accounting final theory Flashcards
what is book value
the value of an asset or investment as recorded on a company’s balance sheet
what is property plant and equipment (PP&E)
long-term, tangible assets a company uses for its operations, such as buildings, machinery, and vehicles
what is depreciation
the gradual decrease in an asset’s value, typically due to wear and tear, age, and obsolescence
what is partnership accounting
the process of recording and managing the financial transactions of a business owned and run by two or more individuals
what is it called when a corporation issues one class of shares
common shares
whats the difference between cumulative and non-cummulative preferred shares
cumulative: accumulate unpaid dividends, meaning the company must pay them before paying any dividends to common shareholder
non-cumulative: do not accumulate unpaid dividends; if a dividend is missed, it is lost to the preferred shareholder
what is a stock dividend
do not accumulate unpaid dividends; if a dividend is missed, it is lost to the preferred shareholder. also known as a share dividend
what is an installment note
a type of promissory note where the principal and interest are paid back in regular installments over a specified period
where are long term investments recorded
on a company’s balance sheet under the non-current assets section
when will a company use the equity method to account for a long term investment
when they own 20%-50% of another company
what does a statement of cash flows report
cash inflows and outflows for an accounting period
what are operating activities
the core business activities. what the company does to earn money day-to-day
what are investing activities
buying or selling long-term assets. things that help the business grow
what are financing activities
raising or returning money to investors and creditors
what does the evaluation of a companies performance include
past performance, current performance, current financial position, and future performance and risk
what does liquidity and solvency mean
the ability to meet short term obligations and to efficiently generate revenue
what are comparative statements
financial statements that show multiple periods side by side, so you can easily compare performance over time
what is estimated liability
a debt or obligation that a company knows it will have to pay, but the exact amount or timing isn’t certain yet
what is recorded at cost
PPE
what does the cost of PPE include
all ordinary and reasonable expenditures to get the asset ready for use (cost less discounts, freight, unpacking, etc)
what are revenue expenditures
day-to-day costs a business incurs to run its normal operations and maintain existing assets
what are capital expenditures
the money a company spends to buy, upgrade, or extend the life of long-term assets. things that will benefit the business for more than one year
what does the cost of land purchased for a building site include
amount paid for land including real estate commissions and legal fees
why is land not depreciated
because it has an unlimited useful life
what are contingent liabilities
potential obligations that may or may not happen, depending on the outcome of a future event
what is the matching principle
when the seller reports the expected expense of providing a warranty in the period when the revenue from the sale of the product is reported
limited partnerships
have no personal liability beyond what they invest in a partnership
with respect to cash dividends which jurnal entry creates a liability
debit RE, credit Dividends payable
does a stock split change total equity?
nope
