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ACC T 2121 > chap 2 > Flashcards

chap 2 Flashcards

1
Q

What are accounts payable?

A

Amounts owed to suppliers for purchases made on credit (on account).

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2
Q

What are accounts receivable?

A

Amounts owed by customers who purchased products or services on credit (on account).

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3
Q

What is the accrual basis of accounting?

A

An accounting basis in which transactions that change a company’s financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives or pays cash.

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4
Q

What is bank indebtedness?

A

A short-term loan, such as an operating line of credit, pre-arranged with a bank to cover cash shortfalls.

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5
Q

What is basic earnings per share (EPS)?

A

A measure of profitability showing the income earned by each common share. It is calculated by dividing income available to common shareholders by the weighted average number of common shares.

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6
Q

What is a classified statement of financial position?

A

A statement of financial position that groups together similar assets and similar liabilities using standard classifications and sections.

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7
Q

What is comparability?

A

An enhancing qualitative characteristic of useful information that enables users to identify and understand similarities in, and differences among, items.

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8
Q

What is the conceptual framework?

A

A coherent system of interrelated objectives and fundamentals that can lead to consistent standards and that prescribes the nature, function, and limits of financial accounting statements.

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9
Q

What is a contra asset account?

A

An account that is offset against (reduces) another related asset account on the statement of financial position, such as accumulated depreciation.

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10
Q

What is the cost constraint?

A

The pervasive constraint that ensures that the value of the information provided in financial reporting is greater than the cost of providing it.

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11
Q

What are current assets?

A

Assets that are expected to be converted into cash, sold, or used up within one year of the company’s financial statement date.

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12
Q

What are current liabilities?

A

Obligations that will be paid or settled within one year of the company’s financial statement date.

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13
Q

What is the current portion of long-term debt?

A

The portion of a non-current or long-term loan that is repayable within the current year.

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14
Q

What is the current ratio?

A

A measure of liquidity used to evaluate a company’s short-term debt-paying ability. It is calculated by dividing current assets by current liabilities.

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15
Q

What is the debt to total assets ratio?

A

A measure of solvency showing the percentage of total financing that is provided by lenders and other creditors. It is calculated by dividing total liabilities by total assets.

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16
Q

What is deferred revenue?

A

A liability representing cash receipts from customers that have not yet met the criteria for revenue recognition.

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17
Q

What are the elements of financial statements?

A

Broad categories or classes used to group financial information for presentation in the financial statements, such as assets, liabilities, equity, income, and expenses.

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18
Q

What is fair value?

A

An estimate of the price a company would pay to purchase an asset or settle a liability today with arm’s-length parties under normal business conditions.

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19
Q

What is the fair value basis of accounting?

A

A method of accounting under which assets and liabilities are recognized on the statement of financial position at their fair values.

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20
Q

What is faithful representation?

A

A fundamental qualitative characteristic describing information that represents economic reality. It must be complete, neutral, and free from material error.

21
Q

What is the going concern assumption?

A

The assumption that the business will remain in operation for the foreseeable future.

22
Q

What is goodwill?

A

The value of favourable, unidentifiable attributes related to a company as a whole. It is calculated when one business acquires another and pays more than the fair value of the company’s net identifiable assets.

23
Q

What is the historical cost basis of accounting?

A

Measurement basis that states that assets and liabilities should be recorded at their cost at the time of acquisition.

24
Q

What are intangible assets?

A

Assets of a long-lived nature that do not have physical substance but represent a privilege or a right granted to, or held by, a company.

25
Q

What is inventory?

A

Goods held for sale to customers.

26
Q

What are liquidity ratios?

A

Measures of a company’s short-term ability to pay its maturing obligations (usually current liabilities) and to meet unexpected needs for cash.

27
Q

What are long-term investments?

A

Investments in debt securities intended to be held for many years to earn interest, and equity securities of other companies held to generate investment income or for strategic reasons.

28
Q

What are non-current assets?

A

Assets that are not expected to be converted into cash, sold, or used up by the business within one year of the financial statement date.

29
Q

What are non-current liabilities?

A

Obligations that are not expected to be paid or settled within one year of the financial statement date.

30
Q

What are notes payable?

A

Amounts owed to suppliers, banks, or others that are normally interest-bearing and supported by a written promise to repay.

31
Q

What are notes receivable?

A

Amounts owed by customers or others that are normally interest-bearing and supported by a written promise to repay.

32
Q

What is the objective of financial reporting?

A

The provision of financial information about a company that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the company.

33
Q

What is the operating cycle?

A

The average period of time it takes for a business to pay cash to obtain products or services and then receive cash from customers for these products or services.

34
Q

What are prepaid expenses?

A

Costs paid in advance of use that benefit more than one accounting period. They are initially recorded as assets and become expenses only when used.

35
Q

What is the price-earnings (P-E) ratio?

A

A profitability measure of the ratio of the market price of each common share to the earnings per share.

36
Q

What are profitability ratios?

A

Measures of a company’s operating success for a specific period of time.

37
Q

What is property, plant, and equipment?

A

Tangible assets, such as land, buildings, and equipment, with relatively long useful lives that are used to operate the business.

38
Q

What is relevance?

A

A fundamental qualitative characteristic describing information that makes a difference in a user’s decision.

39
Q

What are solvency ratios?

A

Measures of a company’s ability to survive over a long period of time by having enough assets to settle its liabilities as they fall due.

40
Q

What are supplies?

A

Consumable items used in running a business, such as office and cleaning supplies.

41
Q

What is timeliness?

A

An enhancing qualitative characteristic of useful information that means that information is available to decision-makers in time to influence decisions.

42
Q

What are trading investments?

A

Investments that are acquired principally for the purpose of selling in the near term.

43
Q

What is understandability?

A

An enhancing qualitative characteristic of useful information that means that information is clearly and concisely classified, characterized, and presented.

44
Q

What is verifiability?

A

An enhancing qualitative characteristic of useful information that means that different knowledgeable and independent users could reach a consensus that the information is faithfully represented.

45
Q

What is working capital?

A

A measure of liquidity used to evaluate a company’s short-term debt-paying ability. It is calculated by subtracting current liabilities from current assets.

46
Q

What are the sections of a classified statement of financial position?

A

Assets classified as current or non-current, liabilities classified as current or non-current, and shareholders’ equity.

47
Q

What ratios are used to analyze liquidity, solvency, and profitability?

A

Liquidity ratios (e.g., working capital, current ratio), solvency ratios (e.g., debt to total assets), and profitability ratios (e.g., basic earnings per share, price-earnings ratio).

48
Q

What are the key components of the framework for financial statements?

A

Objective of reporting, qualitative characteristics, cost constraint, going concern assumption, elements of statements, and measurement basis.

ACC T 2121 (4 decks)

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