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ACC 321 > Chapter Five: Balance Sheet and Statement of Cash Flows > Flashcards

Chapter Five: Balance Sheet and Statement of Cash Flows Flashcards

1
Q

Net Realizable Value

A

Amount expect to receive on asset (estimated amounts for accounts and notes receivable)

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2
Q

Classified Balance Sheet

A

Reports the accounting equation (assets = liabilities + equity) with the assets on the top or left side of the sheet and liabilities on the bottom or right side of the sheet

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3
Q

Sections of Classified Balance Sheet

A

Current Assets, Noncurrent Assets, Current Liabilities, Long-term Liabilities, and Stockholder’s Equity

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4
Q

Current Assets

A

listed first in order of liquidity

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5
Q

Types of Current Assets

A

Cash, Investments, Accounts and Notes Receivable, Inventory, and Prepaid Expenses

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6
Q

Cash

A

reported at fair value (face value), amounts on hand + amounts on demand accounts + money market funds

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7
Q

Investments

A

Purchasing of stock or bond, trading and available for sale reported at fair value and held-to-maturity reported as amortized

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8
Q

Accounts (sales) and Notes (interest and document associated) Receivable

A

estimated amount collectible, amounts owed to you, reported at net realizable value, report accrued interest

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9
Q

Inventory

A

reported as lower-of-cost-or-market, anything that can be sold in normal operations

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10
Q

Prepaid Expenses

A

unexpired (amount not used), pay for now and expect to receive benefits in the future

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11
Q

Types of Noncurrent Assets

A

Long-term Investments, Property, Plant, and Equipment, and Intangible Assets

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12
Q

Long-term investments

A

any investments held over one year, reported as fair value or cost for held to maturity securities

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13
Q

What is the difference between long and short term investments?

A

Intent to hold onto security

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14
Q

Property, Plant, and Equipment

A

long-term assets used in normal operations of business, reported at cost less accumulated depreciation (book value)

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15
Q

Intangible Assets

A

nonphysical substance and nonfinancial instrument, reported at book value, amortized (how long asset worth to us), goodwill not amortized

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16
Q

Current Liabilities

A

obligations due within 1 year, reported at face value

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17
Q

Long-term Liabilities

A

reported at present value, takes into account that there is value in future and moves to current liability as moves closer to maturity

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18
Q

Types of Stockholder’s Equity

A

Contributed Capital and Retained Earnings

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19
Q

Contributed Capital

A

what stockholder’s have invested in your company, reported at par value + anything else they paid in (paid in capital in excess of par value)

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20
Q

Retained Earnings

A

Money left over from operations after paying dividends or payments to owners, reported at accumulated value

21
Q

Supplementary Information

A

disclosed in notes of financial statements

22
Q

What is reported in supplementary information?

A

Accounting Policies, Contractual Situations, Fair Values, and Contingencies

23
Q

Accounting Policies

A

how you record when there are different options (ex. FIFO vs. LIFO)

24
Q

Contractual Situations

A

Used with debt covenants

25
Q

Fair Values

A

things on balance sheet at cost must have reported fair value

26
Q

Contingencies

A

potential future benefit (gain) or obligation (loss)

27
Q

Gain contingencies

A

never recognized (principle of conservancy)

28
Q

Loss contingencies

A

classified as probable, reasonably possible or remote

29
Q

When do you accrue loss contingencies that are probable?

A

If amount can be reasonably estimated

30
Q

When do you disclose loss contingencies that are probable?

A

If amount cannot be reasonably estimated

31
Q

How do you report reasonably possible loss contingencies?

A

Disclose them

32
Q

Why is the balance sheet useful?

A

Rates of Return, Evaluating Capital Structure, Liquidity, Solvency, and Financial Flexibility

33
Q

Rates of Return

A

return on assets and return on equity

34
Q

Evaluating Capital Structure

A

how much money comes from debt or shareholders

35
Q

Liquidity

A

how quickly can convert assets into cash

36
Q

Solvency

A

ability to readily pay off current liabilities

37
Q

Criticisms of Balance Sheet

A

adds up figures that are not logically combined/related, relies heavily on estimates, and omits items of value (ex. value of personnel, R & D)

38
Q

Three Sections of Cash Flow Statement

A

Financing Activities, Investing Activities, and Operating Activities

39
Q

Financing Activities (dividends)

A

Organizations receive resources from creditors and owners, any transaction between organization and creditors or owners (exception: interest)

40
Q

Investing Activities

A

acquisition or disposition of resources to be used to produce profits, any cash transaction used to acquire or dispose LT asset

41
Q

Operating Activities

A

use of resources for purpose of producing profits, any transaction used in determination of net income (interest)

42
Q

In what two ways are cash flows prepared?

A

Direct method and Indirect Method

43
Q

Direct Method

A

analyze each account that causes cash flow in operating activities

44
Q

Indirect Method

A

back out of net income in order to end up at operating activities (remove non-cash)

45
Q

Where do the differences in the direct and indirect method occur?

A

operating sections

46
Q

Input/Output Formula (direct method)

A

every account has one, beginning balance (balance sheet) + things added - things deducted = ending balance

47
Q

What are the tasks in an input/output formula?

A

to “know” things added and deducted and will usually know 3 and solve for 4th

48
Q

What do you look for in analysis of input/output formula?

A

Seek items that simultaneously affect cash

49
Q

Indirect Method

A

adjustments made, Net Income + Depreciation - Increases in Current Assets (other than cash) + Decreases in Current Assets + Increase in Current Liabilities - Decreases in Current Liabilities - Gains + Losses = Cash Flow From Operating Activities

ACC 321 (7 decks)

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