Chapter 2 Flashcards
classified balance sheet
a balance sheet that groups together similar assets and similar liabilities using a number of standard classifications and sections
Comparability
ability to compare the accounting information of different companies because they use they use the same accounting principles
Consistency
use of the same accounting principles and methods from year to year within a company
Cost Constraint
constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the financial information available
Current Assets
Assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer
Current Liabilities
Obligations that a company expects to pay within the next year or operating cycle, whichever is longer
Current ratio
A measure of liquidity computed as current assets divided by current liabilities
Debt to Assets Ratio
A measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors
Earnings per share(EPS)
a measure of the net income earned on each share of common stock; computed as net income minus preferred dividends divided by the average number of common shares outstanding during the year
Economic entity assumption
An assumption that every economic entity can be separately identified and accounted for
Fair value principle
Assets and liabilities should be reported at fair value ( the price received to sell an asset or settle a liability)
Faithful representation
Information that is complete, neutral, and free from error
Financial Accounting Standards Board(FASB)
The primary accounting standard-setting body in the United States
Free Cash Flow
Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid
Full disclosure principle
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users
Generally Accepted Accounting Principles(GAAP)
A set of accounting standards that have substantial authoritative support, that guide accounting professionals
Going concern assumption
The assumption that the company will continue in operation for the foreseeable future
Historical Cost Principle
An accounting principle that states that companies should record assets at their costs
Intangible Assets
Assets that do not have physical substance
International Accounting Standards Board(IASB)
An accounting standard-setting body that issues standards adopted by many countries outside of the United States
International Financial Reporting Standards(IFRS)
Accounting standards that have been issued by the IASB, that have been adopted by many countries around the world
Liquidity
The ability of a company to pay obligations that are expected to become due within the next year or operating cycle
Liquidity ratios
measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
Long Term Investments
- investment in stocks and bonds of other corporations that hold for more than 1 year
- long -term assets such as land
- long-term notes receivable
