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ZAcctingMidtermPrep > Financial Statements > Flashcards

Financial Statements Flashcards

1
Q

Financial Accounting Standards

A

Investors & Creditors make their decisions based on Financial Accounting information detailed in (GAAP)

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2
Q

GAAP

A

Generally Accepted Accounting Principles

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3
Q

Global Financial Reporting Standard

A

International Accounting Standards Board (IASB)

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4
Q

US Financial Reporting Standard

A

Financial Accounting Standards Board (FASB)

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5
Q

Which enforcing body governs FASB?

A

Securities and Exchange Commission (SEC)

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6
Q

What is an auditor report?

A

Auditors formally state their professional opinion about the financial statments in a report called the “report of independent auditors”, also coined the auditors opinion.

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7
Q

What are the different types of auditors reports?

A

Unqualified
Unqualified with an explanatory or emphasis paragraph
Qualified
Adverse

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8
Q

What is a 10k?

A

“The” Annual Report

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9
Q

What is Management Discussion and Analysis (MD&A)?

A

Provided by the company’s management

Management’s views on significant events, trends and uncertainties pertaining to the company’s

  • Operations
  • Liquidity
  • Capital Resources
  • Off-Balance Sheet Arrangements &
  • Critical Accounting Estimates
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10
Q

What is included in the summary of significant accounting policies?

A

Discloses come of the financial accouting choices the company makes, including

  • Choices between different methods of accounting for inventory, depreciation, etc.
  • Policies regarding the timing of recognizing revenue.
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11
Q

Describe Balance Sheets.

A

It reports a company’s financial position at a point in time

It is an organized list of assets, liabilities, and equity

It is grouped by common characteristics

It considers the operating cycle of the company (typically 1 year)

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12
Q

Describe Current Assets.

A

Current Assets include cash and other assets, expected to be converted to cash, or within the normal operating cycle of the business

Listed in decreasing order of liquidity

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13
Q

Describe Long-Term Assets

A

Long Term assets are expected to provide economic benefits for greater than a year.

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14
Q

What are the four types of Asset Measurement?

A

Historical Cost
Amortized Cost
Net Realizable Value
Fair Value

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15
Q

What is Historical cost?

A

Asset Measurement based on the asset’s original transaction value

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16
Q

What is Amortized Cost?

A

Asset Measurement wherein the historical cost of an asset is adjusted for depreciation and amortization accumulated over its lifetime

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17
Q

What is Net Realizable Value?

A

Asset Measurement by which an asset is valued based on the net amount of cash which an asset could be converted in the ordinary course of business

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18
Q

What is Fair Value?

A

Fair Value is an asset measurement system where the price that would be received to sell assets in an orderly transaction between market participants on a given date (Market or present)

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19
Q

What are liabilities?

A

Liabilities represent business obligations to others (entities, suppliers, employees, customers, lenders, etc.

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20
Q

What are the categories of liabilities?

A

Current Liabilities
Long-Term Liabilities

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21
Q

Define and provide examples of current liabilities.

A

Liabilities due within a year.

Examples:
Accounts Payable
Deferred Revenues
Accrued Liabilities

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22
Q

Define Accounts Payable.

A

Obligations to suppliers of merchandise or services purchased on account (payment is usually due in 30-60 days)

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23
Q

Define Deferred Revenues.

A

Deferred Revenues represent cash received from a customer for goods or services to be provided in a future period.

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24
Q

Define Accrued Liabilities.

A

Accrued Liabilities represent obligations created when expenses have been incurred (initiated) but not paid.

25
Q

What are some examples of Accrued Liabilities?

A

Accrued Salaries Payable
Accrued Interest Payable

26
Q

Define and provide examples of Long-Term liabilities.

A

Long Term Liabilities are expected to be satisfied in more than a year.

Note: Some long-term liabilities will have a “current portion” due in the coming year.

Examples:
Note
Bond
Lease
Pension Obligation

27
Q

Define a “Note”.

A

A note is a long term loan in which the company is the borrower.

28
Q

Define a “Bond”.

A

A bond is a formal debt security issued by the company to a debt market.

29
Q

Define a “Lease”.

A

A lease is a financial obligation arising from an arrangement between two parties for the right to use an asset for a specified period of time.

30
Q

Define a “Pension Obligation”.

A

A pension obligation is an estimated financial commitment related to retirement benefits.

31
Q

Provide an example of a Long Term Asset with a portion due in the current year.

A

A $1,000,000 note payable requiring principal payments to be made in each of the next 10 years.

32
Q

What is Stockholders Equity?

A

Stockholders Equity is simply total assets minus total liabilities.

Assets - Liabilities = Stockholders’ Equity

Sometimes referred to as “Net Assets” or “Book Value”

33
Q

What are the 3 primary sources of Stockholders Equity?

A

Contributed Capital
Retained Earnings
Accumulated other comprehensive income

34
Q

What does contributed capital consist of?

A

Common Stock
Additional Paid in capital

35
Q

What is the role of estimates on the balance sheet?

A

Many items on the balance sheet are heavily reliant on estimates and judgements rather than determinable accounts.

36
Q

What are some examples of estimates on the balance sheet?

A

Account Receivable - the amount of receivables expected not to be collected

Inventory- amount that is obsolete and cannot be sold

Property Plant and Equipment - useful life of the asset

Investments - fair value of the investment

Warrant reserves - amount of warranty costs expected to occur in the future

Bonds payable - fair value of the company’s bond obligations

37
Q

What does the income statement measure and report?

A

The income statement measures activity over a period of time.

It reports a company’s profit (or loss) during a particular period; generally one year or one quarter.

Profit = Revenues and Gains - Expenses and Losses

38
Q

What are the three main components comprising an Income Statement?

A

Revenues
Expenses
Gains and Losses

39
Q

Define “Revenues”.

A

Amount of resources resulting from providing goods or services to customers.

40
Q

Define “Expenses”.

A

Expenses are costs incurred to generate revenue.

They represent the costs of providing goods and services.

41
Q

Define “Gains and Losses”. What is an example?

A

Gains or Losses increase or decrease in income from transactions not classified as revenues or expenses.

Example:
Gains and losses can arise when a company sells investments or Property Plant and Equipment for an amount that differs from their recorded amount.

42
Q

What are the ways to measure income?

A

Gross Profit
Operating Income
Nonoperating Income
Pre-tax income
Net Income

43
Q

Define “Gross Profit”.

A

Gross Profit = Sales Revenue - Cost of Goods Sold

44
Q

Define “Operating Income”.

A

Operating income includes Gross Profit “Less” additional expenses related to the operating activities of the company.

45
Q

Define “Non-operating Income”.

A

Non-operating income includes revenues, expenses, gains and losses related to investing and financing activities.

46
Q

Define “Pre-Tax Income”.

A

Pre-tax income is the sum of operating income and non-operating income.

47
Q

Define “Net Income”.

A

Net income is the total amount of all revenues and gains minus the total of all expenses and losses.

48
Q

Define Earnings Per Share.

A

Earnings Per Share (EPS) represents the amount of net income a company generates relative to the number of common shares outstanding.

49
Q

What are the two categories of Earnings Per Share (EPS)

A

Basic EPS
Diluted EPS

50
Q

What is the calculation for Basic Earnings Per Share and where is it reported?

A

Basic EPS = Net-Income / Weighted-Average Number of Common shares outstanding

Basic EPS is reported on the face of the income statement.

51
Q

What is the Statement of Cashflows?

A

Statement of cash flows provides information about the cash receipts and cash disbursements of a company.

52
Q

What is a Statement of cashflows helpful for?

A

Statement of Cashflows is helpful in assessing future profitability, liquidity, and long-term solvency.

53
Q

When is a Statement of Cashflows required to be reported?

A

It is required for each period when balance sheet and income statement are presented.

54
Q

What are the categories within Statement of Cashflows?

A

Operating Activities
Investing Activities
Financing Activities

55
Q

Describe examples of Inflows and Outflows for Operating Activities.

A

Inflows:
- Receipts from customers
- Cash Dividends received
- Interest from borrowers

Outflows:
- Salaries and wages
- Payments to suppliers (for inventory, supplies, etc.)
- Paying Taxes
- Interest Paid to Lenders

56
Q

Describe examples of Inflows and Outflows for Investing Activities.

A

Inflows:
- Selling Long Term Assets
- Selling Investments
- Collecting principal on loans

Outflows:
- Purchasing long-term assets
- Purchasing investments

57
Q

Describe examples of Inflows and Outflows for Financing Activities.

A

Inflows:
- Selling Stock
- Issuing bonds and notes
- Borrowing from lenders

Outflows:
- Pay dividends
- Purchasing treasury stock
- Repaying principal on loans

58
Q

Describe Cash Basis Accounting

A

Measurement of cash receipts and cash payments from transactions related to providing goods and services.

Answers the question: “where did the cash come from or go to?”

59
Q

Describe Accrual Basis Accounting

A

Measures revenues and expenses, regardless of when cash is received or paid

Answers the question: “how did we do?”

ZAcctingMidtermPrep (10 decks)

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