Chapter 2: Measuring And Reporting Financial Position Flashcards

1
Q

What is the calculation for straight line depreciation?

A

Depreciation = (Cost - Residual Value)/ Estimated Lifecycle of Product

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

In the context of a balance sheet or statement of financial position, what is the relationship between assets, liabilities and shareholder equity?

A

Assets = Liabilities + Equity

Assets - Liabilities = Equity

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

Define Balance Sheet

A

Also know as the statement of financial position (SOFP).

The balance sheet is a measure of the overall combined wealth of a business.

The balance sheet comprises of the assets, liabilities and equity of a business.

The balance sheet is the primary component of the final accounts of a business

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

What are trade receivables?

A

Debts to be collected by the business for products or services rendered.

Amount owed by customers for goods or services supplied on credit.

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

In the context of the statement of financial position, define the relationship between assets, liabilities and shareholder equity.

A

Assets = Liabilities + Equity
Assets - Liabilities = Equity
Liabilities + Equity = Assets

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

What is the Accounting Equation?

A

Assets = Liabilities + Equity

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

Describe the circulating nature of current assets

A

Cash-Inventory-Trade Receivables…

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

What is the liquidity ratio?

A

The liquidity ratio is current assets divided by the current liabilities

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

How would you determine the current value of an asset?

A

By either it’s cost to replace or its resale value

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

In accounting what is the historic cost convention?

A

The historic cost convention is the notion that assets on the statement of finacial position shoud be valued by the acqusition cost (purchase cost)

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

What is the difference in the equation for two different balance sheet layout?

A

The typical balance sheet layout uses the accounting equation, Assets = Liabilities + Equity
An alternative balance sheet layout uses the equation, Assets - Liabilities = Equity

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

What is the enhaced variation of the accounting equation?

A

Assets = Equity +/- Profit/Loss + Liabilities

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

Describe the Dual Aspect convention

A

The dual aspect convention states that each transation has a dual effect on the balance sheet.
Liability Down = Cash Down
Inventory Assets Up = Cash Down
Trade payable Down = Cash Down

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

What does the accronm EBITDA stand for?

A

Earnings before interest, tax, depreciation and amortization

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

In accounting, what is the carrying amount?

A

Cost of assest - depreciation = Carrying Amount

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

Define impairment loss

A

The reduction of the carrying amount of an asset on the balance sheet to its resale value to prevent overstating it’s value