A. Financial Reporting Flashcards
What are the 5 Financial Statements Under GAAP?
Balance Sheet
Income Statement
Statement of Comprehensive Income
State of Changes In stakeholders Equity
statement of cash flows
What does GAAP stand for?
Generally Accepted Accounting Principles
What does IFRS stand for?
International Financial Reporting Standards
What is a prospective financial Statement?
One based on assumptions, that present projected information about a future period
What is is another name for Balance Sheet?
Statement of Financial Position
What information does the balance sheet provide?
Information about a company’s assets,liabilities and equity at a point of time, that helps users to assess liquidity, solvency, financial flexibility and risk
What does the balance sheet help users to access?
Liquidity, solvency, risk and financial Flexibility
What is liquidity?
Liquidity refers to the expected time to elapse until an asset is converted into cash or a liability is paid. The higher the company’s
liquidity the lower the risk of failure
What is financial Flexibility?
Financial Flexibity is the ability of a business to take action to alter amounts of timing of its cashflows, that enables them to respond to unexpected needs and take advantage of oppurtuntities.
What is Solvency?
Solvency is the companys ability to pay its long term obligations as they become due - high level of long term debt relative to its assets has a lower solvency.
What is risk?
Risk refers to unpredictability for future events, transactions and circumstances.
What type of account is the Balance Sheet and what does that mean?
The balance sheet is a permanent account meaning that balances are not closed off at the end of year but instead the balances are accumulated.
Name the elements of the Balance Sheet
The elements of the balance sheet are assets, liabilities and equity.
What are the main characteristics that Assets and Liabilities must have?
The main characteristics of assets are 1. the arose from a past transaction, they are owned by the company and will produce a future benefit. The main characteristics of a liability is that it arose from a past transaction, is owed by the company and will produce a future sacrifice.
What does equity represent on the balance sheet?
Equity represents the entity’s net assets, or residual interest in assets after deducting all liabilities, otherwise known and ownership interest.
What is the operating cycle?
The operating cycle is the average between the acquisition of materials and services and their final cash realization. (tobacco, distillery and lumber) then to have longer operating cycle
What is a current asset? Give examples
Current Assets - cash that will be realized within the normal operating cycle, receivables, marketable securities, inventories, short-term notes receivable, prepayments, funds restricted for a specific purpose.
What is a marketable security classified as a current asset?
A marketable security classified as a current asset represent investments of cash available for current operations .
What are cash equivalents?
Cash equivalents are short term highly liquid investments that are convertible to known amounts with out significant loss in value and have a maturity of 3 months or less from the date of purchase.
Where should funds that are restricted for current purposes occur on the balance sheet?
Funds restricted for other purposes should be recorded on a separate line on the balance sheet under current assets.
What is a non-current asset
What is a non-current asse
What are marketable securities?
Marketable securities include stock, bonds, long term notes receivables etc. that do not represent investments if cash available for current operations
What does PP&E stand for?
Plant Property and Equipment
How are fixed assets handled on the balance sheet?
Fixed assets are recorded at their cost plus shipping and installation cost and expensed over its life span through depreciation, amortization or depletion.
Which fixed asset is not depreciated or amortized in its life span?
Land
How are lease improvements handled on the balance sheet?
What is amortization?
Amortization is a technique used to periodically lower the book value of a loan or an intangible assets over a period of time.
What are intangible assets? Give Examples
Intangible assets do not have physical substance but provide benefits to the firm - goodwill, copyrights, patents, trademarks and franchises.
What is a current liability?
A current liability is one that will be paid within a year or the operating cycle.
What do current liabilities specifically not include?
Current liabilities specifically do not include debts to be paid by funds in accounts classified as non-current and the portion of a short-term loan intended to be refinanced by a long term debt obligation.
Under what circumstance may a company reclassify an obligation on the balance sheet as a non-currently liaability?
If a company demonstrates that it has the intent and ability to finance the obilgation that is coming due in months- that is, having a commitment from the bank for long term financing
What is a bank overdraft and how does it occur?
When a company writes checks for more than whats in its account
Under what circumstance can a company report a bank overdraft as a current asset?
When a bank has a positive amount on another account on the same bank it can be netted.
What are non-currently liabilities? Give 4 examples
Non current liabilities are those that will not be paid 12 months
What is equity and what does it represent when a business is liquidated
Equity is the remaining balance of assets after the subtraction of liabilities. The portion owned by shareholders/owners. If the company were to be liquidated, equity is the amount that would spread amongst the owner.