FASB Flashcards
Operating expenses
Liability (accrued expense)
Accounts receivable
Asset (accrued revenue)
Unearned revenue
Liability
Accrued expense
Liability (accrued expense)
Prepaid expense
Asset (deferred expense)
Sales on account
Asset (accrued revenue)
Supplies not on account
Asset (deferred expense)
Interest expense
Liability (accrued expense, salaries)
Interest revenue
Asset (accrued revenue)
Taxes
Liability (accrued expense)
Accrual to Cash basis
Cash = L + E - other assets
Cash basis to accrual
E = A - L
Or opposite sign of cash basis
Qualitative characteristics of accounting
Primary
Enhancing
Primary characteristics of accounting
Relevance
Faithful representation
(FAR)
3 characteristics of relevant
Predictive value
Confirmatory value
Materiality
3 characteristics of faithful representation
Completeness
Neutrality
Free from error
4 enhancing characteristics
Comparability
Verifiability
Timeliness
Understandability
Negative economic consequences means
Cost of complying with GAAP
inability to raise capital
Cost of government intervention
Failure of internal controls
Inability to raise capital
Choose the correct statement about GAAP
GAAP are laws
Only publicly traded companies must comply
It’s a violation of SEC regs to depart from GAAP
Firms may not restate FIN STATE already issued
Violation of SEC. regs for public ally traded companies to depart from GAAP
Level 1 hierarchy
Quoted prices in active markets for identical assets or liabilities
Level 2 hierarchy
Inputs such as quoted prices on similar assets or liabilities or observable for the asset or liability, such as interest rates and yield curves
Level 3 hierarchy
Unobservable inputs for the asset or liability that reflect the reporting entity’s own assumptions about the assumption that market participants would use in pricing in the asset or liability (including assumptions about)
Fair value option
An Election to value certain financial assets and financial liabilities at fair value is available. Entities may not elect to measure certain items such as investments in entities to be consolidated
IFRS elements
Assets Liabilities Equity Income Expense
Which of the following is a contra account
Accumulated depreciation, equipment
Depreciation expense, office equipment
Dividends
Unearned revenue
Accumulated depreciation, equity
Which of the following is a component of other comprehensive income
Minimum accrual of vacation pay
Cumulative currency-translation adjustments
Changes in market value of inventory
Unrealized gain/loss on equity securities at FV
Currency translation adjustments
Which of the following is not disclosed in the statement of cash flows when prepared under the direct method
Major classes of gross cash receipts and cash payments
Amount of income taxes paid
Reconciliation of net income to net cash flow from operations
Reconciliation of ending RE to net cash flow from operations
Reconciliation of ending RE to net cash flow from operations
The unamortized bond discount account decreased by $25,000. How should it be reported in statement of cash flows
Financing cash inflow
Financing cash outflow
Addition to net income in operating activities
Subtraction from net income in operating activities
Addition to net income
AR turnover
Net credit sales/ average AR
Current ratio
Assets/liabilities
Quick ratio
Cash+AR / current liabilities
Debt to equity ratio
Liabilities/equity
Ratio of quick assets to daily operating expenditures that indicates the length of time in days a firm can operate with its present liquid resources
Defensive interval ratio
Ratio of income to average owners equity, profitability ratio
Return on stockholders equity
Measurement at a fixed unchanging amount. Examples are lands, cash, prepaid, current liabilities, contributed capital accounts, and treasury stock.
Historical cost
Reflect remaining portion at a fixed unchanging amount. Examples include property, plant, equipment, intangibles, natural resources
Depreciated/amortized cost
Selling price of assets and amount currently required to retire a liability. Examples include Marketable securities like stocks and bonds
Fair value/market value
Another type of current value, amount the firm expects to receive from the sale or collection of an item. Examples include AR, and inventory.
NRV
Discounted value, measure of current sacrifice when extinguishing the debt at the balance sheet date. Examples include bonds and long term debt
Present value
Added to balance sheet
Adjunct
Subtracted from balance sheet
Contra
Calculate retained earnings
Revenue - expenses - taxes = NI
NI + RE beg of year = RE end of year
Reporting AR at NRV is a departure from the accounting principle of
Conservatism
FV
Market Value
Historical Cost
Historical cost
Income statement format
Net sales
- COGS
=gross margin
- operating expenses
+/- miscellaneous gains/losses
+/- unusual items
= income from continuing operations before tax - income tax expense
= income from continuing operations
+/- income from discontinued operations
= net income
EPS:
Income from continuing operations
Income from discontinued operations
Net income
How do you calculate the cash balance at the end of the year provided operating, investing, and financing activities
Operating - investing + financing + beginning cash
Calculate operating activities
Net income
Cash flows from operating activities - direct method
Inflow:
From customers
Dividends
Interest received
Outflows: To suppliers for op exp, goods To employees for payroll Interest paid Income taxes
Cash flows from investing activities
Inflows:
Sale of LT assets
Collection of loan principal
Disposal of debt and equity (AVS security)
Sale of other productive asset (not inventory)
Outflows: Purchase of LT assets Lending Investment in debt and equity security Purchase of other productive assets (not inv)
Cash outflows from financing activities
Inflows:
Sale of own stock
Proceeds from borrowings (bonds notes)
Outflows:
Repurchase of treasury stock
Paying back lenders (principals only)
Payment of dividends
Prepaid interest
Asset
Unamortozed bond discounts
Assets
Working capital
Current assets - current liabilities
Working capital ratio
Current assets/ current liabilities
Acid test ratio, aka quick ratio
(Cash + net receivables + marketable securities)/current liabilities
Times interest earned ratio
(Net income + interest expense + income tax)/interest expense
AR turnover
Net credit sales / average AR
Number of days in average receivable
365/ AR turnover
Inventory turnover
COGS/average inventory
Number of days supply in inventory
365/inventory turnover
Profit margin
Net income/ sale
Total asset turnover
Sales/average total assets
ROA
Net income / avg total assets
ROE
Net income / avg shareholders equity
Leverage
Avg total assets/ avg shareholders equity
COGS
Beg inventory + purchases - ending inventory
