FAR_Section_2 Flashcards

1
Q

Balance Sheet (Statement of Financial Position)

A

Reports the effect of transactionsat a point in time. Consists of assets, liabilities, and stockholders’ equity.

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2
Q

Current Assets

A

Assets that will be used up or converted into cash within one year or the operating cycle, which is longer; Ex) Cash, temporary trading securities, A/R,N/R, inventories and prepaid expenses

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3
Q

Current Liabilities

A

liabilities that will be settled within one year or the operating cycle, whichever is longer; Ex) A/P, accrued expenses, dividends payable, incomes taxes payable, current portion of L/T debt

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4
Q

Cash (ASC 305)

A

the most liquid asset of an enterprise

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5
Q

Cash Equivalent

A

security that is easily converted into cash with an original maturity of 90 days or less; CE is a financial instrument that has both: easily convertible into a known amount of cash (highly liquid), and original maturity of 3 months or less from the date of purchase. Since it is so close to maturity, this presents very little risk of change in value, due to changes in interest rates:e.g. Treasury bills, comercial paper & market funds)

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6
Q

Examples of Cash Equivalents

A

Coin and currency on hand (petty cash), money market accounts, unmailed checks, savings accounts, CDs with an original maturity of 3 months or less, Negotiable paper (banks checks, travlers checks, money orders)

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7
Q

Items exluded from cash

A

Compensating balances, postdated checks or NSF, Overdrafted protection, Restricted cash, Postage stamps

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8
Q

Compensating balances

A

legally restricted deposits that are either a current asset or a non-current asset, but not considered part of cash. If funds are NOT legally restricted, present them along with cash

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9
Q

Postdated checks or NSF (Non-sufficient Funds)

A

recievables

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10
Q

Overdrafted protection

A

If in same bank, net them; if positive then show it as casf; if negative, shot it as a current liability;;If in a different banks, show the positive as an asset, and the negative as a current liability

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11
Q

Restricted Cash - Current

A

Restricted for a current asset or liability (segragated from cash)

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12
Q

Restricted Cash - Non-Current

A

Restricted for a noncurrent asset or liability (either other assets or investments)

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13
Q

Postage stamps

A

supplies (prepaid expenses)

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14
Q

Bank Reconciliation

A

Used to reconcile differences between cash balances per bank and per book to arrive at a corrected balance between the two. Several factos can cause a differential between bankand book cash balances such as deposits in transit, outstanding checks, erros or bank service charges.

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15
Q

Balance on bank statement

A

(Deposits in transit) - (Outstanding checks) + (Errors made by bank) = (Corrected balance)

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16
Q

Checkbook balance

A

(Amounts collected by bank) - (Unrecorded bank charges) + (Errors made in recording transactions) = (Corrected balance)

17
Q

Gross Profit

A

(Sales) - (Cost of Sales) = (Gross Profit)

18
Q

Operating Income

A

(Gross Profit) - (Selling expenses) - (General & Admin exp.) - (Deprciation Exp.) = (Operating Income)

19
Q

Multiple Step (ON-TIDE-N-OC)

A

(Operating Income) + [Non-operating (Other income and (Expense)] - (Provision for Income Tax) + [Discontinued component unit (FASB, ASC 205)] - (Extraodinary Loss) = (Net Income) + [(Other Comprehensive Income (OCI) (DENT) (net of tax)]

20
Q

An asset is classified as current when:

A

1) The entity expects to realize the asset or to consume or sell it within 12 months or the normal opening cycle; or 2) The entity holds the asset primarily for the purpose of trading

21
Q

A liability is classified as current when

A

1) The entity expects to settle the liability within the normal operating cycle 2) The liability will be settled within 12 months after the reporting period or; 3) The entity holds the liability for the pupose of trading

22
Q

Financial Instrument

A

Any contract that gives results in a finanicla asset of one entity and a financial liability or equity instrument of another entity

23
Q

Financial Asset

A

Cash; An equity instrument of another entity; A Contracual right to receive cash or another financial asset from another entity; or to exchange financial assets or financial assetsor financial assets or financial liabilities with another entity on potentially unfavorable terms;;A contract that will be settle in the entity;s own equity instruments

24
Q

Financial Liability

A

A contracual obligation to deliver cash or another financial asset to another entity or exchange financial assets or finanical liabilities with another entity on potentially unfavorable terms; A contract that will be settle in the entity’s own equity instruments

25
Q

Financial Assets are measured at amortized cost only if 2 conditions are met:

A

The entity’s business model is to hold the asset to collect scheduled cash flows; The twems of the instrument call for cash flows that are exclusively payments of principal and interest on specified dates