1. Review Accounting – language of business Accounting cycle – cash to cash Debit/credit Accounting equation: assets = liabilities + owners equity –Revenues/expenses Dual entry accounting Matching principle Cash account vs. accrual accounting –Accruals – event before dollars, ie. interest –Deferrals – dollars before event, ie. Depreciation

2. Review Financial statements –Income statement –Balance sheet –Statement of cash flows Operations – day to day activities Financing – owners increase or decrease Investing – purchase and sale of long term assets –Trial balance Journal entries Ledger – T-accounts Assets, liabilities, equity Closing entries, post-closing balance sheet Ratios

3. Review DuPont formula – brings together the asset turnover ratio and the profit margin ratio and shows how these ratios interact to produce the return on assets ratio Return on assets = asset turnover ratio * profit margin ratio Return on assets = net income/average total assets Asset turnover ratio = net sales revenue/average total assets Profit margin ratio = net income/net sales revenue

4. Review Return on assets – indicates management’s performance in using assets to generate earnings Asset turnover ratio – indicates how efficiently an entity uses it assets to produce sales during the period Profit margin ratio – indicates how well the entity has controlled the level of its expenses relative to its revenues, helps management to focus on the relative profitability of sales

5. Review Financial leverage – measures the extent to which an entity has been financed by debt ROSE – return on stockholder’s equity – indicates the rate of return earned by investors on their investment

6. Assign #1 Read Mechanics of Financial Accounting Read Income Statement Read Balance Sheet Review Problem – (due 1/20, 1/21) Download: Review problem, financial statement analysis, Dupont formula Number pages - book