Financial Accounting Week 2 Flashcards
(43 cards)
Revenue Recognition
Companies recognize revenue when “performance obligation is stratified” and have completed the five steps of Revenue Recognition.
What are the five steps in Revenue Recognition
- Identify the contract with a customer.
- Identify the performance obligation(s) in the contract.
- Determine the transaction price.
- Allocate the transaction price to each performance obligation.
- Recognize revenue when (or as) each performance obligation is satisfied.
What does Cash and Cash Equivalents refer to within financial accounting?
- Cash: money or currency
- Cash equivalents: money market funds, short term certificates, treasury bills, etc.
- Restricted Cash: cash that is restricted because it’s an investment or similar asset
What does Accounts Receivable (A/R) refer to within financial accounting?
Funds owed to target company from the sale of goods or services. The initial valuation of A/R is at the amount of the credit sale, with subsequent valuation of A/R is at the amount expected to be received.
What two things must be estimated to determine the Net Realizable?
- The amount that will not be collected because some customers are unable to pay
- The amount that will not be collected because of sales returns
What do you call an amount that will not be collected because some customers are unable to pay?
Uncollectible, or Uncollectible A/R
What is the Provision Method?
Allowance for Uncollectible Accounts
What is Inventory within financial accounting?
Assets consisting of goods owned by the business and held for resale or for future
What costs should be included in inventory?
Inventory should include costs of the goods plus all costs required to obtain physical possession and to put the merchandise in saleable condition.
What are the two types of inventory within financial accounting?
- Merchandising Inventories
- Manufacturing Inventories
What are Inventory Cost Flow Assumptions?
Firms purchase or manufacture products at different times and different costs
What are the four Inventory Costing Methods?
- Specific Identification
- First-In, First-Out (FIFO)
- Last-In, First-Out (LIFO)
- Average cost
What kind of assets are Investments within financial accounting?
Assets that include company investments in other entities’ debt securities and equity securities.
What do Investments categorized under Consolidation offer?
Equity with “control”
What do Investments categorized under Equity Method offer?
Equity with “significant influence”
What do Investments categorized under Fair-Value Method offer?
Equity without “significant influence”
What do Investments categorized under Held-to-Maturity offer?
Debt with intention of holding to maturity
What do Investments categorized under Trading offer?
Debt with intention of holding for a short period to get a gain
What do Investments categorized under Available-for-Sale offer?
Debt without intention of holding to maturity or intention of holding for a short period to get a gain
What requirements do Property Plant and Equipment (PPE) need?
- Actively used in operations
- Long-term periods of service utility
- Have physical substance
How do you report PPE on Balance Sheet?
Reported at Historical Cost less Accumulated Depreciation. If impairment of value, write down to reflect lower fair market value.
Which expenditures should we include in “Historical Cost” for PPE?
All costs necessary to (1) acquire the asset and (2) make it ready for use. Historical Cost would include any costs to get the asset ready for use, called “capitalized costs”.
In reference to PPE on balance sheets, what are capitalized costs?
Costs included in the assets account
How is a PPE a capitalization versus when it is an expense?
Expenditures which have been capitalized depreciate over time of the asset, whereas net income is the same over the life of the company
