Chapter 3 Flashcards
A position statement that presents an organized list of assets, liabilities, and equity at a particular point in time
Balance Sheet
Assets minus liabilities as shown in the balance sheet
Book Value
Period of time before an asset is converted to cash or until a liability is paid
Liquidity
The riskiness of a company with regard to the amount of liabilities in it’s capital structure
Long-term Solvency
Period of time necessary to convert cash to raw materials, raw materials to finished products, the finished product to receivables, and receivables back to cash
Operating Cycle
Certain negotiable items that are highly liquid investments quickly converted to cash
Cash Equivalents
Investments not classified as cash equivalents that will be liquidated in the coming year or operating cycle, whichever is longer
Short-term Investments
Receivables resulting from the sale of goods or services on account
Accounts Receivable
Receivables supported by a formal agreement or note that specifies payment terms
Note Receivable
Goods awaiting sale, goods in the course of production, and goods to be consumed directly or indirectly in production
Inventories
Land, buildings, equipment, machinery, autos, and trucks
Property, Plant, and Equipment
Operational assets that lack physical substance (ie. Patents, copyrights, franchises, goodwill)
Intangible Assets
Expenses already incurred but not yet paid
Accrued Liabilities
The current installment due on long-term debt, reported as a current liability
Current Maturities of Long-term Debts
Invested capital consisting primarily of amounts invested by shareholders when they purchase shares of stock from the corporation
Paid-in Capital
A significant development that takes place after the company’s fiscal year-end but before the financial statements are issued
Subsequent Event
Transactions with the owners, management, families of owners or management, affiliated companies, and other parties that can significantly influence or be influenced by the company
Related-Party Transactions
Intentional distortions of financial statements
Irregularities
Violations of the law, such as bribes, kickbacks, and illegal contributions to political candidates
Illegal Acts
Provides a biased but informed perspective of a company’s operations, liquidity, and capital resources
Management Discussion and Analysis (MDA)
Report issued by CPAs who audit the financial statements that informs users of the audit findings
Auditor’s Report
Contains disclosures on compensation to directors and executives; sent to all shareholders each year
Proxy Statement
Corresponding financial statements from the previous years accompanying the issued financial statements
Comparative Financial Statements
Comparison by expressing each item as a percentage of that same item in the financial statements of another year in order to more easily see year-to-year changes
Horizontal Analysis
Expression of each item in the financial statements as a percentage of n appropriate corresponding total, or base amount, but within the same year
Vertical Analysis
Comparison of accounting numbers to evaluate the performance and risk of a firm
Ratio Analysis
A company’s ability to pay its obligations when they come due
Default Risk
How adept a company is at withstanding various events and circumstances that might impair its ability to earn profits
Operational Risk
Differences between current assets and current liabilities
Working Capital
Compares resources provided by creditors with resources provided by owners
Debt to Equity Ratio
By earning a return on borrowed funds that exceeds the cost of borrowing funds, a company can provide its shareholders with a total return higher than it could achieve by employing equity funds alone
Financial Leverage
A way to gauge the ability of a company to satisfy its fixed debt obligations by comparing interest charges with the income available to pay those charges
Times Interest Earned Ratio
