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ACCT 229 > chapter two notes > Flashcards

chapter two notes Flashcards

1
Q

what are the qualitative characteristics of useful information?

A 
understandability
relevance
comparability
consistency
faithful representation
materiality
conservatism

“u r close. can faith move circles?”

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2
Q

understandability

A

information should be compressible to those who are willing to spend the time to understand it

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3
Q

relevance

A

information makes a difference in decision making

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4
Q

faithful representation

A

complete, neutral, free from error

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5
Q

comparability

A

BETWEEN COMPANIES similar methods have been applied (ex: GAAP)

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6
Q

consistency

A

BETWEEN PERIODS within the same company

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7
Q

materiality

A

the size of the transaction makes a difference in how it gets recorded

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8
Q

conservatism

A

never want to overstate assets/revenues or understate liabilities/expenses

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9
Q

objectives and qualitative characteristics of financial reporting are now ____ _____ for IASB and FASB.

A

the same

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10
Q

classified balance sheet

A

what obligations will be due and what resources will be available to meet those obligations

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11
Q

current assets

A

could be converted into cash, sold, or used up during a current period (12 months)

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12
Q

what is the order that current assets should be reported?

A
  1. cash
  2. marketable securities
  3. accounts receivables
  4. inventory
  5. prepaid expenses
    ORDER OF LIQUIDITY

“cash means an income proved”

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13
Q

long term investments

A

investments in stocks and bonds of other companies to be held for more than one year

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14
Q

plant, property and equipment (fixed assets)

A

acquired for use in business rather than resale to customers

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15
Q

what are some PPE accounts?

A
  1. land
  2. buildings
  3. equipment, vehicles, furniture
  4. (-)accumulated depreciation
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16
Q

intangible assets

A
  1. patent (sell)
  2. copyright (artistic)
  3. trademark/tradename
  4. franchise/license (area)
  5. goodwill
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17
Q

goodwill

A

when a company pays more than fair value of the assets of another company to purchase it

18
Q

what is the order of assets recorded in a classified balance sheet?

A
  1. current assets
  2. long term investments
  3. fixed assets
  4. intangible assets
19
Q

current liabilities

A

requires the use of current assets to settle within the next 12 months

20
Q

what order to you record current liabilities?

A
  1. accounts payable
  2. accrued expenses
  3. unearned revenue
  4. short term note payable
    ORDER OF MATURITY

“accountants are usually short”

21
Q

long term liabilities

A

notes payable, bond payable, mortgage payable

22
Q

stockholder’s equity

A

claimed of owners against the net assets of the firm

common stock and retained earnings

23
Q

what is one of the uses of the balance sheet?

A

to measure/analyze liquidity

24
Q

working capital

A

helps to measure liquidity

CURRENT ASSETS-CURRENT LIABILITIES

25
Q

current ratio

A

useful to compare liquidity among companies

CURRENT ASSETS/CURRENT LIABILITIES

26
Q

what are the limitations of the balance sheet?

A

historical cost vs fair market value

only a number is recorded

27
Q

what is the order of a multi-step income statement?

A 
revenues
- cost of goods sold
=gross profit
- operating expenses
=income from operations
\+ gains/interest revenue
- losses/interest expense
=net income
28
Q

gross profit

A

revenues-cost of goods sold

29
Q

income from operations

A

gross profit-operating expenses

30
Q

net income

A

income from operations+gains-losses+interest revenue-interest expense

31
Q

what are some of the uses of income statement?

A

to analyze profitability

32
Q

gross profit ratio

A

gross profit/sales

33
Q

profit margin (return on sales)

A

net income/sales

34
Q

what is the purpose of the statement of retained earnings?

A

shoes how net income and dividends causes change in a company’s financial position during a period of time

35
Q

what is the formula for ending retained earnings when there are NO changes in a company’s stock during the period?

A

beginning retained earnings
+net income
-dividends
=ending retained earnings

36
Q

what is the purpose of the statement of stockholder’s equity?

A

shows how net income, dividends, and changes in stock causes change in a company’s financial position during a period of time

37
Q

what is the formula for ending retained earnings when there ARE changes in a company’s stock during the period?

A

beginning stockholder’s equity
+new stock (change in stock)
+net income (change in re)
-dividends

38
Q

what are the elements of annual reports?

A
  1. letter from president or chairman of the board of directors
  2. description of products
  3. financial section
  4. independent auditor’s report
39
Q

what is the order of the financial section of the annual report?

A
  1. management report
  2. financial statements
  3. notes to financial statements (footnotes)
40
Q

what is the majority of the annual report?

A

footnotes (everything that isn’t in the financial statements, but is relevant to decision makers)
FULL DISCLOSURE

41
Q

unqualified opinion

A

what everyone hopes for, attests that financial statements are fair in accordance to GAAP

42
Q

qualified opinion

A

for the most part they are following GAAP

ACCT 229 (11 decks)

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