Basic Concepts & Financial Statements Flashcards
What do Purchasing Power gains and losses do to the financial statements (inflation & deflation)?
Inflation:
Asset - Loss
Liability - Gain
Nonmonetary - N/A
Deflation:
Asset - Gain
Liability - Loss
Nonmonetary - N/A
Current Cost accounting vs GAAP
Inventory - Replacement vs Historical
COGS - Avg cost during period vs Historical
Debt securities - Both FV
F/S - Supplemental info vs Basic F/S
What info are end users looking for with special purpose frameworks?
Cash receipts & disbursements
Income tax regulations
contractual agreements
authoritative regulatory agency
What are the requirements for element recognition in the F/S?
Meets definition
Measurable
Relevant
Reliable
What are the qualitative or enhancing characteristics of F/S reporting?
Roger is Comparability Understandability Timeliness like a Verifiability
Faithful representation
Free from Error
Neutral
Complete
What are the objectives of each financial report?
BS - Info about resources and claims
IS - Changes current year (accrual accounting)
CF - Changes listing past CF
OE - Changes not from financial performance
Relevance
Predictive
Confirmatory
Difference between cash and accrual basis
Cash - revenue when received and expense when paid
Accrual - revenue when earned and expense when incurred
Recognition vs Realization
Recognition - when something is measurable, useful, and definable enough to be recorded on F/S
Realization - when something is earned…accrual accounting…expense/revenue in the period it takes place
Accrual vs Deferral
Accruals are used when you don’t have the cash but need to recognize NOW
Deferrals are used when you do have the cash but need to recognize LATER
Net income equals…
Gross sales - COGS - Exp - Returns = Operating income
Operating income + non-operating income - (OI + NOI * tax rate) = Income from continuing operations
I from CO - (discontinued * (1 - tax rate)) - extraordinary items = Net income
Are asset valuation accounts assets, liabilities, or something else?
neither asset or liability accounts. It is a contra asset account.
Comprehensive income
***is the CI or OCI?
Derivative CF Hedges
Excess adj of pension PBO & FV of plan assets at YE
Net unrealized holding gain/loss on AFS debt securities
Translation gains and losses
Deferred revenue
Cash has been received but services not yet performed. Must defer revenue over the life of the service.
Realizing noncash
Seller must enter into an agreement with the buyer and agrees to provide a noncash asset in exchange for a note receivable.
Capital maintenance
Net income = physical capital (ignores holding gains and losses)
Comprehensive income = Financial capital (includes holding gains & losses)
Comprehensive income
Revenues
Expenses
Gains
Losses
FV of non financial asset
Should be the best, reasonable price
Characteristics of Fair Value
Market-based measure
Orderly transaction at a specific measurement date
Sale of asset or transfer of liability (exit price)
Three levels of input
Risks and Uncertainty disclosures
Nature of operations
Use of estimates
Certain significant estimates
Current vulnerability associated with certain concentrations
Reconcile bank to books
Adjust for deposits in transit, outstanding checks, and bank errors for when you want BOOK but have BANK
Adjust for interest, deposits no recorded, charges, returned checks, withdrawals not recorded, recording errors for when you want BANK but have BOOK
Cash account balance recording
If at different banks, record + as asset and - as liability
If at same bank, net positive = asset, net negative = liability
Are contra-assets included in current asset calcs?
YES
Retained Earnings equals…
Revenue - Expense = Pretax NI
Pretax NI - taxes = NI
NI + Unappropriated RE + Restricted = RE
General & Admin expenses
Accounting & Legal
Current ratio
Current assets / current liabilities
Quick ratio
Quick assets (liquid) / current liabilities
Inventory turnover
COGS / ((begin inventory + end inventory)/2)
A/R turnover
Net credit sales / ((begin A/R + end A/R)/2)
Balance sheets…
Show a companies liquidity and financial flexibility
Return on assets
Net income / avg assets
Avg days sales in inventory
365 / (COGS / Avg inventory)
Statement of changes in net position of pensions
Beginning asset + plan additions - plan deductions = OY assets
What is considered a cash equivalent?
Cast on hand Demand deposits Negotiable paper Money Market accounts Investments that are easily convertible or mature in three months or less from date of purchase
