Exam 2 Flashcards
What are current assets and where are they located
cash and other assets that can be converted into cash or used up within the normal operating cycle, or one year, whichever is longer. balance sheet
how are current assets listed
listed in order of liquidity
what are the current asset categories
cash
accounts receivable
inventory
other current assets
which section does plant property and equipment fall onto in the statement of cashflows
Operating and Investing
what items appear in the investing section of the statement of cash flows
long term investments, property plant and equipment, intangible assets…
what are the two methods in cash flow from operating activities
indirect method and direct method
what are the differences in the cash flow from operating activities methods
the differences only affect the presentation of cash flows from operating activities
what is the indirect method
starts with accrual basis net income and converts it to cash basis net income. its less time consuming and has less calculations. its easiest to prepare and used the most frequently
what is the direct method
reports individual amounts of cash inflows and outflows for the major operating activities
what is short-term liquidity analysis
it indicates the number of production/sales cycles experienced by a firm during the period. it’s how many times we turn over inventory in a given period of time
what is the inventory turnover ratio
inventory ratio= cost of goods sold / average inventory
where does interest paid to creditors appear on the statement of cashflows
operating activities -> uses -> cash outflows
what is stockholders’ equity
the residual ownership interest in the assets of a business after its liabilities have been paid off
what are the two major categories of stockholders’ equity? and the 1 other category
common stock: amount invested by stockholders
retained earnings: cumulative net income of the business that has not been distributed to its stockholders
other equity
what is liquidity
the ability to pay short-term financial obligations. its the amount of cash and how quickly the cash can be generated
what is the current ratio, definition and formula. do you want the number high or low?
the amount of current assets relative to current liabilities.
current ratio= current assets / current liabilities
higher the number the better
what is a current liability
short term payables…accrued expenses, taxes payable, short-term debt, wages payable, dividends payable
what are the differences between the indirect and direct method
the difference is in the presentation of cashflows from operating activities
indirect shows adjustments, accounts for changes in the balance sheet, and starts with net income. less time consuming. less calculations. easier to prepared
direct- no adjustments, shows cash flows (cash from customers, cash to suppliers, cash for operating activities etc.
what are the 2 formats of the balance sheet presentation
account form
report form
in terms of the balance sheet presentation, what is the account form
assets on the left
liabilities and stockholders’ equity on the right
in terms of the balance sheet presentation, what is the report form
assets on the top
liabilities and stockholders’ equity below
where do investors and prospective investors find the accounting information they need? whats required?
SEC- requires quarterly and annual reports from public companies. this includes…
-primary financial statements
-footnotes
-discussion by management
must be audited by an independent auditor
available at the SAEC’s website and typically, the company’s website
Discontinued operations are reported…
separately when a company sells, abandons, or otherwise disposes of a segment of its operations
what information is reported on discontinued operations
income or loss from the segment’s operation for the portion of the year before its discontinuance
any gain or loss from the disposal of the segment
