dur|ng the year = Annua| Amornzanon Lxpense
=+>#(#$/ !+.#"1#2 ?5".3S)3"$9 someumes esumaLes are o and Lhe resldual value or useful llfe could
change. 1hen you would have Lo revlse Lhe amoruzauon schedule
- Current Net 8ook Va|ue - kev|sed kes|dua| Va|ue = kev|sed amornzab|e cost]rema|n|ng usefu|
||fe = rev|sed annua| amornzanon
LxpendlLures over useful llfe9 ordlnary repalrs are small buL frequenL expenses LhaL are deblLed Lo
expense accounL. Addluons and lmprovemenLs lmprove emclency and/or lncrease useful llfe of Lhe
asseL (called caplLal expendlLures) are deblLed Lo caplLal asseL accounL
ulsposals:
- ulsposal of an asseL LhaL lf fully amoruzed glves you no galn or loss. lf Lhe asseL ls sull useful
even aer full amoruzauon, you musL leave lL aL lLs resldual value and noL amoruze anymore.
1he accumulaLe amoruzauon of an asseL musL never exceed lLs cosL.
- lf you reure an asseL before lL ls fully amoruzed, Lhere wlll be a loss on dlsposal (oLher
expenses).
- Caln on dlsposal (oLher revenue) occurs when you sell Lhe asseL for more Lhan Lhe neL book
value.
- Loss on dlsposal occurs when you sell an asseL for less Lhan Lhe neL book value
Accum. Amoruzauon x
rlnung LqulpmenL x
8ecord reuremenL of a fully amoruzed prlnung equlpmenL
Accum. Amoruzalon- rlnung LqulpmenL x
Loss on ulsposal x
uellvery LqulpmenL x
8ecord reuremenL of prlnung equlpmenL aL a loss
Cash x
Accum. Amoruzauon x
uellvery equlpmenL x
Caln on ulsposal x
8ecord sale of dellvery equlpmenL aL a galn
Cash x
Accum. Amoruzauon x
Loss on ulsposal x
uellvery LqulpmenL x
8ecord Sale of dellvery equlpmenL aL a loss
Intang|b|e Assets: amoruzed Lyplcally on a sLralghL llne basls. Amoruzed over Lhe useful or legal llfe of
asseL.
- aLenLs: lnlual cosL ls Lhe cash pald Lo acqulre lL, legal cosLs Lo successfully defend Lhe paLenL are
added Lo Lhe paLenL accounL. 1he cosL of Lhe paLenL should be amoruzed over lLs 20-year legal
llfe or lLs useful llfe, whlchever one ls shorLer.
- CopyrlghLs: cosL of copyrlghL conslsLs of Lhe cosL of acqulrlng and defendlng lL. CopyrlghL legal
llfe ls Lhe llfe of Lhe creaLor plus 30 years
- 1rademark/1rade names: lndenlLe llfe, Lherefore no amoruzauon. lf lL ls purchased, lLs cosL ls
Lhe purchase prlce. lf lL was deslgned lnLernally, Lhe cosL of securlng lL ls Lhe cosL.
- lranchlses and Llcences: you could or could noL amoruze lL dependlng on lf Lhe franchlses/
llcence ls granLed for an lndenlLe amounL of ume, or noL.
- Coodwlll: largesL lnLanglble asseL. lncludes: excepuonal managemenL, deslrable locauon, good
cusLomer relauons, eLc. good wlll ls Lhe excess of cosL over Lhe falr markeL value of Lhe neL
asseLs acqulred. lL ls also noL amoruzed
- 8esearch and uevelopmenL: noL lnLanglble asseLs. All research cosLs should be expense, cerLaln
developmenL cosLs wlLh reasonable assured beneLs can be caplLallzed (added Lo caplLal
accounL)
Corporanons
- SeparaLe legal exlsLence
- LlmlLed llablllLy of shareholders
- 1ransferable ownershlp rlghLs
- AblllLy Lo acqulre caplLal
- Conunuous llfe
- Corporauon managemenL (board of dlrecLors)
- CovernmenL regulauon
- lncome Lax
o Corporauons musL pay Laxes as a separaLe legal enuLy, buL Lhere are deducuons LhaL
can reduce Lhe subsLanual Lax raLe. Shareholders do noL pay Lax on corporaLe earnlngs
unul Lhey are dlsLrlbuLed ln dlvldends.
- 1o form a corporauon, you have Lo le an appllcauon wlLh provlnclal/federal auLhorlues. 1hey
le arucles of lncorporauon Lo lncorporaLe a company. 1he cosLs lncurred are called
organlzauon cosLs and are expensed ln Lhe year Lhey occur.
- Shares are dlvlded up lnLo dlerenL classes (common, preferred, class A and class 8).
o Common shares allow you Lo: a voLe, dlvldends, purchase more shares, resldual clalm on
asseLs ln Lhe evenL of llquldauon, pre-empuve rlghL (keep Lhe same percenLage of
ownershlp even when more shares are lssued)
o referred shares: hlgher prlorlLy, do noL have voung rlghLs buL have hlgher prlorlLy over
dlvldends and asseLs ln evenL of llquldauon. ?ou can converL your shares lnLo common
shares aL a speclc rauo LhaL would noL resulL ln a galn or loss Lo Lhe corporauon.
Callable preferred shares means Lhe company can buy Lhe shares back from you,
reLracLable preferred shares means you can sell lL back Lo Lhe corporauon.
G8).+ 6((-+ 4"$(#1+.)3"$(9
- AuLhorlzed Share CaplLal: amounL of shares a corporauon ls auLhorlzed Lo lssue ls lndlcaLed ln lLs
arucles of lncorporauon. H" B"-.$)* #( $++1+1 -$3* %8+C #((-+ %8+ (8).+(
- lssuance of shares: rsL lssue ls known as Lhe lC, Lhen Lhey Lrade on Lhe secondary markeL.
1hey buy and sell from each oLher on Lhe sLock exchange
- MarkeL value of Shares: esLabllshed by Lhe lnLeracuon beLween buyers and sellers. lollows
earnlngs Lrend generally.
4".0".)%+ 4)0#%)*9
- ConLrlbuLed CaplLal: LoLal amounL of cash/asseLs pald Lo Lhe corporauon by shareholders ln
exchange for sh[ares
- 8eLalned Larnlngs: cumulauve neL lncome/loss LhaL has been reLalned (noL glven ouL ln
dlvldends). neL lncome ls closed ouL Lo reLalned earnlngs
- Cwner's equlLy ls now Shareholder's equlLy
AC0+( "' G8).+(9
- ar value: asslgned a speclc value ln Lhe corporaLe charLer and wlll noL change, represenLs Lhe
legal caplLal per share LhaL musL be kepL ln Lhe buslness for Lhe proLecuon of Lhe share holders.
noL really used anymore
- no par value: noL been asslgned a calue ln Lhe corporaLe charLer, enure proceeds recelved
become legal caplLal
- SLaLed value: does noL lndlcaLe markeL value, board of dlrecLor's asslgns lL and can change lL.
- ?ou can lssue shares ln exchange for servlces or non cash asseLs.
Cash 1000
Common Shares 1000
1o record lssue of 1000 no apr value shares ([ $1 per
share) *same for preferred shares, excepL preferred
shares" ls credlLed lnsLead.
Cash 3000
Common Shares (1000 x 1) 1000
ConLrlbuLed CaplLal ln Lxcess of SLaLed value !"###$%& 4000
8ecord lssue of 1000 common shares ($1/per share sLaLed
value, buL sold for $3/per share)**slmllar of par value**
Land x
Common Shares x
8ecord 10000 no par value shares for land
I|nanc|a| kanos:
CurrenL 8auo CurrenL AsseLs/CurrenL Llablllues Measures shorL Lerm debL paylng
ablllLy, besL ls 2:1. AnyLhlng over
1:1 ls ne.
Culck 8auo (Cash+Lemp lnvesLmenLs+recelvables)/
CurrenL Llablllues
Measures lmmedlaLe shorL-Lerm
llquldlLy. Agaln, 1:1 and over ls
ne
8ecelvables 1urnover neL CredlL Sales/Average neL 8ecelvables Measures llquldlLy of recelvables.
Agaln, a hlgh number ls good
lnvenLory 1urnover CCCS/Average lnvenLory Measures llquldlLy of lnvenLory.
Pow many umes Lhe lnvenLory ls
sold durlng Lhe scal perlod.
uay Sales ln lnvenLory 363/lnvenLory 1urnover Measures days' sLock ls on hand.
varles for each lndusLry. Corcery
sLores should be low, buL car
dealershlps may be hlgher
Collecuon erlod 363/8ecelvables Lurnover Measures number of days
recelvables are ouLsLandlng.
Lower Lhe number Lhe beuer
8eLurn on AsseLs (neL lncome/ 1oLal Average AsseLs) x100 Lmclency rauo, overall
proLablllLy of asseLs, hlgher Lhe
number Lhe beuer
AsseL 1urnover (neL sales/Average 1oLal AsseLs) x100 Measures how emclenLly asseLs
are belng used Lo generaLe sales,
hlgher Lhe beuer
roL Margln neL lncome/neL Sales Measures neL lncome generaLed
by each dollar of sales. Plgher Lhe
beuer
Cross roL Margln Cross roL/neL Sales Measures gross proL generaLed
by each dollar of sales, see above
Cash 8eLurn on Sales neL Cash/neL Sales Measures Lhe neL cash ow
generaLed by each dollar of sales