Chapter 2 & 7: Terms & Formulas Flashcards
Operating Cycle
Average time it takes from the purchase of inventory to the collection of cash from customers.
Common Current Assets
- Cash
- Investments
- Receivables
- Inventories
- Prepaid Expenses
Accumulated Depreciation
Total amount of depreciation expensed thus far in an asset’s life.
Intangible Assets
Assets that do not have a physical substance.
Examples: Goodwill, Patents, Copyrights, or Trademarks
Current Liabilities
Obligations the company is to pay within the next year or operating cycle, whichever is longer.
(Example: Salaries & Wages Payable, Income Taxes Payable, or Interest Payable)
Common Stock
Investments of assets into the business by the stockholders
Retained Earnings
Income retained for use in the business
Ratio Analysis
Expresses the relationship between selected items of financial statement data.
Liquidity
The ability to pay obligations expected to become due within the next year or operating cycle.
Working Capital
The difference between the amounts of current assets and current liabilities.
Liquidity Ratios
Measures the short-term ability to pay maturing obligations and to meet unexpected needs for cash.
Solvency
The ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.
Solvency Ratios
Measures the ability of a company to survive over a long period of time.
Debt to Assets Ratio
Measures the percentage of total financing provided by creditors rather than stockholders.
Generally Accepted Accounting Principles
Set of rules/practices widely accepted as being the general guide for financial reporting.