Chapter 3 Flashcards
Current liabilities include
notes and accounts payable, deferred revenues, accrued liabilities, and the current maturities of long-term debt
Long-term liabilities include
long-term notes, loans, mortgages, bonds, pension and lease obligations, as well as deferred income taxes.
Shareholders’ equity for a corporation arises primarily from two sources:
(1) paid-in capital
2) retained earnings
paid-in capital
amounts invested by shareholders in the corporation
retained earnings
accumulated net income reported by a company since its inception minus all dividends distributed to shareholders.
Unqualified with explanatory paragraph
The auditor believes the financial statements are in conformity with GAAP but there is a going concern situation.
Adverse
The auditor has specific knowledge that financial statements or disclosures are seriously misstated or misleading.
Disclaimer
The auditor is not able to gather sufficient information that financial statements are in conformity with GAAP.
Unqualified with emphasis paragraph
The auditor believes the financial statements are in conformity with GAAP but wishes to draw attention to events subsequent to the balance sheet date.
Qualified
There has been a departure from GAAP, but it not of sufficient seriousness to invalidate the financial statements as a whole.
Vertical analysis
Each item in the financial statements is expressed as a percentage of an appropriate corresponding total, or base amount, but within the same year.
Horizontal analysis
Each item in a financial statement is expressed as a percentage of that same item in the financial statements of another year (base amount).
Ratio analysis
Financial statement items are converted to ratios for evaluating the performance and risk of a company
current ratio is calculated by dividing
Current assets by current liabilities.
Debt to equity ratio
Total liability / Shareholders Equity
