Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

ACCT 327 > 4-1 Classifications on the Balance Sheet > Flashcards

4-1 Classifications on the Balance Sheet Flashcards

1
Q

Balance Sheet

A

(Statement of Financial Position)
The financial statement that shoes the balances of individual accounts making up assets, liabilities, and stockholder’s equity AT A SPECIFIC POINT IN TIME.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Assets

A

Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Liabilities

A

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Equity

A

The residual interest in the assets of an entity that remains after deducting its liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What subcategories would be classified under assets on the balance sheet?

A 
Current Assets
Noncurrent Assets
- Long Term Investments
- PPE
- Intangible Assets
- Other Assets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What subcategories would be classified under liabilities on the balance sheet?

A

Current Liabilities

Noncurrent Liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What subcategories would be classified under stockholder’s equity on the balance sheet?

A 
Paid-in Capital
Retained Earnings
Accumulated other comprehensive income (AOCI)
Treasury Stock
Noncontrolling Interests
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How are assets listed on the balance sheet?

A

In decreasing order of liquidity (convertibility into cash)

The most liquid assets are listed first

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why is GAAP considered a mixed-attribute measurement model?

A

Some items are recognized at historical cost and some items are recognized at fair value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How can companies choose to recognize more items at fair value?

A

Electing fair value option

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

When is the fair value option applied?

A

Generally at the date of purchase or origination and this election is generally not revocable
Unrealized gains/losses determined when adjusting assets or liabilities to fair value at reporting dates are recognized in net income

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Current Assets

A

Used to designated cash and other assets or resources commonly identified as those that are reasonably expected to be realized in cash or sold or consumed during the normal operating cycle of the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Operating Cycle

A

The average time intervening between the acquisition of materials or services and the final cash realization constitutes an operating cycle.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the steps of the operating cycle?

A 
Cash->
Acquire raw materials with cash and convert to finished goods->
Sell finished goods to customer->
Bill customer and collect cash->
Cash
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How do you determine what a current asset is?

A

One year should be used when the operating cycle occurs within a year
However, if the operating cycle is longer than 12 months, then the longer (operating cycle) should be used to classify current assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are some industries that use an operating cycle vs a one year time line to classify current assets?

A

Tobacco
Distillery
Lumber

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Cash

Current Asset

A

Items immediately available to pay obligations such as cash on hand, cash in the bank, money orders, cashier’s checks, and certified checks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Cash Equivalents

Current Asset

A

Short-term (maturity of 3 months or less), highly liquid investments in securities readily convertible into known amounts of cash with low risk of loss.
Ex: commercial paper, money market funds, and US Treasury bills.
Cash and cash equivalents are usually combined into one line on the balance sheet

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Restricted Cash

Current Asset

A

Cash restricted for a particular purpose that is not available for general use. Depending on the length of the restriction and the ultimate intended use of cash, restricted cash can be reported as current or noncurrent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Short-Term Investments

Current Asset

A

Debt or equity investments where the company has the intent and ability to sell within the next year (or operating cycle if longer)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q 
Accounts Receivable (Trade Receivables)
(Current Asset)
A

Results form the satisfaction of performance obligations incurred during a company’s normal course of business through an informal credit agreement. Receivables are recognized at net realizable value, which means net of any expected credit losses (accounts receivable less allowance for doubtful accounts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Nontrade Receivables

Current Asset

A

Amounts owed to a company from sources such as tax refunds, contracts, investees, finance receivables, installment notes, sale of assets, and advances to employees.

23
Q

Notes Receivable

Current Asset

A

Receivables with a maturity date within the following year, supported by formal contractual agreements

24
Q

Inventories

Current Asset

A

Inventories consist of goods owned by a business and held either for use in the manufacture of products or as products awaiting sale. Merchandisers have one category of inventory (merchandise inventory) while manufacturers have three categories of inventory: raw materials (good purchased for use in the manufacture of inventory), work-in-process (inventory items requiring further processing), and finished goods (manufactured goods held for sale).

25
Q

Prepaid Expenses

Current Asset

A

Cash outlays made in advance of receipt of services such as for rent and advertising services

26
Q

What are two important distinctions between current and noncurrent assets?

A

Noncurrent assets are not completely used up in a single operating cycle AND management plans to retain long-term assets beyond one year from the balance sheet date or beyond the operating cycle if longer

27
Q

Long-Term Investments

Noncurrent Asset

A

Long-term assets not used directly in the operations of a company including the following:

  • Investments in equity or debt of another company; investor has the intent and ability to hold at least one year
  • investments in nonconsolidated subsidiaries
  • Funds set aside for long-term future use, such as bond sinking funds (to retire bonds payable), expansion funds, stock retirement fund, and long-term savings deposits
  • Cash surrender value of life insurance policies carried by a company
  • Long-term investments in tangible assets, such as land and buildings, held for speculation
28
Q

Property, Plant, and Equipment (Fixed Assets)

Noncurrent Asset

A

Long term tangible assets and other noncurrent assets used in continuing operations that are not held for resale including the following:

  • Items that are depreciable, such as buildings, machinery, fixtures, and leasehold improvements, presented net of accumulated depreciation
  • Items that are subject to depletion, including mineral deposits, timberland, and agricultural land, presented net of depletion
  • Items that are not subject to depreciation, such as land or construction in process, recorded at cost
29
Q

Intangible Assets and Goodwill

Noncurrent Assets

A

Assets that lack physical substance (other financial assets, such as accounts receivable or investments)
Ex: Patents, franchises, and goodwill.
Intangible assets that are subject to amortization are reported net of accumulated amortization. Goodwill (not subject to amortization) arises when a company acquires another company and the purchase price exceeds the fair value of the identifiable net assets acquired in the purchase. Although goodwill can be developed internally, it is not recognized unless a company is purchased.

30
Q

Other Assets

Noncurrent Assets

A

Assets not easily included under alternative asset classifications.
Ex: Long-term prepaid expenses (deferred charges), idle fixed assets, deferred tax assets (net), long-term receivable, and noncurrent assets held for resale

31
Q

Liquidity

A

The balance sheet provides information that helps users assess a company’s ability to pay current liabilities from its current assets, which is evidence of a company’s liquidity

32
Q

Financial Flexibility

A

The balance sheet provides insight into the risk profile of a company and its flexibility to alter amounts and timing of cash flows in response to unexpected needs and opportunities. Is the company in a position to finance new activities with relative ease without incurring excessive debt?

33
Q

Solvency

A

The ability of a company to pay debts as they come due is an indicator of a company’s solvency. A balance sheet provides information on the level of debt and its relation to assets

34
Q

What are the limitations of the balance sheet?

A

Historical Cost
Estimations
Omissions

35
Q

Historical Cost

A

A number of balance sheet values are not updated to fair value as property, plant and equipment causing comparisons between companies to be misleading

36
Q

Estimations

A

The typical balance sheet includes many estimated amounts, such as expected credit losses from uncollectible receivables and the estimated liability arising from warranties. Other estimates are accumulated depreciation, amortization, income taxes, contingences, and pension liabilities. The usefulness of such numbers depends on the quality of the estimates.

37
Q

Omissions

A

Certain assets and liabilities do not appear in financial statements. For example,, the values of research and development activity and of human resources are difficult to quantify, which helps explain their exclusion from the balance sheet.

38
Q 
Accounts Payable (Trade Payable)
(Current Liability)
A

Obligations relate to the acquisition of inventories, supplies, and services used in the production and sale of goods or services

39
Q

Short-Term Notes Payable

Current Liability

A

Formal written promises to pay a principal amount and are typically associated with interest charges

40
Q

Current Maturities of Long-Term Debt

Current Liability

A

Portion of long-term debt that is due within the next year, and is expected to be paid with current assets or will result in the creation of other current liabilities

41
Q

Callable Obligations

A

Obligations due on demand under the contract provisions in effect at the balance sheet date

42
Q

Deferred Revenue

Current Liability

A

Cash is received in exchange for a company’s obligation to transfer goods or services in the future including obligations under revenue contracts and certain lease contracts

43
Q

Accrued Revenue

Current Liability

A

Incurred but unpaid expenses for items such as salaries, payroll taxes, interest, taxes, and utilizations

44
Q

Bonds Payable

Noncurrent Liability

A

Debt security issued to secure large amount of capital on a long-term basis. Reported net of bond discounts (contra account) and bond premiums

45
Q

Long-term notes payable

Noncurrent Liability

A

Formal written promises to pay an amount due after the following year, and are typically associated with interest charges

46
Q

Pension Liabilities

Noncurrent Liability

A

Long-term net obligation to provide future benefits attributed to employee services rendered to date

47
Q

Other long-term liabilities

Noncurrent Liability

A

Obligations such as long-term lease liabilities and deferred tax liabilities (net). Also includes certain contingencies or obligations dependent upon a future event such as the settlement of a legal matter or future warranty claim

48
Q

Homogeneity on the balance sheet

A

Enhances the ability to faithfully represent a line item

49
Q

How are stockholder’s equity items classified?

A

Presented in order of permanence

50
Q

Paid-in Capital (Contributed capital)

Stockholder’s Equity

A
  • common stock
  • preferred stock
  • paid-in capital in excess of par: reports the value of assets received by the company above the par of the capital stock given in exchange
51
Q

Retained Earnings

Stockholder’s Equity

A

The accumulated net earnings, less dividends paid out, since the company’s inception

52
Q

Accumulated Other Comprehensive Income

Stockholder’s Equity

A

Accumulated other comprehensive income is the accumulation of revenues, expense, gains, and losses included in comprehensive income but not in net income

53
Q

Treasury Stock

Stockholder’s Equity

A

Capital stock that has been issued and then reacquired by the company, but not retired. Amount is shown as a deduction in stockholders’ equity.

54
Q

Noncontrolling Interests

Stockholder’s Equity

A

The amount of a company’s net assets owned by outside investors in one of a company’s subsidiaries that is not part of its controlling interest

ACCT 327 (31 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions