ACC 510 Flashcards
financial reports provide
information to help users estimate value of the reporting entity
debits must equal
credits
account balance has debit on which side and credit on which side?
debit is left and credit is right
general ledger vs general journal
general ledger contains all assets, liabilities, stockholder equity, rev, expenses. journal contains chronological record of all transactions
cost of goods sold
cost of only the goods that were sold!!!
how do us gaap and ifrs differ in their definitions of what is probable?
ifrs is over 50% and us gaap is pretty much 100%
balance sheet required
to distinguish between current and non-current assets and between current and non-current liabailities
Fundamental qualitative characteristics that make financial information useful include
Relevance and
− Faithful representation (complete, neutral, free from error)
Enhancing qualitative characteristics that make financial information useful include
Comparability, Verifiability, Timeliness, and Understandability
Underlying Assumptions
-Accrual accounting
− Going concern
income statement format
Gross profit (i.e., revenue less cost of sales)
* Multistep format: Income statement shows gross profit subtotal.
* Single-step format: Income statement excludes gross profit subtotal.
* Operating profit (i.e., revenue less all operating expenses)
* Profits before deducting taxes and interest expense and before any other non-
operating items.
* Operating profit and EBIT (earnings before interest and taxes) are not
necessarily the same.
Builder’s contract specifies consideration of $1 million and total costs of $700,000. Builder incurs costs of $420,000 in year 1. Assuming that costs incurred provide an appropriate measure of contract progress, how much revenue should Builder recognize in year 1?
For performance obligations satisfied over time, revenue is
recognized over time by measuring progress towards satisfying the obligation. Builder has incurred 60% of total expected costs and hence will recognize $600,000 revenue in year 1.
Assume that the contract price is $1 million plus a bonus of $200,000 if the building is complete within 2 years. Builder only has limited experience of this type of construction and external factors (e.g. the weather) could cause delays. Builder’s expected total costs are $700,000. Builder incurs $420,000 costs in year 1. At the start of year 2, Builder and Customer agree to changing the building floor plan and modify the contract. Consideration increases by $150,000 and the allowable time for achieving the bonus is extended by 6 months. Builder expects its costs to increase by $120,000. Given the extension to the deadline, Builder concludes the bonus can now be achieved. How does Builder account for this change in the contract?
This is not a new contract but a modification to
the existing contract. Hence, a catch-up adjustment will
be needed. Builder’s total revenue is now $1.35 million
and contract progress is now 51.2%. An additional
$91,200 revenue is recognized as a cumulative catch-up
adjustment on the date of the contract modification.
(1+.15+.2=1.35)
In January, Kelly’s Flower Shop purchases 100 exotic flowering plants for $25 each and 50 rose bushes for $15 each. Once March rolls around, it purchases 25 more flowering plants for $30 each and 125 more rose bushes for $20 each. It sells 50 exotic plants and 25 rose bushes during the first quarter of the year for a total of 75 items.
If Kelly’s Flower Shop uses LIFO, it will calculate COGS based on the price of the items it purchased in March.
COGS = 30 exotic flowering plants x $25 ($750) + 25 exotic flowering plants x $25 ($625) + 25 rose bushes x $20 ($500) = $1,875
Andy’s Woodshop sells wooden figurines. His business has been doing well, resulting in larger inventory orders and better bulk pricing from suppliers. Andy decides to go to a local craft fair and bring his entire stock of 30 figurines. He takes the following three orders with him:
Order 1: 5 wooden figurines valued at $30 each
Order 2: 10 wooden figurines valued at $25 each
Order 3: 15 wooden figurines valued at $20 each
Andy succeeds at the craft fair and sells 20 of his 30 wooden figurines. He uses the LIFO method to determine his COGS. This means he assumes he sold all 15 figurines from order 3 and five from order 2. Here’s a look at his math under LIFO:
COGS = (15 figurines x $20) + (5 figurines x $25) = $300 + $125 = $425
Basic EPS
(Net income – Preferred dividends)/Weighted average number of
shares outstanding
Diluted EPS
Net income/(Weighted average number of shares outstanding
+ New shares issued at conversion)
Antidilutive securities are
not included in the calculation of diluted EPS.
silicon valley
Company hoisted on its own petard – the bank fueled tech companies but technology sped the ability to
withdraw funds
Depositors became concerned of financial health
Withdrew deposits – $41 billion in one day there were sharp rises in interest rates that werent expected to reverse
liquidity
For a company overall, its ability to pay for short-term obligations
trade receivables
Amounts owed to a company by its customers for products
and services already delivered.
Property, plant, and equipment (PP&E):
Tangible assets that are used in company
operations over more than one fiscal period.
Intangible assets
Identifiable non-monetary assets without physical substance (e.g., patents,
licenses, trademarks)
Trade payables, also known as accounts payable:
Amounts that a company owes its
vendors for purchases of goods and services—in other words, the unpaid amounts of the
company’s purchases on credit as of the balance sheet date.
tools for balance sheet
include common-size analysis and
balance sheet ratios
balance sheet ratios indicate
liquidity and solvency.
operating activities examples
Receiving cash from customers
* Paying cash to suppliers
* Paying cash for operating expenses
Financing activities examples
Borrowing from creditors and repay the principal
* Issuing or repurchase stock
* Paying dividends
do most companies use indirect or indirect method for operating cash flows
From an analyst perspective the direct method is better since it gives you more detailed information on the actual cash flows
Rate of return =
Amount of return/Amount invested
Applied to shareholders’ equity:
Net income/Average equity=(Net income /Average assets)*(
Average assets/Average equity)
Net income/Average assets
(Net income/Revenue)*(Revenue/Average assets)
A ratio is an indicator of
-Activity
- Profitability
- Liquidity
- Solvency
