Chapter 2: The Overview of Financial Statements Flashcards
Assets=Liabilities + Owners’ Equity
Accounting Equation
The source of those increased assets
Accumulated Other Comprehensive Income
The firm’s economic resources, formally defined as “probably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
Assets
A statement of financial position shows the financial resources the company owns or controls and the claims on those resources
Balance Sheet
The asset’s cost minus the asset’s accumulated depreciation
Book Value
Information that becomes much more useful when it can be related to a benchmark or standard
Comparability
A pervasive factor in accounting, can be summarized as follows: When in doubt, recognize all losses but don’t recognize any gains
Conservatism
Once you adopt an accounting principle or method, continue to follow it consistently in future accounting periods
Consistency
The notes that accompany the financial statement
Disclosure
Tells the owner of one share of stock what they really want to know
Earnings Per Share (EPS)
The idea that personal financial activity is kept separate from business financial activity
Entity Concept
The amount of assets consumed from the performance of business operations and thus are the opposite of revenues
Expenses
Those activities whereby cash is obtained from, or repaid to, owners and creditors
Financing Activities
Refers to money made on activities outside the normal business of a company
Gains
Allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments
Going Concern Assumption
An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition
Historical Cost Convention
A company’s financial performance for a specified period of time
Income Statement
The purchase and sale of land, buildings, and equipment. Investing activities also include buying and selling of other companies
Investing Activities
The future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events
Liabilities
The ease to which the item can be turned into cash
Liquidity
Money lost on activities outside the normal business of a company
Losses
The question of whether an item is large enough to many any difference to anyone
Materiality
Total Assets minus total liabilities. In a sole proprietorship, the amount is reported as owner’s equity. In a corporation, they are reported as stockholder’s equity.
Net Assets
The difference between revenue and expenses when revenues exceed expenses
Net Income
The difference between revenue and expenses when expenses exceed revenue
Net Loss
These provide additional information pertaining to a company’s operations and financial position and are considered to be an integral part of the financial statements
Notes to Financial Statements
Those activities involved in producing and selling goods and services and thus compromise the day-to-day business of a company
Operating Activities
The owners’ residual interest in the assets of a firm
Owners’ Equity
The value of the assets given in exchange for shares of stock
Paid-in Capital
A breaking down of all of the estimates and judgements into one number and reporting that number in the financial statement
Recogition
A qualitative characteristic in accounting. Associated with information that is timely, useful, has predictive value, and is going to make a difference to a decision maker
Relevance
A qualitative characteristic in accounting. Achieved when information is verifiable, objective, and you can depend on it
Reliability
Represent the portion of stockholders’ equity (resulting from cumulative profitable operations) that has not been paid to the owners as dividends
Retained Earnings
The amount of assets created through the performance of business operations
Revenue
A generally accepted accounting principle (GAAP) that determines the specific conditions in which revenue is recognized or accounted for
Revenue Recognition
Individual cash flow items that are classified according to three main activities: operating, investing, and financing
Statement of Cash Flows
The portion of the balance sheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings
Stockholders’ Equity
The time period principle is the concept that a business should report the financial results of its activities over a standard time period, which is usually monthly, quarterly, or annually
Time Period Concept
Shown as a subtraction in the stockholder’s equity section of the balance sheet
Treasury Stock
