Create an account
-The matching principal dictates that revenues be matched with expenses.
-Income is reported when earned and expenses recorded when incurred, even though no cash flow may have occurred.
Average tax rates
o Your tax bill divided by our taxable income, in other words percentage of your income that goes to pay taxes
-Usually grows with the firm
-Is an important input in capital budgeting analysis
3 components of the statement of cash flows
-Cash flow from operating activities
-Cash flow from investing activities
-Cash flow from financing activities
o When analyzing BS, should take 3 things into account
Accounting liquidity, debt versus equity, and value versus cost
o Accounting Liquidity
o Refers to the ease and quickness with which assets can be converted to cash
o Current Assets
o Most Liquid and include cash and those assets that will be turned into cash within a year from the date of BS
o Deferred taxes
o Differences between accounting income and true taxable income
o Is not a cash flow
o Product cost
o Total production costs incurred during a period- raw materials, direct labor, and manufacturing overhead
o Period cost
o Costs that are allocated to a time period
o Also called selling, general, and administrative expenses
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