Chapter 2: Measuring And Reporting Financial Position Flashcards
What is the calculation for straight line depreciation?
Depreciation = (Cost - Residual Value)/ Estimated Lifecycle of Product
In the context of a balance sheet or statement of financial position, what is the relationship between assets, liabilities and shareholder equity?
Assets = Liabilities + Equity
Assets - Liabilities = Equity
Define Balance Sheet
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
What are trade receivables?
Debts to be collected by the business for products or services rendered.
Amount owed by customers for goods or services supplied on credit.
In the context of the statement of financial position, define the relationship between assets, liabilities and shareholder equity.
Assets = Liabilities + Equity
Assets - Liabilities = Equity
Liabilities + Equity = Assets
What is the Accounting Equation?
Assets = Liabilities + Equity
Describe the circulating nature of current assets
Cash-Inventory-Trade Receivables…
What is the liquidity ratio?
The liquidity ratio is current assets divided by the current liabilities
How would you determine the current value of an asset?
By either it’s cost to replace or its resale value
In accounting what is the historic cost convention?
The historic cost convention is the notion that assets on the statement of finacial position shoud be valued by the acqusition cost (purchase cost)
What is the difference in the equation for two different balance sheet layout?
The typical balance sheet layout uses the accounting equation, Assets = Liabilities + Equity
An alternative balance sheet layout uses the equation, Assets - Liabilities = Equity
What is the enhaced variation of the accounting equation?
Assets = Equity +/- Profit/Loss + Liabilities
Describe the Dual Aspect convention
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
What does the accronm EBITDA stand for?
Earnings before interest, tax, depreciation and amortization
In accounting, what is the carrying amount?
Cost of assest - depreciation = Carrying Amount