Financial Reporting and Analysis

Question 1

Credit Migration Risk

Answer 1

The risk that a bond issuer’s creditworthiness deteriorates leading investors to believe that the risk of default is higher

Question 2

Accounts Payable

Answer 2

When a business owes its vendors for goods and services which were purchased but which have not yet been paid

Question 3

Accounts Receivable

Answer 3

Amounts that the company is owed for things that have been sold or returned

Question 4

Accounts Receivable turnover

Answer 4

Net Credit Sales/Average Accounts Receivable
Measure of how efficient the company is with its AR

Question 5

Accrued Expenses

Answer 5

Expenses incurred but not yet paid (at end of an accounting period), this results in a liability. (Some examples would be salaries or rent that have been incurred but not paid by the end of the period).

Question 6

Accrued Interest

Answer 6

Interest earned but not yet paid
This is a liability

Question 7

Acquisition Method

Answer 7

Method of accounting for a business combination - Acquirer is required to measure each identifiable asset and liability at fair value.

Was the result of an attempt by IASB and FASB to support convergence of standards for the accounting of business combinations

Question 8

Amortized cost

Answer 8

The cost of an asset adjusted for amortization and impairment.

Historical (initial) cost, reduced by amortization and impairment.

Question 9

International Financial Reporting Standards

Answer 9

International Accounting Standards Board (IASB) accounting standards

Question 10

Generally Accepted Accounting Principles (GAAP)

Answer 10

standardized accounting practices utilized in ensuring that financials are accurately recorded and managed. Recipients of federal awards are required to accurately maintain their financial records; hence, they would need to follow GAAP.

Question 11

Double Entry

Answer 11

All accounting is based on a double entry system, where there are two sides to every transaction. When any transaction is entered into an accounting system, there must be at least two accounts affected (there can be more), one for each side of the transaction.

Question 12

Accounting Equation

Answer 12

The underlying basis of the statement of financial position or balance sheet.
Assets = Liabilities + Owner’s Equity

Question 13

Accrual Accounting

Answer 13

Recognizing revenue when it is earned and recognizing expenses in the period incurred without regard to the time of receipt or payment of cash.
NI=Revenue earned-Expenses incurrer

Question 14

Debits & Credits

Answer 14

Debits are recorded on the left side of an account ledger while credit recorded on the Right side of an account ledger. The total of debits and credits for a transaction must be equal to be in balance

Question 15

Debits & Credits Chart

Answer 15

Accounts Debits Credits
Assets Increase Decrease
Liabilities Decrease Increase
Owner’s Equity Decrease Increase
Revenues Gains Decrease Increase
Expenses, losses Increase Decrease

Question 16

Current Liabilities

Answer 16

Obligations that are reasonably expected to be liquidated either through the use of current assets or the creation of other current liabilities within a year or within the operating cycle, whichever is longer. Ex: NP,AP, Accrued items, income taxes payable, current maturities of ltd, ect.

Question 17

Priori Probability

Answer 17

A probability based on logical analysis rather than an observation or personal judgement

Question 18

Abnormal profit

Answer 18

Equal to accounting profit less the implicit opportunity costs not included in total accounting costs; the difference between total revenue (TR) and total cost (TC)

Question 19

Abnormal Return

Answer 19

The amount by which a security’s actual return differs from its expected return, given the security’s risk and the market’s return

Question 20

Matching Principle

Answer 20

requires revenues to be matched or recorded with the expenses related to generating those revenues. Matching principle is an important characteristic of accrual-based financial statements.

Question 21

Balance Sheet

Answer 21

Shows the company’s resources at a point in time, as well as claims to those resources

Question 22

Current Assets and Liabilities

Answer 22

Those that will be converted to cash, used up, or statisfied (in the case of liabilities) within one year or within the operating cycle, whichever is longer.

Question 23

Working Capital

Answer 23

The difference between current assets and current liabilities is called working capital

Question 24

Assets

Answer 24

Resources that are owned or used by a business to produce a current or future benefit

Question 25

Deferred tax

Answer 25

result from timing differences between financial accounting and tax accounting

Question 26

Accumulated Depreciation

Answer 26

An accounting measure that represents the total depreciation expense recognized on a fixed asset(PPE) over its useful life, up to a specific point in time.
Used to offset the cost of PPE over time

Question 27

Liabilities

Answer 27

represent the current and future obligations (debts) of the firm.

Question 28

Common Types of Liabilities

Answer 28

• Accounts Payable
• Notes Payable
• Unearned Revenue
• Long-Term Debt
• Deferred Tax Liabilities

Question 29

Shareholders’ equity

Answer 29

the owners investment and the total earnings retained from the beginning of the business

Question 30

Income Statement

Answer 30

Allows the user of financial information to see the results of a company’s day-to-day operation for the entire year

Question 31

Revenues

Answer 31

Primarily includes sales of goods and services, but may also include items such as interest and dividend income or rental income.

Question 32

Gains

Answer 32

Created when companies sell assets (buildings, equipment, investments, etc) for more than their book value

Question 33

Expenses

Answer 33

Represent use of Resources

Question 34

Cost of goods sold

Answer 34

The total cost a business has paid out of pocket to sell a product or service. It measures the “direct cost” incurred in the production of any goods or services.

Question 35

Gross Profit

Answer 35

Subtracting cost of goods sold from revenue results in gross profit

Question 36

Non-recurring Items

Answer 36

income (or losses) from outside the company’s normal business operations and caused by events or transactions that do not typically occur