FAR - Framework/Overview - General Financial Statements Flashcards
net realizable value?
current liab?
measurement base?
current assets listed on b/s?
nrv - amount firm expects to receive from sale/collection of
cl - liab exinguished by current asset/incurrence of other cl.
measurement base - attribute of an account being measured
ca listed in order of liquidity
quick ratio/acid test
cash + short-term invest + a/r / CL
operating cycle
another name for b/s?
time from inv. purchase, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again. Usually one year OR time required for the above, whichever is LONGER!
b/s -> statement of financial position
valuation acct?
increase or decrease the BV of an item to a measure of current value
example: contra acct - subtract value and adjunct acct - add value
* not ALL contra accts are valuation accts, BUT, ALL valuation accts are contra/adjunct accts
reporting methods of b/s?
1) acct form - term applied to the balance sheet format that shows assets on the left and liabilities and equity on the right.
2) report form
operating margin?
loss?
expense
excess operating revenue over operating expenses
loss - decrease in equity/net asset from incidental transaction
exp - Decreases in net assets or incurrence of liabilities through the provision of goods or services.
single step I/S?
gain?
single step - total rev/gains minus total exp/losses
gain = increase in equity/net asset from incidental/peripheral transaction (not primary business activity)
unusual/unfrequent items reported?
They must be separately reported if material as a component of income from continuing operations.
items not on I/S?
1) Prior period adjustments;
2) Foreign currency translation adjustments;
3) Unrealized gains/losses on (AFS) securities;
4) Unrecognized pension items;
5) Cumulative effect of changes in accounting principle;
6) Unrealized gains/losses on cash flow hedges.
- OCI Items
economic income?
acct income?
change in the net worth of a business enterprise
acct income - rev less exp plus gains less losses
Revenues?
What is the order of income statement presentation?
increases in net assets or settlements of liabilities by providing goods and services
Income from Continuing Operations;
Income from Discontinued Operations (net of tax);
Extraordinary Items (net of tax);
Net Income.
What does the multiple-step income statement present?
multiple subtotals of revenues, expenses, gains, and losses.
Sales - Cost of Goods Sold = Gross profit - operating expenses = income from operations \+/− other income/expenses = Income B/F Taxes − taxes = Net Income
intraperiod tax allocation
cumulative effects of accounting principle changes be reported net of tax.
Unusual/infrequent income items
When a loss is not both unusual and infrequent, it is reported as a component of income from continuing operations.
When a loss is both unusual and infrequent, it is classified as an extraordinary item and reported separately from income from continuing operations.
TRUE/FALSE
Operating income isn’t subject to intraperiod tax allocation
TRUE
Operating income is a subtotal above income from continuing operations (IFCO).
items shown below IFCO are reported net of tax.
Intra-period tax allocation = reporting of an item net of tax on the item, in the same period BUT separated from other items reported pre-tax.
purpose is to report income tax expense only on items above IFCO.
What is Gross profit?
multi-step income statement?
Sales - COGS
Gross profit (margin) is shown as a separate item. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined.
focus is on the determination of operating profit rather than simply income from continuing operations. Gross profit (margin) is shown as a separate item.
A multi-step Income Statement is not required but is prepared because it is a more meaningful presentation of revenue and expenses. In a multi-step Income Statement, gross profit (margin), operating profit (margin), and pretax income from continuing operations are determined.
Continued operations
Discontinued operations is not a revenue; rather, it is a special item of disclosure found below income from continuing operations in the Income Statement.
True/False
Separate EPS calculations are not required for other comprehensive income or comprehensive income.
TRUE
Compute Cost of goods MFG
To directly compute cost of goods manufactured (CGM),
Beginning work in process \+ Direct materials used \+ Direct labor \+ Factory overhead − Ending work in process Cost of goods manufactured
However, none of these elements are given in this problem, so CGM must be computed indirectly, using the cost of sales formula
Beginning finished goods $400,000 \+ Cost of goods manufactured + CGM − Ending finished goods −360,000 Cost of sales $ 240,000
Solving for the missing amount, CGM is $200,000.
Types of Expenses
Operating expenses are usually divided into 2 categories: 1) selling expenses,
2) general and administrative (G&A) expenses.
Selling expenses = sale of a company’s products
G&A expenses = company’s general operations.
Freight-in is an inventoriable cost which should be reflected in cost of goods sold and ending inventory.
Freight-out, the cost of delivering goods to customers, is included in selling expenses.
Sales representatives’ salaries - selling expense.
Compute income from continuing operations
All revenues, gains, expenses, and losses given in this problem are components of income from continuing operations.
To compute income from continuing operations (after taxes), income taxes must also be deducted.
