Depreciation, PPE and Liabilities

• Depreciation is the allocation of a tangible asset's cost over its useful life.
• Property, Plant, and Equipment (PPE) are long-term tangible assets used in operations.
• PPE are represented in accounts 658–665.
• Book Value equals the cost of an asset minus its accumulated depreciation, represented in account 670.
• PPE is recorded at historical cost.
• The cost of PPE includes the purchase price, shipping, installation, and legal fees, essentially all costs to get the asset ready for use.
• Land is not depreciated because it has an unlimited useful life.
• Revenue Expenditures are costs for maintenance or repairs and are expensed immediately.
• Capital Expenditures are costs that extend the useful life of an asset or increase its value and are capitalized.
• A liability involves a present obligation resulting from past events and a future economic sacrifice.
• An Estimated Liability is an obligation with an uncertain but reasonably estimable amount (e.g., warranties).
• A Contingent Liability is a potential obligation dependent on a future event, such as a lawsuit.
• An Installment Note is a loan repaid through periodic installments that include both interest and principal.
• In Partnership Accounting, each partner has a capital account, and profits/losses are allocated as per the partnership agreement.
• Advantages of Partnerships include ease of formation, access to more capital, and shared skills.
• Disadvantages of Partnerships are unlimited liability, conflict risk, and limited life.
• A Limited Partner has liability limited to the amount they invested.
• Allocation of Income/Loss in a partnership can be equal, ratio-based, or a combination of salary plus interest.
• When a corporation issues only one class of shares, these are called common shares.
• Preferred Shares have preference over common shares for dividends and liquidation.

Cumulative vs. Noncumulative Shares

• Cumulative shares accumulate unpaid dividends.
• Noncumulative shares do not accumulate unpaid dividends.
• When exchanging shares for an asset, the asset is recorded at the fair value of the most recently traded shares.
• A Stock (Share) Dividend is the issuance of additional shares that affects contributed capital and retained earnings, but it is not a liability.
• A Stock Split increases the number of shares and decreases the price per share, with no change in equity.

Retiring Shares

• When retiring shares, debit the Common Shares account.
• When retiring shares, credit Cash (if paid) and potentially Retained Earnings or Contributed Surplus if the buyback price is not equal to the issue price.
• A Cash Dividend creates a liability when declared.
• When a cash dividend is declared, debit Retained Earnings.
• When a cash dividend is declared, credit Dividends Payable.

Long-Term Investments

• Long-term investments are reported in the "Long-term Investments" section of the balance sheet.
• Held-for-Trading Investments are recorded at cost, excluding broker fees.
• The Equity Method is used when owning 20% or more of another company.

Cash Flow Statement

• The purpose of the cash flow statement is to report cash inflows and outflows during an accounting period.

Categories of Cash Flow

• Operating Activities are day-to-day income-generating transactions.
• Investing Activities involve the sale or purchase of long-term assets/investments.
• Financing Activities include borrowing, issuing shares, and dividends.

Evaluation of Company Performance

• To evaluate company performance, consider past performance, current performance, financial position, and future risk.
• Liquidity and Solvency is the ability to meet short-term obligations and generate revenue efficiently.
• Comparative Statements are financial statements that compare multiple periods to evaluate trends.
• An Estimated Liability is a liability that is known to exist, but the exact amount is uncertain and must be estimated.
• PPE is recorded at cost, meaning Property, Plant, and Equipment (PPE) are recorded on the balance sheet at their original purchase price (historical cost), not current market value.