chapter 2 Flashcards
What is a Classified Statement of Financial Position?
A structured financial statement that categorizes assets, liabilities, and equity into current and non-current sections.
What are current assets?
Assets expected to be converted to cash, sold, or used within one year or one operating cycle, whichever is longer.
Give examples of current assets.
Cash, trading investments, accounts receivable, inventory, supplies, prepaid expenses.
What are non-current assets?
Assets providing economic benefits beyond one year, also called long-term or long-lived assets.
What are examples of non-current assets?
Long-term investments, property, plant, equipment, intangible assets, goodwill.
What are long-term investments?
Multi-year investments in debt securities (loans, bonds) or equity securities (shares of other companies).
What is property, plant, and equipment (PPE)?
Tangible assets with long useful lives, used in business operations (e.g., land, buildings, vehicles).
What is depreciation?
Allocation of an asset’s cost over its useful life as an expense each year.
What is the difference between depreciation and amortization?
Depreciation applies to tangible assets, while amortization applies to intangible assets with definite lives.
What is accumulated depreciation?
A contra asset account showing the total depreciation recorded to date for an asset.
How is carrying amount calculated?
Carrying Amount = Asset Cost - Accumulated Depreciation.
What are intangible assets?
Assets with no physical substance but significant value, such as patents, copyrights, trademarks, and goodwill.
What are current liabilities?
Obligations that must be paid or settled within one year or one operating cycle.
Give examples of current liabilities.
Bank indebtedness, accounts payable, deferred revenue, short-term loans, current portion of long-term debt.
What is shareholders’ equity?
The residual interest in assets after deducting liabilities; consists of share capital and retained earnings.
How is retained earnings calculated?
Beginning Retained Earnings + Net Income - Dividends = Ending Retained Earnings.
What is the purpose of the conceptual framework in accounting?
To guide financial statement preparation by determining what to present, how to report, and how to communicate information.
What is the objective of general-purpose financial reporting?
To provide useful information to investors, lenders, and other creditors for decision-making.
What are the fundamental qualitative characteristics of financial information?
Relevance and faithful representation.
What is relevance in financial reporting?
The ability of information to influence user decisions through predictive or confirmatory value.
What is faithful representation?
Ensuring financial information is complete, neutral, and free from material error.
What are enhancing qualitative characteristics of financial information?
Comparability, verifiability, timeliness, and understandability.
What is the going concern assumption?
The assumption that a company will continue to operate in the foreseeable future.
What are the elements of financial statements?
Assets, liabilities, equity, revenue, and expenses.
What are the two primary measurement bases in accounting?
Historical cost and fair value.
What is historical cost?
Recording assets and liabilities at their original purchase price.
What is fair value?
Recording certain assets and liabilities at their current market value.
