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Incorporate your buisness - Cooke R.A.

Cooke R.A. Incorporate your buisness - wiley publishing, 2004. - 256 p.
ISBN 0-471-66952-0
Download (direct link): incorporateyourbusiness2004.pdf
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Secretary of State of Wyoming Capitol Building Cheyenne, WY 82002 307-777-6217
Office of the Secretary
District of Columbia
John A. Wilson Building
1350 Pennsylvania Avenue, NW
Washington, DC 20004
Departamento de Estado
P.O. Box 9023271
San Juan, Puerto Rico 00902-3271
Office of Lieutenant Governor Division of Corporation and Trademark Kongens Gade #18 St. Thomas, USVI 00802
Short Course in Corporate Finance Terms
The most important number that most owners (stockholders) of corporations want to know is how much did the corporation earn during the last month, quarter, or year. To obtain a number, the corporation accounting staff keeps track of the numbers in such a way that they can be put together in what is generally called an income statement. (The numbers are for this example only and do not represent any real situation.)
The Blue Radish Corporation
Income Statement For the Year 20XX
Total (gross) income, sales, or revenue. Although there is some technical distinction between these three terms, most people use them synonymously.
From the total revenue, subtract the cost of the goods (or services) sold. Note that this is the cost of goods sold, and that is not necessarily the same as the cost of goods purchased at wholesale. (The corporation may have some of those purchases still on the shelf as inventory.)
The resulting difference is what is called gross profit.
Of course, the corporation does not operate in a vacuum. It has operating expenses such as rent, utilities, administrative salaries, office supplies, and so on. 350,000
What is left is the operating profit. 50,000
And there are nonoperating expenses that have to be deducted from the operating profit, the most
famous of which is federal income tax. 7,500
What is finally left is called net income or net profit. $ 42,500
Now we can compute a favorite statistic, which is net income per share of stock. If 10,000 shares of stock were issued, we divide the net income by that 10,000 to arrive at a net income per share of $4.25. Obviously, this is not a significant statistic if one person owns all of the outstanding stock. However, if there are many stockholders with varying amounts of stock owned, it makes it easy for each stockholder to compute his or her share of the earnings in relation to their investment in the stock.
There is more to financial statements. Stockholders, as well as directors and management of the corporation, should want to know how much cash is left in the till (or the bank account), what other items the corporation owns, as well as what the corporation owes. To give us that information, the accounting staff creates a balance sheet.
Short Course in Corporate Finance Terms
The Blue Radish Corporation
Balance sheet as of December 31, 20XX
The first class of items in this report is called assets. This term includes tangible items, such as currency in the cash register, merchandise held for sale to customers, machinery, vehicles, real estate, and so on. It also includes intangible items such as cash in the bank and accounts receivable from customers. The list for this corporation looks like this:
Cash in bank $10,000
Accounts receivable 20,000
Inventory (radishes in the cooler, ready to ship to customers) 15,000
Machinery (scrubbing and packaging equipment) 50,000
Total assets $95,000
Itís nice to have lots of assets, but on the other hand, we have to account for what the corporation owes to other entities. In other words, we have to list the liabilities.
Account payable to Eccentric Farm (the radish grower) $15,000
Loan from bank 30,000
Total liabilities $45,000
We now have enough information to compute what the corporation is worth. It is worth the amount of its assets ($95,000) minus the amount of its liabilities ($45,000) which equals $50,000. This used to be called net worth, but the modern convention is to call it equity. It would be nice to
know what created that equity, and the financial statements tell us as follows:
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