Chapter 2 Flashcards

1
Q

Accrual-basis accounting

A

Transactions that change a company’s financial statements are recorded in the periods in which the events occur

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2
Q

Classified balance sheet

A

A balance sheet that contains anumber of standard classifications and sections

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3
Q

Comparability

A

Ability to compare the accounting information of different companies because they use the same accounting principles

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4
Q

Consistency

A

Use of the same accounting principles and methods from year to year within a company

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5
Q

Cost constraint

A

Constraint of determining whether the cost that companies will incur to provide the information will outweigh the benefit that financial statement users will gain from having the information avilable

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6
Q

Cost principle

A

An accounting principle that states that companies should record assets at their cost

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7
Q

Current assets

A

Cash and other resources that companies reasonably expect to convert to cash or use within one year or the operating cycle, whichever is longer

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8
Q

Current liabilities

A

Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer

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9
Q

Current ratio

A

a measure used to evaluate a company’s liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities

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10
Q

Debt to total assets ratio

A

Measures the percentage of total financing provided by creditors; computed as total debt divded by total assets

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11
Q

Earings per share

A

A measure of the net income earned on each share of common stock

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12
Q

Economic entity assumption

A

An assumption that every economic entity can be seperately identified and accounted for

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13
Q

Fair value principle

A

Assets and liabilities should be reported at fair value

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14
Q

Faithful representation

A

Information that is complete, neutral, and free from error

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15
Q

Financial Accounting Standards Board (FASB)

A

The primary accounting standard-setting body in the United States

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16
Q

Free cash flow

A

Cash remaining from operating activities after adjusting for capital expenditures and dividends paid

17
Q

Full disclosure principle

A

Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users

18
Q

Generally accepted accounting principles (GAAP)

A

A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes

19
Q

Going concern assumption

A

The assumption that the company will continue in operation for the foreseeable future

20
Q

Intangible assets

A

Assets that do not have physical substance

21
Q

International Accounting Standards Board (IASB)

A

An accounting standard-setting body that issues standards adopted by many countries outside of the U.S.

22
Q

IFRS

A

Accounting standards, issued by the IASB, that have been adopted by international countries

23
Q

Timely

A

Information that is available to decision makers before it loses its capacity to influence decisions

24
Q

Understandability

A

Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

25
Verifiable
Information that is proven to be free from error
26
Alternative term for Property, plant, and equpment
Fixed assets or plant assets
27
China international note
China adopted IFRS in 2007 -under these, many items are reported at current fair values
28
Other term for intangible assets
"Other assets"
29
Alternative terminology for long-term investments
"investments"
30
Alternative terminology for common stock
"capital stock"
31
Debt to equity ratio
_Total liabilities_ Stockholder's equity The higher this ratio is, the lower a company's solvency
32
International note: IFRS
Over 100 countries use international standards. All companies in the European Union follow international standards
33
Ethics note: Adelphia
Senior company employees entered into transactions that blurred the line between the employees' financial interests and those of the company Ex. Adelphia guranteed over 2 billion of loans to the founding family
34
Alternative terminology for Stockholders
Shareholders
35
Ethincs Note: Circus
Circus-founder, Barnum is alleged to have said, "Trust everyone, but cut the deck." The Sarbanes-Oxley provides measures that help ensure that fraud will not occur
36
PP&E is sometimes called what?
fixed assets
37
International Note: IFRS and GAAP
Generally accepted accounting principles are the same Neither has specific rformat requirements However, sometimes format differences do exist in presentations commonly employed by IFRS
38