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Financial Flashcards

1
Q

What is the purpose of GAAP

A

provide guidance to standard setters to develop high quality standards

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2
Q

objective of GAAP standards and regulations

A

provide financial information about companies useful to capital providers and decision making for investor who want to predict financial performance

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3
Q

Releveance

A

reporting processes must predict value and provide relevant information to decisions being made

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4
Q

Faithful Representation

A

when there is an agreement between a measure or description and the phenomenon it attempts to represent

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5
Q

Consistency

A

comparing financial statements of the same company from different reporting periods with the same methods

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6
Q

Comparability

A

ability to compare financial results from different entities

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7
Q

Verifiability

A

different, knowledgeable, and independent measures would reach census regarding whether information is a faithful representation

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8
Q

Timeliness

A

info is timely available to users early enough to be able to use in decision making

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9
Q

Qualitative characteristics of GAAP

A 
Relevance
Faithful Representation
Comparability
Consistency
Verifiability
Timeliness
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10
Q

Elements of Financial Statements

A 
Assets
Liabilities
Equity
Investments by Owners
Distribution to Owners
Comprehensive Income
Revenues
Expenses
Gains
Losses
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11
Q

Investments by Owners

A

increases in equity of a particular enterprise resulting in transfers from other entities to increase ownership

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12
Q

Distribution to Owners

A

decreases in equity of an enterprise resulting from transfers to owners

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13
Q

Comprehensive Income

A

changes in equity of an enterprise during a period from transactions and includes all changes in equity except from investments and distributions from owners

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14
Q

Revenues

A

inflows, other enhancements of assets, or settlements of liabilities during a period of delivering goods or services

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15
Q

Expenses

A

outflows or other use of assets during a specific period of delivering goods or services

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16
Q

Gains

A

increases in equity from peripheral or incidental transactions of an entity

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17
Q

Losses

A

represent decreases in equity arising from peripheral or incidental transactions

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18
Q

GAAP Assumptions

A

Economic Entity
Going concerns
Periodicity
Monetary Unit

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19
Q

Economic Entity Assumption

A

presumes all economic events can be identified with a particular economic entity

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20
Q

Going Concern Assumption

A

assumes a business will operate indefinitely

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21
Q

Periodicity Assumption

A

allows the life of a company to be divided into artificial time periods to provide timely information

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22
Q

Monetary Unit Assumption

A

states that financial statement elements should be measured in a particular monetary unit

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23
Q

What do Debits do

A

Increase Assets
Decrease Liabilities
Decrease Shareholder Equity

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24
Q

What do Credits do

A

decrease assets
increase liabilities
increase shareholder equity

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25
Income Statement
reports the business’s revenues, expenses, and net income for a specified period of time
26
Alt names for income statement
P&L/statement of operations
27
Balance Sheet
reports the company's assets, liabilities and owners' equity as of a specified date
28
Alt names for Balance Sheet
statement of financial condition/position
29
2 types of assets
current and long term | fixed and intangible
30
Basic accounting equation
A = L + OE
31
2 main sources of OE
paid in capital | retained earnings
32
multistep income statement
``` revenues (returns, discounts) --- net sales (COGS) --- Gross profits (ops expense) --- EBIT (aka operating income) (interest expense) --- EBT (taxes) --- net income ```
33
statement of cashflows sections
operating activities investing activities financing activities
34
operating activites
inflows and outflows of cash related to the transactions determining net income
35
cash inflow examples
sales to customer of goods and services | interest and dividends from investments
36
cash outflow examples
paying for purchases of inventory, salaries, ops expenses, interest on debt and income tax
37
the two methods of preparing the ops activities
direct and indirect
38
direct ops activities prep
shows the effect of cash on each activity
39
indirect ops activities prep
income from accrual basis accounting to cash basis by removing non cash items from net income
40
investing cashflow examples
purchase and sale of long term assets like buildings, land, equip, intangibles any investment buy or sale
41
financing activities examples
inflow - when cash is borrowed or invested | outflow - when cash is paid back or distributed to owners
42
do notes receivable or accts receivable generate interest
notes rec.
43
Inventory
cost of acquiring a good that isnt sold | shown on balance sheet
44
sales revenue
selling price of all goods sold to customers | shown on income statement
45
COGS
total COaGS to customers | expense recorded on the income statement
46
Periodic inventory system
inv. records are updated at the end of the period
47
Revenue Recognition Steps
Identify Contract Identify seller Determine prices allocate transaction price to performance obligation recognize rev when performance obligation is satisfied
48
Valuation Methods
``` Periodic Perpetual Specific ID FIFO LIFO Weighted Avg. ```
49
Periodic valuation
specific sale date are unknown, use beginning inv, purchases, ending inv. to calc total COGS
50
Perpetual Valuation
dates of sale matter, each sale date, COGS must be calculated
51
Specific ID valuation
individually IDs and records the cost of each item sold (cars, homes, high end goods)
52
FIFO
oldest items are sold first | :(grocery)
53
LIFO
newest items are sold first (rock yard)
54
Weighted Avg.
Calc weighted average cost per unit | (COGS avail for sale. # units avail for sale
55
Capitalization
recording purchases as assets and not as expenses in the current period
56
ordinary repairs and maint
relatively small and recurring expenditures that maintain normal ops, do not increase productivity
57
extraordinary repairs and maint
large and infrequent expenses, overhauls, replacements, that may increase productivity and useful life
58
Tangible asset
Physical substances, PPE, depreciate
59
Intangible asset
no physical substance, patent, copyright, trademark, amortized
60
depreciation
spreading historical cost of a fixed asset over the assets estimated useful life
61
cash basis accounting
revenue is recorded when cash is received | expenses are recorded when cash is paid
62
accrual basis accounting
revenues are recorded when earned or when services are performed REGARDLESS of when cash received expenses are recorded when incurred or become liable for them REGARDLESS when cash paid
63
amortization
lower the book value of a loan or an intangible asset over a set period of time
64
depreciation methods
straight line unit of production declining balance
65
straight line method
(cost - residual value) / useful life
66
units of production
(cost - residual value) / (Actual production / estimated total production)
67
declining balance
(cost - accumulated) x (2 / useful life)

Accounting Capstone (3 decks)

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