A1-A2 Flashcards
What does Financial position provides?
It provides a basis for computing rates of return, evaluating capital structures, and assessing liquidity and financial flexibility.
what does income statement determine?
it determine profitability and assesses past performance
what are the reasons why firms might appropriate or restrict retained earnings
Loss contingencies (such as pending lawsuits), Legal restrictions related to treasury stocks. Contractual restrictions related to bond indentures, Plant expansion or debt retirement.
What happens in a sale with recource
the seller must pay the purchaser for any bad debts the purchaser incurs. Because the seller has continuing involvement with the receivable, the transaction is recorded using the financial components approach.
why companies use factoring
to get immediate cash and can eliminate their credit department, because factors usually take over theses tasks. The company continues all operational activities directly with the customers, such as order placement and fulfillment.
how does Foreign Currency Matters(formerly SFAS 52, Foreign Currency Translation) require income statement to be translated?
it requires translation of income statement account based on the average rate for the current year.
What is LIFO reserve
is the difference between FIFO inventory & LIFO inventory. Hence the difference is LIFO COGS and FIFO COGS will be change in LIFO reserve. FIFO COGS = LIFO COGS - Change in LIFO reserve.
what will happened to LIFO liquidation when price increases?
LIFO liquidation results in higher levels of income, thereby increasing the tax expense. Hence, LIFO liquidations can reduce the benefits of valuation of inventory using LIFO.
What is Extraordinary items are material?
are material items that are both unusual in nature & infrequent in occurrence.
When to issue a note at a discount
when the market rate is higher than the stated rate
when to issue a note at a premium
when the market rate is lower than the stated rate
what is the effective discount’s formula?
Discount %/(100- Discount%) X 365/(Net Period - Discount
Period)
what is LIFO Reserve
the difference between FIFO inventory & LIFO Inventory.
