Chapter 2 & 7: Terms & Formulas Flashcards

1
Q

Operating Cycle

A

Average time it takes from the purchase of inventory to the collection of cash from customers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Common Current Assets

A
  1. Cash
  2. Investments
  3. Receivables
  4. Inventories
  5. Prepaid Expenses
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Accumulated Depreciation

A

Total amount of depreciation expensed thus far in an asset’s life.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Intangible Assets

A

Assets that do not have a physical substance.

Examples: Goodwill, Patents, Copyrights, or Trademarks

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Current Liabilities

A

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)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Common Stock

A

Investments of assets into the business by the stockholders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Retained Earnings

A

Income retained for use in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Ratio Analysis

A

Expresses the relationship between selected items of financial statement data.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Liquidity

A

The ability to pay obligations expected to become due within the next year or operating cycle.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Working Capital

A

The difference between the amounts of current assets and current liabilities.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Liquidity Ratios

A

Measures the short-term ability to pay maturing obligations and to meet unexpected needs for cash.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Solvency

A

The ability to pay interest as it comes due and to repay the balance of a debt due at its maturity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Solvency Ratios

A

Measures the ability of a company to survive over a long period of time.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Debt to Assets Ratio

A

Measures the percentage of total financing provided by creditors rather than stockholders.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Generally Accepted Accounting Principles

A

Set of rules/practices widely accepted as being the general guide for financial reporting.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Who determines the GAAP/ Guidelimes

A

Securities & Exchange Commission (SEC)

Financial Accounting Standards Board (FASB)

International Accounting Standards Board (IASB)

Public Company Accounting Oversight Board (PCAOB)

17
Q

2 Qualities of Useful Information

A

Relevance & Faithful Representation

Relevance = info that would make a difference in a business decision

18
Q

Faithful Representation

A

Information accurately depicts what really happened. (Info must be complete, non biased, and free from error)

19
Q

5 Qualities of Useful Information

A

( Comparability) - different companies use same accounting principles

(Verifiable) - Independent observers using the same methods get similar results

(Understandability) - Info presented is clear and concise

(Consistency) - Company uses same accounting principles/methods year to year

(Timely) - Relevant

20
Q

Monetary Unit

A

Requires that only things that can be expressed with money are included in accounting records

21
Q

Economic Entity

A

Every economic entity can be separately identified and accounted for.

22
Q

Periodicity

A

Life of a business can be divided into artificial time periods

23
Q

Going Concern

A

Business will remain in operation for the foreseeable future

24
Q

Historical Cost (Cost Principle)

A

Dictates that companies record assets at their cost

25
Q

Fair Value

A

Assets & Liabilities reported at the price received to sell and asset or settle a liability.

26
Q

Full Discolsure

A

Requires companies disclose ALL circumstances or events that would impact financial statement users

27
Q

Cost Constraint

A

If something costs too much… DO NOT DO IT

28
Q

3 Factors Lead to Fraud

A
  1. Opportunity
  2. Financial Pressure
  3. Rationalization
29
Q

Sarbanes-Oxley Act

A

Corporate Executives/ Board of Directors must ensure a system of internal controls is reliable and effective.

Independent outside auditors must attest to the adequacy of the internal control system

Created the PCAOB

30
Q

5 Primary Internal Control Components

A
  1. Control Environment
  2. Risk Assessment
  3. Control Activities
  4. Information & Communication
  5. Monitoring
31
Q

Principles of Internal Control Activities

A
  • Limit access to only authorized employees
  • Segregate duties (one person shouldn’t do everything)
  • Pre Numbered Document Procedures
  • Independent Internal Verification
  • Human Resource Controls (Background Checks)
32
Q

Cash Includes

A
  • Cash on hand
  • Checks
  • Cash in the bank
  • short-term high liquid investments (ex: treasury bills or money-market funds)
33
Q

Benefits of Using a Bank

A
  • Minimizes cash on hand
  • double record of transactions
  • bank reconciliation