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Management Accounting > Balance Sheet > Flashcards

Balance Sheet Flashcards

1
Q

Financial Accounting

A

Process that reports results of effects of financial transactions
Objective is to provide financial information for decision-making
Other sources of information:
Economic forecast
Political climate
Industry outlook

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2
Q

Financial Statements

A

Prepared established accounting guidelines

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3
Q

Direct User of Financial Statements

A 
Directly affected
Lose money financially
Employees
Management
Suppliers
Present & potential investors
Creditors
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4
Q

Indirect User of Financial Statement

A

Represent direct users
Financial analysts & advisors
Stock markets
Regulatory bodies

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5
Q

Internal User of Financial Statement

A

Makes decisions within

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6
Q

External User of Financial Statement

A

Makes decision outside

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7
Q

Users of Financial Statements

A

Direct
Indirect
Internal
External

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8
Q

Assumption regarding users of financial statements

A

Reasonable knowledge

Reasonable diligence

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9
Q

Financial Statements (US GAAP)

A 
Balance Sheet
Income Statement
Statement of Cashflow
Statement of Comprehensive Income
Statement of Changes in Equity
Notes 
Integral but are not an actual financial statements
Provide informative disclosures as required by GAAP
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10
Q

Prospective Financial Statements/Pro Forma Financial Statements

A

Future period

Disclose significant accounting policies and significant assumptions

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11
Q

Balance Sheet/Statement of Financial Position

A

At a point in time
Resource structure (assets)
Financing structure (liability and equity)
Owns and owes at a particular point of time
Presentation is based on proprietary theory
(A-L=NA belongs to owner/s or proprietor/s)
Does not show value of business
With other financial statements: can get estimate of the value of the business
Permanent Accounts
Not closed
Cumulative

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12
Q

Elements of Balance Sheet

A

Asset
Liability
Equity

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13
Q

Asset

A

Past transaction
Presently owned
Future economic benefit

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14
Q

Liability

A

Past transaction
Presently owned
Probable future sacrifice of economic benefit

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15
Q

Equity

A

Net asset or residual interest

Ownership interest

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16
Q

Current Assets

A

converted into cash within 12 month or within the operating cycle, whichever is longer

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17
Q

Examples of Current Assets

A 
Cash
Cash Equivalents
Receivables
Inventories
Short term investments that mature in less that one year
Prepaid Expense
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18
Q

Operating Cycle

A

average time between acquisition of resources to final receipt of cash from sale of those assets

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19
Q

Cash

A

coins
currencies
money orders and drafts
demand deposits

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20
Q

Cash Equivalents

A

short term, highly liquid investments with maturities of 3 months or less from purchase date

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21
Q

Receivables

A

trade
notes
from affiliates
officers and employees

22
Q

Inventories

A

goods available for sale

raw materials and work in process

23
Q

Short term investments that mature in less that one year

A

marketable securities
trading securities
Marketable securities available for sale or held for maturity:
if considered working capital and available for current operations
if not considered working capital and not available for current operations: non-current asset

24
Q

Prepaid Expense

A

advance payment for use of assets

Rent

25
Q

Non-Current Asset

A

will not be converted to cash within one year or within operating cycle, whichever is longer

26
Q

Noncurrent Asset Examples

A

long term investment
property, plant, and equipment
intangible long-term asset
long term prepaid expenses

27
Q

Long Term Investment and Funds

A

investments in nonconsolidated subsidiaries or affiliated companies for purpose of controlling or influencing the investee
available for sale and held to maturity securities
stocks
bonds
long term notes receivable
restricted funds for non current purposes
retirement of debt
pay for construction of fixed assets
cash surrender value of line insurance policy
amount holder will get from insurance if the policy was cancelled
fixed assets not being used in current operations
idle facilities
land held future use

28
Q

Property, Plant, and Equipment (Fixed Assets)

A

tangible assets used in operations and will be used past the end of the current period
recorded at cost including installations costs
The total cost is expensed over the life of the asset (depreciation)

29
Q

Property, Plant & Equipment Examples

A 
land
not depreciated
buildings
machinery
furniture
equipment 
vehicle
leasehold improvements 
improvements made to leased property at lessee’s expense
assets obtained through capital lease
wasting resources
depleted
timberland 
minerals
everything else is depreciated
30
Q

Intangible Assets

A

do not have physical substance
provide benefits over a period of time
purchased or developed internally
internally generated are not recorded in the balance sheet
amortized over useful life
indefinite life (e.g. goodwill) is assessed periodically for impairment

31
Q

Examples of Intangible Assets

A 
copyrights
patents
goodwill
trademarks
franchises
32
Q

Other Noncurrent Asset

A 
not included in other categories
noncurrent receivables
restricted cash, securities or assets in special funds
long term prepayments
deferred tax assets
33
Q

Current Liabilities

A

obligations settled through use of current assets or creation of other current liabilities

34
Q

Current Liabilities Examples

A

ccounts payable
due to suppliers of goods and services
trade payable
arising from purchase of goods and services
dividends payable
unearned revenues
advance deposit that represents obligation to supply goods or render services
agency collections
company acts as agent for another party (gov’t) and is obligated to remit payments
employee tax withholdings
sales tax
obligations due due on demand
demand notes
short term notes (30, 60, 90 days)
current portion of long term debt (portion of the principal due within the current period)
taxes payable, wages payable, and other accruals
long term obligations callable at the balance sheet date due to violation of the loan covenant

35
Q

Not part of current liabilities

A

debts paid by funds that are classified as noncurrent
portion of short term obligation to be refinanced by long term obligation
Requirement:
ability to refinance it as a noncurrent liability
Example: commitment from bank for long term financing

36
Q

Noncurrent Liability

A

will not be settled within 1 year or within operating cycle, whichever is longer
most are subject to covenants and restrictions, requiring a great deal of disclosure the financial statements

37
Q

Examples of Noncurrent Liability

A

long term notes or bonds payable
long term portion of long term debt and liabilities for capital leases
pension obligations
long term deferred tax liabilities
obligations under warranty agreements
advances for long term commitments to provide goods and services
long term deferred revenue

38
Q

Equity

A

portion owned by owned and owed to owners

in case of liquidation, represents amount distributable to owners

39
Q

Capital stock

A

par or stated value of shares issued

40
Q

Additional Paid-in Capital

A

excess amounts contributed by owners from sale of shares over or above par or stated value of shares issued

41
Q

Retained Earnings

A

profits of the company that have not been distributed as dividends

42
Q

Accumulated Other Comprehensive Income Items

A

items not included in income statements but part of equity

43
Q

Treasury stock

A

shares repurchased

contra-equity account (deducts)

44
Q

Noncontrolling Interest (Minority Interest)

A

portion of equity of subsidiaries that reporting entity does not control

45
Q

Use of Balance Sheet

A 
asis for computing rates of return
evaluating capital structure
predicting future cashflows
assess ability to pay debt when due and distribute cash to investors to provide them adequate rate of return
gives partial picture of:
Liquidity
Solvency
Financial Flexibility
Risk
46
Q

Liquidity

A

time expected to elapse until asset is converted into cash or until liability needs to be paid
higher liquidity, lower risk of failure

47
Q

Solvency

A

ability to pay obligation when due

high long term debt to asset ratio, low solvency

48
Q

Financial Flexibility

A

ability to alter amounts and timing of its cash flow to respond to unexpected needs and take advantage of opportunities

49
Q

Risk

A

unpredictability of future events, transactions, and circumstances

50
Q

Limitations of Balance Sheet

A
  1. Assets not reported in the balance sheet although they have value and generate future cashflows:
    -employees/human resources
    -processes and procedures
    -competitive advantages
  2. Certain assets are measured at historical cost not market value, replacement cost, or value to the firm
    -property, plant, and equipment are reported at carrying value even though value in use may be significantly greater
  3. Judgements and estimates are used in determining the items reported
    -estimates of amount of receivables that will be collected
    -expected useful life of assets is used in depreciation
    -liability for future warranty claims is estimated by projecting number and cost of future claims
    liabilities are valued at present value of cash flows discounted at the rate that was current when liability was incurred
    not present value of cash flows discounted at the current market interest rate
    -fair value is increasingly being used to measure items in the balance sheet
    derivatives

Management Accounting (1 decks)

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