Chapter 2 Flashcards
What is a qualified balance sheet?
This groups together similar assets and similar liabilities
What are current assets?
Assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer
What is a operating cycle?
The average time required to go from cash to cash in producing revenue, purchasing inventory, produce, then sell to customers
What are intangible assets?
Assets that do not have physical substance?
What are current liabilities?
Obligations that the company is to pay within the next year or operating cycle, whichever is longer
What are long-term liabilities?
Obligations that a company expects to pay after on year
What is a ratio analysis?
This expresses the relationship among selected items of financial data
What is a profitability ratio?
Measures the operating success of a company for a given period of time
What is earnings per share?
This measures the net income earned on each share of common stock
How is EPS calculated?
(Net income - preferred dividends) / Average number of common shares outstanding during the year
What is liquidity?
Ability to pay obligations expected to become due within the next year
What is working capital?
Current assets - Current Liabilities
What is the current ratio?
Current assets / current liabilities
What is solvency?
Ability to pay interest as it comes due and to repay the balance of a debt due at its maturity
What does a solvency ratio due?
Measures ability of the company to survive over a long period of time
What is the debt to assets ratio?
total liabilities / total assets
What is the formula for free cash flow?
Net cash - Capital expenditures - cash dividends
When does accounting information have relevance?
If it would make a difference in a business decision
What is materiality?
A company-specific aspect of relevance
What is the monetary unit assumption?
This requires that only things that can be expressed in money are included in the records
What is the economic entity assumption?
States that every economic entity can be separately identified and accounted for
What is periodicity assumption?
States that life of a business can be divided into artificial time periods
What is the going concern assumption?
States that the business will remain in operation for the business will remain in operationfor the future?
What is the historical cost principle?
This when a company dictates that companies record assets at their original price
