Chapter 11 Financial Accounting Flashcards
Continuing Operations
Income from day to day normal business activities
What 3 things does Continuing Operations include?
Revenues and operating expenses
Gains and losses
Income tax expense
Discontinued Operations
Company sells a segment of the business
How is Discontinued Operations recorded?
Reported beneath income from continuing operations
Extraordinary Items
Gains and losses that are both infrequent and unusual
What do Extraordinary Items include?
Include losses from natural disasters and expropriation of assets by foreign governments
What do Extraordinary Items NOT include?
Does not include gains and losses from lawsuits, restructuring or sale of Plant Assets
How are Extraordinary Items recorded?
Reported after continuing operations net of income taxes
Cumulative Effect of Change in Accounting Method
Change from one Accounting method to another
What are 2 examples of Cumulative Effect of Change in Accounting Method?
FIFO to LIFO
Straight Line depreciation to double declining balance
What does Cumulative Effect of Change in Accounting Method make difficult?
To compare year to year statements
How is Cumulative Effect of Change in Accounting Method reported?
Reported in special section usually after Extraordinary Items
How is Earning Per Share (EPS) recorded?
Recorded for each element of net income
Comprehensive Income
Change in stockholders equity from all non owner transactions
What is the Federal Corporate Income Tax Rate?
21%
For corporate income tax expense what are 2 characteristics of income tax expense?
Reported on income statement
Based on current year earnings
For corporate income tax expense what are 2 characteristics of income tax payable?
Current liability on the balance sheet
Amount to be paid to government
What are the differences between Accounting income and taxable income in terms of the income statement?
Reports results of operations
Based on accrual Accounting
What are the differences between Accounting income and taxable income in terms of the income tax return?
Filed with IRS to determine taxes owed
Based on tax laws
What are the differences between Accounting income and taxable income in terms of depreciation common difference?
Straight line for accounting purposes
Accelerated for tax purposes
Deferred Taxes
When corporations use different methods for accounting and taxes
In terms of deferred taxes income tax expense does not equal…
Income tax payable
The result of deferred taxes is what?
A deferred tax liability or asset
When income tax payable is greater than income tax expense it is what in terms of deferred taxes?
Deferred tax liability
When income tax payable is less than income tax expense it is what in terms of deferred taxes?
Deferred tax asset
Prior Period Adjustments
Correction of an accounting error from a previous period
What is adjusted during prior period of adjustments?
Beginning retained earnings is adjusted for the amount of the error
Managements Responsibility
Internal controls over financial reporting in accordance with GAAP
What are 2 responsibilities that management has to fulfill in order to stay in accordance with GAAP?
Standard for preparing financial statements
-Designed to produce relevant and reliable information for investors and creditors
Who do companies hire to perform their auditors report?
Certified Public Accountants (CPAs)
When a Certified Public Accountant (CPAs) perform an examination it is called—-
External audit
CPAs have to be what?
Independent of the company they are auditing
What are the 4 types of audit reports?
Unqualified
Qualified
Adverse
Disclaimer
Unqualified audit report
Clean opinion, statements are fairly presented
Qualified Audit Report
Except for opinion, statements are reliable except for one or more Items
Adverse Audit Report
Statements are unreliable and not in according with GAAP
Disclaimer Audit Report
No opinion, auditor was unable to form an opinion
Sustainability Reporting
A process for publicly disclosing an organizations economic, environmental and social performance
What are 4 benefits of Sustainability Reporting?
Better Reputation
Meeting the expectations of employees
Improved access to capital
Increased efficiency and waste reduction
What are 2 costs of Sustainability Reporting?
Greater transparency
Expensive
