Accounting Flashcards
FASB
Financial Accounting Standards Board
GAAP
Generally Accepted Accounting Principles
SFAS
Statement of Financial Accounting Standards
IFRS
International Financial Reporting Standards
Historical Cost
The cost recorded is the initial cost of a purchase…this is done to avoid subjectivity and tedious appraisals of property.
Accrual Accounting
Governs the company’s timing in recording its revenues and expenses
Revenue Recognition
revenues must be recorded when earned and measurable
Matching Principle
Costs associated with making a product must be recorded during the same period as revenue generated from that product
What is conservatism?
Assets and revenues should not be overstated
Liabilities and expenses should not be understated
DEF 14A
Notification to Shareholders of matters to be brought before the shareholders meeting
S-1
When a company decides to go public and sell securities as part of an IPO
S-4
Filed once a deal is actually done
20-F
Annual report filed by foreign company issues securities in the United States.
What are the three most common accounting statements analyst research?
Income Statement
Balance Sheet
Statement of Cashflows
What is another word, a more colloquial word for EBIT?
Operating Income
What is the rationale for using EBITDA over EBIT as a way to compare companies? 2 reasons.
- ) D&A is a huge non cash expense and by removing them analysts can provide a more accurate picture of ‘real’ profits during the year
- ) Companies have a lot of leeway in accounting for D&A which can skew the comparison of profitability
How do analyst measure profitability?
EPS
EBIT
EBITDA
Gross Profit (equation)
Revenues - COGS
Gross Profit Margin (equation)
Gross Profit / Revenues
Gross Profit Percentage (equation)
Gross Profit / Revenue
Operating Profit Margin (equation)
EBIT / Revenue
Asset (equation)
liabilities + equity
What is the difference between a balance sheet and Income Statement?
X
What three requirements must be met for a company’s resource to qualify as an asset?
- ) Company must own the resource
- ) The resource must be of value
- ) The resource must have a quantifiable, measurable cost
Define Accounts Receivable (A/R)
Payment owed to a business by its customers for products and services already delivered to them
Define Prepaid expenses
When a company prepays for things like utilities, insurance and rents, the right to the future service becomes an asset
Define Property, Plant & Equipment (PP&E)
Land, Buildings, and machinery used in the manufacture of the company’s services and products
Intangible Assets & Goodwill
Non-physical assets such as patents, trademarks, and goodwill acquired by the company that have value based on the rights belonging to that company
Accounts Payable
A company’s obligations to suppliers for services and products already purchased from them, but which have not been paid. In other words, accounts payable represent the company’s unpaid bills to its suppliers for services obtained on credit from them.
Accrued Expenses
Expenses like employee compensation that the company has incurred, but for which it has not yet paid.
Short term Debt
Debt due within 12 months.
Preferred Stock
Stock that has special rights and takes priority over common stock.
Common Stock
Represents capital received by a company when it issues shares.
Treasury Stock
Common stock that had been issued and then reacquired (bought back) by a company .
Retained Earnings
Total company earnings / losses since its inception less all dividends.
What is double entry accounting?
the recording of two sides of every economic event –1) the funding source and 2) how the funds are used.
What is the difference between a credit and debit.
a credit is the source of funds and a debit is the use of funds.
A/R
Accounts Receivable
PP&E
Property, Plant, & Equipment
What is a ‘Current Asset’
An asset that can be converted into cash within 12 months.
Assets are listed from most liquid to least liquid on the balance sheet.
What is a ‘Current Liability’
Liabilities that are to be paid within 12 months. Things like short term debt and Accounts payable.
Liabilities are listed in order of when they are to be paid on the balance sheet.
Remember, … and Think! Line items for Balance Sheet ws. Income Statement.
Remember, … and Think! Line items for Balance Sheet ws. Income Statement.
Why are prepaid expenses recognized as an asset?
Because the benefit of prepaid expenses has not yet been received.
How is PP&E reported differently under GAAP and IFRS?
Under US GAAP, write up is not accepted while under IFRS writing up or down to reflect fair market value is permitted (but rarely used).
Why does GAAP and IFRS use accrual accounting?
To give investors a better understanding of the profitability of a company.
What is ‘Net Income’?
Income after all expenses have been paid out
What is ‘treasury stock’?
Shares that have been issued, but subsequently repurchased by the company.
What does EPS measure
EPS measures how much the total current period profits belong to each shareholder.
