Chapter 4 Test 1 Flashcards
Presenting and Analyzing Resources and Financing
What is the balance sheet also known as?
Statement of Fina Position
Balance Sheet Equation
Assets = Liabilities + Shareholder Equity
Finance Structure
the nature and mix of liabilities and shareholders equity
Operating Cycle
is the period of time required to convert cash into salable goods and services, sell those goods and services to customers, and recieve cash payments from customers.
What are considered Current Assets
cash, accounts and notes receivable, inventories of merchandise, raw materials, supplies, work in process
What are noncurrent Assets
property, plant, equipment, intangible assets (patents, trademarkers)
What are considered Current Liabilities?
amounts owed to suppliers, accrued salaries/ wages, govermental units
What are considered Non Current Liabilities?
Interest bearing obligations with maturities beyond one year, long term leases, some retirement obligations over a year
How is a balance sheet broken up?
- Assets (most current to non current for both assets and liabilities)
- Liabilities
- Shareholders Equity
Definition of an Asset
an asset is a probable future economic benefit that a firm controls because of a past event or transaction.
Asset Recognition
3 criteria
- The firm owns or controls the right to use the item
- The right to use the item arises as a result of a past transaction or exchange.
- The future benefit has a relevant measurement attribute that can be quantified with sufficient reliability.
Acquisition (Historical) Cost
is the amount of cash paid to acquire an asset.
Current Replacement Cost
is the amount a firm would have to pay to obtain asset with identical service potential.
Entry Value
amount that reflects econmomic conditions at the measurement date.
Net Realizable Value
is the net cash (Selling Price - Selling Cost) that the firm would recieve if it sold the asset today in an arms length transaction.
Exit Value
the price that the firm would recieve when an asset leaves the firm.
Fair Value
The price that would be recieved to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the meausrement date.
Opportunity Cost
the fair value of an asset is called
The Present Value Of Future Cash Flows
is the sum of the present values of the individual future cash inflows and outflows associated with an asset.
Financial Assets
cash, claims to cash
Non Financial Assets
are intangible and tangible resources that firms use in operations to generate future cash flows.
Deapreciation Process
allocates the assets acquistiion cost less estimated salvage value to the period.
Realized
converted to cash
Relevance
information could affect the decisions of users of financial reports
