Ch 5 (IFSA) Understanding Balance Sheets Flashcards
The starting place for analyzing a company’s financial position is typically ___.
the balance sheet
___ reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.
Revenue
Revenue reported on ___ before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.
the income statement
Revenue reported on the income statement before cash is received results in ___, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.
accrued revenue or accounts receivable
Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an ___. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in retained earnings.
asset
Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on ___ as an increase in accounts receivable and an increase in retained earnings.
the balance sheet
Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in ___ and an increase in retained earnings.
accounts receivable
Revenue reported on the income statement before cash is received results in accrued revenue or accounts receivable, which is an asset. This is ultimately reflected on the balance sheet as an increase in accounts receivable and an increase in ___.
retained earnings
Cash received before ___ is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.
revenue
Cash received before revenue is to be reported on ___ results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.
the income statement
Cash received before revenue is to be reported on the income statement results in ___, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.
a deferred revenue or unearned revenue
Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a ___. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in liabilities.
liability
Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, ___ reflects an increase in cash and an increase in liabilities.
the balance sheet
Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in ___ and an increase in liabilities.
cash
Cash received before revenue is to be reported on the income statement results in a deferred revenue or unearned revenue, which is a liability. For example, if a company pays in advance for delivery of custom equipment, the balance sheet reflects an increase in cash and an increase in ___.
liabilities
___ reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.
Expense
Expense reported on ___ before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.
the income statement
Expense reported on the income statement before cash is paid results in ___, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.
an accrued expense
Expense reported on the income statement before cash is paid results in an accrued expense, which is a ___. This is reflected on the balance sheet as an increase in liabilities and a decrease in retained earnings.
liability
Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on ___ as an increase in liabilities and a decrease in retained earnings.
the balance sheet
Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in ___ and a decrease in retained earnings.
liabilities
Expense reported on the income statement before cash is paid results in an accrued expense, which is a liability. This is reflected on the balance sheet as an increase in liabilities and a decrease in ___.
retained earnings
Cash paid before an ___ is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased
expense
Cash paid before an expense is to be reported on ___ results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased
the income statement
Cash paid before an expense is to be reported on the income statement results in a ___, which is an asset. On the balance sheet, cash is reduced and prepaid assets are increased
deferred expense, also known as a prepaid expense
Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an ___. On the balance sheet, cash is reduced and prepaid assets are increased
asset
Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On ___, cash is reduced and prepaid assets are increased
the balance sheet
Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, ___ is reduced and prepaid assets are increased
cash
Cash paid before an expense is to be reported on the income statement results in a deferred expense, also known as a prepaid expense, which is an asset. On the balance sheet, cash is reduced and ___ are increased
prepaid assets
The key purposes of equity capital are to ___.
provide stability and to absorb losses, thereby providing a measure of protection to creditors in the event of liquidation
The key purposes of ___ are to provide stability and to absorb losses, thereby providing a measure of protection to creditors in the event of liquidation.
equity capital
The ___ of a company should have three important characteristics:
- It should be permanent.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- It should allow for legal subordination to the rights of creditors.
capital
The capital of a company should have three important characteristics:
- ___.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- It should allow for legal subordination to the rights of creditors.
It should be permanent
The capital of a company should have three important characteristics:
- It should be permanent.
- ___.
- It should allow for legal subordination to the rights of creditors.
It should not impose mandatory fixed charges against earnings (in the case of banks)
The capital of a company should have three important characteristics:
- It should be permanent.
- It should not impose mandatory fixed charges against earnings (in the case of banks).
- ___.
It should allow for legal subordination to the rights of creditors
When using the ___, assets, liabilities, and equity are listed in a single column on the balance sheet.
report format
When using the report format, assets, liabilities, and equity are ___ on the balance sheet.
listed in a single column
When using the report format, assets, liabilities, and equity are listed in a single column on ___.
the balance sheet
The ___ follows the pattern of the traditional general ledger accounts, with assets at the left and liabilities and equity at the right of a central dividing line, it’s the most commonly preferred and used by financial statement preparers.
account format
The account format ___, it’s the most commonly preferred and used by financial statement preparers.
follows the pattern of the traditional general ledger accounts, with assets at the left and liabilities and equity at the right of a central dividing line
Grouping together the various classes of assets and liabilities is a format described as ___.
a classified balance sheet
___ is a format described as a classified balance sheet.
Grouping together the various classes of assets and liabilities
___ should distinguish between current and noncurrent assets and between current and noncurrent liabilities unless a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution).
The balance sheet
The balance sheet should distinguish between ___ unless a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution).
current and noncurrent assets and between current and noncurrent liabilities
The balance sheet should distinguish between current and noncurrent assets and between current and noncurrent liabilities unless ___.
a presentation based on liquidity provides more relevant and reliable information (e.g., in the case of a bank or similar financial institution)
It should be clear that in essence, ___ is also an attempt at incorporating liquidity expectations into the structure of the balance sheet.
the current/noncurrent distinction
It should be clear that in essence, the current/noncurrent distinction is also an attempt at ___ into the structure of the balance sheet.
incorporating liquidity expectations
It should be clear that in essence, the current/noncurrent distinction is also an attempt at incorporating liquidity expectations into the structure of ___.
the balance sheet
___ is the amount of time that elapses between spending cash for inventory and supplies and collecting the cash from its sales to customers.
A company’s operating cycle
A company’s operating cycle is ___.
the amount of time that elapses between spending cash for inventory and supplies and collecting the cash from its sales to customers
___ is called working capital.
The excess of current assets over current liabilities
The excess of current assets over current liabilities is called ___.
working capital
The level of ___ tells analysts about the ability of an entity to meet liabilities as they fall due.
working capital
The level of working capital tells analysts about ___.
the ability of an entity to meet liabilities as they fall due
___ is the amount at which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s-length transaction.
Fair value (sometimes referred to as fair market value)
Fair value (sometimes referred to as fair market value) is ___.
the amount at which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s-length transaction
When the asset or liability trades regularly, its ___ is usually readily determinable from its market price.
fair value