Essay on Chapter 4 Gapenski

Equity is a value, worth, or ownership. “Equity is the ownership right in property or the money value of property” (Baker, 2014). There are two different types of equities. You have owners’ equity and stockholders equity. Owners’ equity is a sole proprietorship or a partnership. Stockholders equity is the equity stake in a company. For-profit corporations include capital stock and retained earnings which are two types of equity accounts.

1. Current liabilities 2. Usual valuation of long-term liabilities 3. Disclosure notes 4. Long-term liabilities 5. Commercial paper

Current liabilities are “obligations that must be settled within 1 year or the operating cycle, whichever is longer” and are “usually satisfied by transferring a current asset.” (). It includes accounts payable; short-term notes payable, income tax payable, accrued expenses, and portion on long-term debt payable.

Since the net income reported in the statement of cash flows is transferred from the profit and loss account which is the difference between revenue and expenditures all of two types;

Return on net assets = Net Income in Statement of Operations / Net Assets in the Balance Sheet

The income statement are the financial statements outline of a firm’s performance over a period of time, either quarterly or yearly. In the income statement of Southwest Airlines Co., the statement of operations (in millions) provides the following information; “The operating revenues at the year ended, December 31, 2016 total is $20,425 million, the operating expenses total is $16,665 million with an operating income of $3,760 million, and the net income total is $2,244 million.” The balance sheet are the financial statements showing a firm’s accounting worth on a particular point in time, a snapshot of the firm. In the balance sheet of Southwest Airlines Co., the snapshot of the sheet (in millions). “The current assets at the year ended,

Income statement: has revenue, expense, gain and losses. The income statement represents the best effort of the firm’s accountants to match the relevant items of revenue with the relevant items of cost and expense for the period, a process which involves accrual accounting and extensive use of allocation of prior and future revenues and costs. Cash flow statements provide the most dynamic view of the expected changes in the company’s funding picture.

Assets, liabilities, expenses, and revenues are the four areas that are tracked on the four basic financial statements. To start tracking these four areas, an accountant would start with the balance sheet. The balance sheet is used to give a preview of a particular time period of how much a company owns and what it owes. The balance sheet details the balance of the company’s income and expenditure over the specific time period. Assets such as cash, property, and inventory are detailed on one side while liabilities such as accounts payable and long-term debt are listed on the opposite side of the balance sheet (Kimmel & Weygandt, ,2010). The income statement measures a company’s financial performance over a specific period of time. Revenues and expenses are assessed with a summary through operating and non-operating expenses. A net profit or loss is also shown on the balance sheet and is typically shown for a fiscal quarter or year (Kimmel & Weygandt,

The income statement reports revenues and expenses of a stated accounting period, typically a quarter or year. (Melicher & Norton, 2014, p.357) The revenues portion of this statement is quite simple, the money brought in by providing goods or services minus the cost to provide those goods or services (known as COGS). Aside

    Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings

Layout of the balance sheet and income statement: This financial statement summarizes a company 's assets, liabilities, and shareholders ' equitant in it period. These balance sheets give investors an idea as to what the company owns and owes.

With all things considered, the board decided that a change in fair value being shown in net income is a more appropriate measurement for equity investments. The reasoning being that the realizable value of these investments could be realized by selling the equity instruments. In contrast, the realizable value of debt

The balance sheet provides information about the nature and amounts of investments in enterprise resources, obligations to enterprise creditors, and the owners’ equity in net enterprise resources. That information not only complements information about the components of income, but also contributes to financial reporting by providing a basis for (1) computing rates of return, (2) evaluating the capital structure of the enterprise, and (3) assessing the liquidity and financial flexibility of the enterprise.

Income statement-: Income statement is the financial statement that measures a company 's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.t (Wikipedia2015, May 13)

The difference between equity and liability , it is important for the entities because its affects their dividends, interests, losses and gains which are recognized in equity or are included in the profit for each year. Also, the difference affect solvency rations and leverage, that may have an effect in the debt covenant and also may be sufficient, if the business is mandatory