Chapter 2 Quiz Flashcards
What is the order in which assets are listed on the balance sheet?
- ) Current
- ) Long -term
- ) PP&E
- ) Intangible assets
What is the order in which liabilities are listed on the balance sheet?
- ) Current liabilities
2. ) Long-term liabilities.
What are some examples of short-term assets?
- ) Cash
- ) Accounts receivable: accounts, notes, rent, etc.
- ) Inventory: supplies or merchandising inventory
- ) Prepaid expenses/accounts: prepaid insurance, rent, expenses.
What are some examples of long term investments/assets?
- ) Real Estate
2. ) stock investments
What is the difference between depreciation and accumulated deappreciation?
depreciation: allocating the cost of assets to a number of years.
Accumulated depreciation: The total amount of depreciation expensed thus far in the asset’s life.
What are some examples of short term liabilities?
- ) Accounts payable
- ) Salaries/wages payable.
- ) interest payable
- ) Taxes payable
- ) Rent payable.
- ) Unearned revenue
What is a long term liability and what are some examples?
- Things that are to be paid after 1 year.
like: bonds, mortgage, Long-Term notes payable.
What does the profitability ratio explain?
- This is a measure of income or operating success of a company in a given period.
What does the liquidity ratio explain?
This is a measure of a company’s short-term ability to pay its maturing obligations and to meet unexpected needs for cash.
Whit does the Solvency ratio explain?
Measure the ability of the company to survive over a long period of time.
The profitability ratio is known as?
include the equation
Earnings per share:
- Equation: (Net income - dividends) / Avg. Common shares outstanding.
The liquidity ratioSS are known as?
include the equation
- Working capital:
Equation: current assets - current liabilities
————————————————————————
Current Ratio:
Equation: Current Assets / current liabilities
What is the solvency ratio?
Debt to Total Asset Ratio:
Equation: Total Liabilities / Total Assets
What is GAAP?
Generally accepted accounting principles: set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes.
Who determines the guidelines for GAAP?
Standard-setting bodies:
SEC: securities and Exchange Commission
FASB: Financial Accounting Standards Board
IASB: International Accounting Standards Board
PCAOB: Public Company Accounting Oversight Board.
What are intangible Assets?
- list some examples?
Assets that don’t have physical substance
EX: goodwill, copyrights, patents and trademarks
What is an industry average comparison?
- This is based on average ratios for particular a industry
What is an intercompany comparison?
It is a ratio based on competitor in the industry
What is an intra-company comparision?
A comparison of one company’s performance over 2 give years.
What is the monetary unit assumption?
It is a guiding principle of the FASB:
- Only matters involving financial, economic and accounting will be included
What is the economic entity assumption?
It is a guiding principle of the FASB:
- Every economic entity must be identified and accounted for.
( Tracking economic events to particular companies.)
What is the periodicity assumption?
It is a guiding principle of the FASB:
- The life of the business can be broken down into artificial time segments and that useful reports over that time period can be prepared
What is the “going concern” assumption?
It is a guiding principle of the FASB:
- The business will remain in operation into the foreseeable future.
What is the historical cost principle?
It is a guiding principle of the FASB:
- Dictates the companies record assets at their cost.
( Belief that items should be reported on the balance sheet at the price that was paid to acquire them.)
What is the fair value principle?
It is a guiding principle of the FASB:
- Requires that companies disclose all financially relevant information.
- The price of an asset in the marketplace as determined by the laws of demand and supply
What is materiality?
- This is a company specific asset.
- An item is considered material when its size makes it likely to influence the decision of an investor or creditor.
What is comparability?
If one company uses a different method to report items, they need to disclose their accounting methods.
- The disclosure would be done in the financial statement notes.
Relevance:
Help with forecasts, is timely, confirms or
corrects a prior expectation.
- The quality of information that indicates the information makes a difference in a decision.
Consistency:
Need to assume the process is the same year
over year, so the numbers are useful.
Faithful Representation:
State what really happened accurately with nothing important omitted and make sure
it is NEUTRAL.
Full Disclosure principle?
The reporting of all information that would make a difference to the financial statements.
What does it mean to be timely in the accounting world?
Information that is available to decision-makers before it loses its capacity to influence decisions.
What is the operating cycle?
The average time required to purchase inventory, sell it on account, and then collect cash from customers- that is to go from cash-cash.
What is a cost constraint?
The constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.
