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Accounting Assistant > Balance Sheet > Flashcards

Balance Sheet Flashcards

1
Q

What is the balance sheet also known as?

A

Statement of financial position

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2
Q

What does the balance sheet report?

A

Assets, liabilities, and stockholders’ equity

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3
Q

What is the accounting equation reflected in the balance sheet?

A

Assets = Liabilities + Stockholders’ Equity

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4
Q

What are the major sections of a balance sheet?

A
  • Current assets
  • Investments
  • Property, plant and equipment
  • Intangible assets
  • Other assets
  • Current liabilities
  • Noncurrent liabilities
  • Stockholders’ equity
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5
Q

What principles must U.S. companies follow when preparing financial statements?

A

Generally Accepted Accounting Principles (GAAP)

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6
Q

What method of accounting does US GAAP require for financial statements?

A

Accrual method of accounting

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7
Q

What does the accrual method of accounting report?

A

Liabilities when incurred and assets when earned

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8
Q

What is one limitation of US GAAP regarding asset reporting?

A

Internally developed brand names, trademarks, and patents are not included as assets

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9
Q

What does the balance sheet heading typically include?

A
  • Company name
  • Name of the financial statement
  • Date
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10
Q

True or False: The balance sheet reflects a period of time.

A

False

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11
Q

What does a comparative balance sheet allow the reader to see?

A

Changes in amounts from an earlier date

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12
Q

What are current assets?

A

Cash and assets expected to be converted to cash within one year

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13
Q

Fill in the blank: Assets are recorded in the general ledger at their _______.

A

Cost when acquired

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14
Q

What is the purpose of accumulated depreciation?

A

To reduce the reported amount of long-term assets

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15
Q

What is the definition of a current asset?

A

Cash and assets expected to turn to cash within one year or operating cycle

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16
Q

What type of balance sheet format displays assets on the left and liabilities and equity on the right?

A

Account form

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17
Q

What is the total assets amount in the example balance sheet?

A

$770,000

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18
Q

What is included in the stockholders’ equity section?

A
  • Common stock
  • Retained earnings
  • Accumulated other comprehensive income
  • Treasury stock
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19
Q

What does the report form of a balance sheet emphasize?

A

Presentation of assets at the top followed by liabilities and equity

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20
Q

What is the significance of the date on a balance sheet?

A

It indicates a specific point in time for the reported amounts

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21
Q

What is the typical format for the balance sheet date?

A

Final day of the accounting period

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22
Q

What does the term ‘interim financial statements’ refer to?

A

Financial statements issued between end-of-year statements

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23
Q

What is a common example of a current asset?

A

Cash, Accounts Receivable, Inventory

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24
Q

What does the term ‘noncurrent liabilities’ refer to?

A

Liabilities that are not due within one year

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25
Q

Fill in the blank: Current liabilities are obligations expected to be settled within _______.

A

One year

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26
Q

What does the term ‘liabilities’ encompass on the balance sheet?

A

Obligations of the company

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27
Q

What are ‘intangible assets’?

A

Assets that do not have physical substance, like goodwill and trademarks

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28
Q

True or False: The balance sheet can include estimates of future economic value.

A

True

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29
Q

What is the purpose of reporting assets at cost?

A

To reflect the actual expenditure incurred to acquire them

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30
Q

What is a contra asset account?

A

An account that reduces the value of an asset, such as accumulated depreciation

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31
Q

What is the operating cycle for a distributor of goods?

A

The average time it takes for the distributor’s cash to return to its checking account after purchasing goods for sale

For example, if a distributor takes 4 months to sell goods and collect receivables, that is its operating cycle.

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32
Q

What are the typical components of current assets?

A
  • Cash and cash equivalents
  • Short-term investments
  • Accounts receivable - net
  • Other receivables
  • Inventory
  • Supplies
  • Prepaid expenses
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33
Q

Define cash and cash equivalents.

A

The combined amount of cash, checking account balances, currency, checks received but not deposited, and petty cash, along with investments maturing within three months.

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34
Q

What are short-term investments?

A

Temporary investments expected to turn to cash within one year but do not qualify as cash equivalents.

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35
Q

What does accounts receivable – net represent?

A

The amount in Accounts Receivable minus the Allowance for Doubtful Accounts, also known as the net realizable value.

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36
Q

What is included in other receivables?

A

Amounts other than accounts receivable that a company has a right to receive, such as loans to employees.

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37
Q

What constitutes inventory on a balance sheet?

A

The cost of merchandise that was purchased but not yet sold to customers.

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38
Q

How are prepaid expenses defined?

A

Future expenses that have been paid in advance and have not yet expired.

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39
Q

What are long-term assets?

A

Assets not expected to turn to cash within one year of the balance sheet date, also known as noncurrent assets.

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40
Q

List the categories of long-term assets.

A
  • Investments
  • Property, plant and equipment – net
  • Intangible assets
  • Other assets
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41
Q

What is goodwill in accounting?

A

An intangible asset recorded when a company acquires another business for more than the fair value of its identifiable assets.

42
Q

What are intangible assets?

A

Assets without physical substance, including goodwill and other purchased intangible assets.

43
Q

What is the definition of liabilities?

A

Obligations a company owes, appearing on the balance sheet if owed as a result of a past transaction and as of the balance sheet date.

44
Q

What are the two major categories of liabilities?

A
  • Current liabilities
  • Long-term liabilities
45
Q

What are current liabilities?

A

Obligations that will come due within one year of the balance sheet date.

46
Q

What is the current portion of long-term debt?

A

The principal amount that must be paid within 12 months of the balance sheet date.

47
Q

Define accounts payable.

A

Amounts owed to vendors or suppliers for goods or services received on credit.

48
Q

What is accrued compensation and benefits?

A

Liabilities reporting wages and salaries owed to employees but not yet paid.

49
Q

Fill in the blank: The amount in accounts receivable minus the allowance for doubtful accounts is known as _______.

A

net realizable value

50
Q

True or False: Goodwill is amortized to expense.

A

False

51
Q

What does accounts payable represent?

A

Amounts owed to vendors or suppliers for goods or services received on credit

Supported by vendors’ invoices that have been received and recorded.

52
Q

What is accrued compensation and benefits?

A

Wages, salaries, bonuses, employers’ payroll taxes, and benefits earned by employees but not yet paid

Reported as a current liability.

53
Q

What does income taxes payable refer to?

A

The amount of income taxes a corporation must pay to federal and state governments within one year

Not applicable to sole proprietorships and partnerships.

54
Q

What are other accrued expenses and liabilities?

A

Amounts incurred by a company other than those recorded in accounts payable

Examples include interest owed on loans and unprocessed repair expenses.

55
Q

Fill in the blank: The current liability deferred revenues reports the amount of money a company received from a customer for _______.

A

[future services or future shipments of goods]

56
Q

What are three examples of long-term liabilities?

A
  • Notes payable
  • Bonds payable
  • Deferred income taxes
57
Q

What does notes payable represent as a long-term liability?

A

The amount of loan principal not payable within one year of the balance sheet date.

58
Q

How are bonds payable defined?

A

Long-term debt securities issued by a corporation requiring interest payments and principal repayment at maturity.

59
Q

What is deferred income taxes related to?

A

The difference between depreciation expense reported on financial statements versus tax returns.

60
Q

True or False: Commitments and contingencies appear on the balance sheet with a specific amount.

A

False

They are referenced in notes but do not show a specific amount.

61
Q

What components are typically found in the stockholders’ equity section?

A
  • Common stock
  • Retained earnings
  • Accumulated other comprehensive income
  • Treasury stock (a subtraction)
62
Q

What does retained earnings represent?

A

Cumulative earnings minus dividends declared from the corporation’s inception to the balance sheet date.

63
Q

What is accumulated other comprehensive income?

A

Cumulative total of amounts reported as other comprehensive income or loss over the years.

64
Q

What is treasury stock?

A

The amount spent by a corporation to buy back its own shares of stock.

65
Q

Fill in the blank: The owner’s equity section of a sole proprietorship includes J. Ott, Capital and _______.

A

[J. Ott, Drawing]

66
Q

What typically causes a change in owner’s equity for a sole proprietorship?

A
  • Owner investments
  • Owner withdrawals
  • Company earnings
  • Company expenses
67
Q

How do revenues affect retained earnings?

A

Increase retained earnings immediately upon being earned.

68
Q

How do expenses affect retained earnings?

A

Decrease retained earnings immediately upon being incurred.

69
Q

What is the purpose of notes to the financial statements?

A

To provide essential disclosures and details regarding the financial statements.

70
Q

What is included in the summary of significant accounting policies?

A

Describes estimates, revenue recognition, inventories, property and equipment, and more.

71
Q

True or False: U.S. corporations with publicly traded stock must file an annual report with the SEC.

A

True

The report is known as Form 10-K.

72
Q

What should be done to ensure a company’s balance sheet is accurate?

A
  • Compare amounts to earlier balance sheets
  • Ensure amounts agree with supporting documentation
73
Q

What is the first step recommended before issuing a balance sheet?

A

Do a final review of the amounts being reported

74
Q

What should the amount of cash and cash equivalents be supported by?

A

Bank reconciliations for the company’s bank accounts

75
Q

Accounts receivable – net should be compared to what?

A

An aging of accounts receivable

76
Q

Inventory should be supported by what type of schedule?

A

A schedule of calculations to support the cost reported as inventory

77
Q

The amount of prepaid expenses should agree with what?

A

Workpapers showing the calculations of the amounts that had been paid in advance

78
Q

Accounts payable should be supported by what?

A

A listing of amounts owed

79
Q

What should accrued liabilities agree with?

A

Workpapers showing the calculation of the amounts owed but not yet recorded

80
Q

Deferred revenues should be supported by what type of documentation?

A

A workpaper documenting the amounts received from customers in advance

81
Q

What is liquidity often assessed by?

A

Comparing a company’s current assets to its current liabilities

82
Q

Define working capital.

A

The amount of current assets minus the amount of current liabilities

83
Q

What is the current ratio?

A

The amount of current assets divided by the amount of current liabilities

84
Q

What does the quick ratio exclude?

A

Inventory and prepaid expenses from the amount of current assets

85
Q

What is another name for the quick ratio?

A

The acid-test ratio

86
Q

What does the receivables turnover ratio measure?

A

The amount of sales on credit for a year divided by the average balance in accounts receivable

87
Q

What is the inventory turnover ratio?

A

The cost of goods sold for a year divided by the average cost of inventory

88
Q

What is the debt to equity ratio?

A

Compares a corporation’s total debt to the amount of stockholders’ equity

89
Q

What does a high level of financial leverage indicate?

A

A high level of risk as viewed by lenders

90
Q

What are two financial ratios used to determine financial leverage?

A
  • Debt to equity ratio
  • Debt to total assets ratio
91
Q

What is an advantage of issuing common stock?

A

Increases the amount of stockholders’ equity, reducing financial leverage

92
Q

What is a disadvantage of issuing common stock?

A

Dilutes an existing stockholder’s percent of ownership

93
Q

What is an advantage of issuing bonds?

A

Low cost since the interest is a deductible expense

94
Q

What is a disadvantage of issuing bonds?

A

Increases the corporation’s liabilities, raising financial leverage

95
Q

What principle prevents some valuable trademarks from being reported as assets?

A

The cost principle (or historical cost principle)

96
Q

How are internally developed trademarks treated in accounting?

A

They are not reported as assets on the balance sheet

97
Q

What type of financial statements should be read alongside the balance sheet?

A
  • Income statement
  • Statement of comprehensive income
  • Statement of cash flows
  • Statement of stockholders’ equity
98
Q

What does the FASB’s Statement of Financial Accounting Concepts No. 5 state?

A

No one financial statement is likely to provide all the financial information useful for a decision

99
Q

True or False: A company’s balance sheet includes the value of its highly effective management.

A

False

100
Q

Fill in the blank: The _______ is the amount of current assets minus the amount of current liabilities.

A

[working capital]

Accounting Assistant (14 decks)

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