Chapter 2 Review of Accounting Here are the concepts discussed in this chapter: The income statement measures profitability. The price-earnings ratio indicates the relative valuation of earnings. The balance sheet shows assets and the financing of those assets.
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Review of Accounting
Balance SheetThe various sources of financing of a firm are listed in their order of maturity.Those sources that mature earliest, current liabilities, are listed first. Themore permanent debt and equity sources follow.
Cash Flow StatementIncome from operations may be translated from an accrual basis to a cash basis in two ways to obtain cash flow from operations.
Cash flow from operating activities:
Minus: Capital expenditures required to maintain the productive capacity of the firm.