chapter 2: financial reporting, T accounts, current assets, etc Flashcards
what is the objective of finical reporting?
Provide useful economic information to external users for decision making & assessing future cash flows
what are the qualitative characteristics of a financial report?
Relevance
Faithful Representation
Comparability
Verifiability
Timeliness
Understandability
what does it mean for a financial report to be relevant?
it can influence a decision
it has predictive or confirmatory value
People have to be able to read them and understand the usefulness to the company decision making
what does it mean to have faithful representation?
info provided in finical statements must reflect the truth in all transactions
what does it mean to have comparability?
methods have to be similar to whatever you recorded in past periods
Have to keep the same set of standards (unless new regulations (include in extra info))
Have to be comparable to those in the market with you, competitors
what does it mean to be verifiable?
indépendant accountants can agree on:
nature of transaction
amount of transaction
what does it mean to be timely?
enhances predictive and confirmatory value
Has to impact your time management relevance for decision making
what does it mean to be understandable?
everyone (or at least all accountants) must comprehend the meaning
why must a reader be aware of accounting measurement constraints?
for accurate representation of financial statements
what is the cost constraint?
info should be produced only if perceived benefits of increased decision usefulness exceed expected costs of providing the same info
what does the prudence constraint mean?
there is need of special care to avoid overstating assets or understating liabilities and expenses
what are the three assumptions we must consider in a financial statement?
separate entity assumption
stable monetary unit assumption
continuity assumption
separate entity assumption
we must not consider nor account for an organization’s owner’s activities
we must only consider the businesses activities
stable monetary unit assumption
we must account activities in the currency in which the company resides
continuity assumption
the company must want to be successful and survive into a foreseeable future
what are the two measurement concepts we must consider in a financial statement?
the mixed attribute measurement model
the historical cost principle
the mixed attribute measurement model
used to measure different assets and liabilities
what are current assets
assets that will be used into cash, usually within a year
What you expect to use in the current year
What are the types of current assets
CASH
short term investments
Accounts receivable (always here cause verbal)
prepaid expenses
inventories
etc
What are the types of non-current assets
land
equipment
goodwill
intangible assets
notes payable (If longer than a year)
etc
what is a consolidated financial statement?
finical statement made by a mother company owning multiple baby companies
Includes the info of mother company and of subsidiaries (baby companies)
what are provisions?
liability that is more likely to happen than not happen in the future
You have to record it in the financial position
You put it in the notes to further explain what is going on
You cannot do the same for revenues
what is necessary in a chart of accounts?
You need to have for sure identifying number and name
what are. on current assets?
considered to be along term
they will be asked to be turned into cash in over a year
what are Current liabilities
obligations that will be payed out in the coming year
what are examples of current liabilities?
accounts payable (always verbal)
short term debt
income taxes payable
accrued liabilities
provisions
give examples of non current liabilities
long term debt
provisions
notes payable (if over a year)
what are the two types of events included in a transaction?
external event
internal event
what are the two types of events included in a transaction?
external events
internal events
external events
exchanges of assets, goods , or services by one party for assets, services, or promises to pay (liabilities) by one or more other parties
ex: buying machine from supplier
internal events
events that are not changes between businesses and other parties
still have an effect on accounting entity
ex: using buildings for several years
