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
Q

Verifiable

A

Information that is proven to be free from error

26
Q

Alternative term for Property, plant, and equpment

A

Fixed assets or plant assets

27
Q

China international note

A

China adopted IFRS in 2007

-under these, many items are reported at current fair values

28
Q

Other term for intangible assets

A

“Other assets”

29
Q

Alternative terminology for long-term investments

A

“investments”

30
Q

Alternative terminology for common stock

A

“capital stock”

31
Q

Debt to equity ratio

A

Total liabilities

Stockholder’s equity

The higher this ratio is, the lower a company’s solvency

32
Q

International note: IFRS

A

Over 100 countries use international standards.

All companies in the European Union follow international standards

33
Q

Ethics note: Adelphia

A

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
Q

Alternative terminology for Stockholders

A

Shareholders

35
Q

Ethincs Note: Circus

A

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
Q

PP&E is sometimes called what?

A

fixed assets

37
Q

International Note: IFRS and GAAP

A

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
Q
A