Chapter 2 Reading Notes Flashcards

1
Q

how many financial statements are there?

A

four

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

what are the four financial statements?

A

statement of stockholder’s equity
statement of financial position
statement of profit and loss
statement of cashflows

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

who are financial statements required by and who reports them?

A

required by GAAP
reported by companies

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

what does the balance sheet show?

A

assets, liabilities & equity at a single point in time

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

what does the income statement show?

A

revenue & expenses over time

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

net income = ?

A

revenue - expenses

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

what does the cash flow statement show?

A

how cash changes hands over time

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

what does the statement of stockholder’s equity show?

A

how equity has changed hands over time

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

do all companies do a statement of retained earnings?

A

no, only some do

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

retained earnings = ?

A

where all accumulated profits are stored

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

what is the flow of financial statements?

A

income statement calculates net income

net income goes into the statement of changes in equity

equity from there is put onto the balance sheet

all of those statements go into preparing the cash flow statement

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

what are the 5 account classifications?

A

asset, liability, equity, revenue, expense

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

where are assets found and what are some examples?

A

on the balance sheet

cash, PPE, inventory, A/R, land, etc.

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

where are liabilities found and what are some examples?

A

balance sheet

N/P, A/P, accrued expenses, unearned revenue

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

where is equity found and what are some examples?,

A

found on the balance sheet

common/preferred stock, APIC, retained earnings, treasury stock

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

treasury stock = ?

A

stock that the company has bought back

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is APIC?

A

additional paid-in capital

additional pay from an investor for a stock

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

revenue is found in the …

A

income statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

expenses are found in the…

A

income statement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what 3 questions do financial statements address?

A

what cash movements took place?

how much wealth was generated?

what is the accumulated wealth of the business at the end of the period?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what does the SOCF portray?

A

cash introduced (opening balance)
cash from sales (cash in)
cash paid (cash out)
closing balance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what question does the SOCF answer?

A

what cash movements took place

23
Q

what question does the P&L answer?

A

how much wealth was generated

24
Q

what question does the SOFP answer?

A

what is the accumulated wealth of the business

25
where are profits put?
in retained earnings (an owner's equity account)
26
cash is described as the business's ...
lifeblood
27
what are the 3 main financial statements and what are they referred to as?
SOCF, P&L, SOFP 'final accounts'
28
what are the various forms of economic benefit?
cash generated cash received value received
29
what is a claim?
an obligation to provide cash
30
what are the 2 types of claims?
equity (owner's claims against assets) liabilities (3rd parties' claims against assets)
31
what is a reporting period?
the timespan for which a business prepares its financial statements
32
what are current/non-current assets
current = held short-term, intended to liquidate within 1 year non-current = held long-term, intended for continuous use, not liquidated within 1 year
33
what is an operating cycle?
the time between buying, preparing and selling a product
34
when a transaction occurs, should I assume it's on credit or paid by cash?
always assume it's on credit unless stated otherwise most business's sales are made on credit except retailers
35
what is the flow of a trading transaction?
inventory -> A/R -> cash
36
what are current/non-current liabilities?
debt obligations expected to be settled within/longer than one year
37
what happens if a business can't fulfil long-term debts?
they can be forced to stop trading
38
define accounting conventions
one of the generally accepted rules that accountants tend to follow when preparing financial statements
39
what are the 5 accounting conventions?
business entity historic cost prudence going concern dual-aspect
40
what is business entity?
recognising the business as a separate legal entity to its' owners (unless its a partnership or sole trader)
41
what is historic cost?
value of assets must be presented at the cost at which they were bought - acquisition price
42
what is prudence?
caution toward financial statements must be exercised at all times
43
what is going concern?
assuming that a business will continue its operations for the foreseeable future unless there's reason to believe otherwise
44
what is dual-aspect?
each transaction has 2 aspects that will impact both sides of the SOFP
45
current replacement cost = ?
how much I would get for an asset if I were to sell it now according to its current market value
46
realisable value = ?
price someone is willing to pay for an asset
47
neutrality = ?
no bias a desirable accounting characteristic
48
what 3 characteristics make up faithful representation?
neutrality, completeness, freedom from error
49
good will = ?
an intangible asset used to describe payment for things like good customer service, good product quality etc.
50
tangible assets depreciate, intangible assets...?
amortise
51
fair value = ?
the value ascribed to an asset as an alternative to historic cost
52
impairment loss = ?
the loss of an asset's value as a result of fundamental changes (e.g., change in market conditions)
53
what information does the SOFP provide?
insight into finances & how funds are deployed basis for assessing value of the business gauge relation between assets & claims
54
carrying amount = ?
the difference between the cost and the accumulated depreciation related to an asset