Financial Statements Flashcards
What approach is used when financial statements are prepared?
The all-inclusive approach.
Where and how are prior period adjustments shown?
Statement of Retained Earnings as adjustments to the beginning balance of retained earnings in the year that the error is discovered.
What are the items in other comprehensive income?
Unrealized gains and losses on investments in securities available for sale,
certain pension cost adjustments,
foreign currency translation adjustments, and
unrealized gains and losses on certain hedging activities.
Name the two different formats of presentation for the balance sheet.
Account Form and Report Form.
How are assets presented on the balance sheet?
Assets are presented in order of decreasing liquidity. The most liquid assets (such as cash) are shown first, and less liquid assets are shown last (such as property, plant and equipment).
How are liabilities presented on the balance sheet?
Liabilities are shown in order of maturity. Current liabilities are presented first, and then, long-term liabilities are presented.
How is owner’s equity presented on the balance sheet?
In order of permanence.
What are current liabilities?
Liabilities that are due in the upcoming year or the operating cycle of the business, whichever is longer and which will be met through the transfer of a current asset or the creation of another current liability.
How are long-term assets and liabilities defined?
By exclusion from current assets and current
liabilities.
What is the purpose of the statement of cash flows?
To explain the change in cash and cash equivalents that has occurred during the past accounting year.
What are cash equivalents?
Short-term investments that are convertible into a known and fixed amount of cash and have an original maturity to the purchaser of three months or less.
What are the categories that are listed on the
statement of cash flows?
- Operating
- Investing
- Financing
Operating – Those cash flows related to transactions that flow through the income
statement.
Example:
Operating cash inflows include receipts from customers and interest. Cash outflows include payments to suppliers, to
employers, and to taxing authorities.
Investing – Cash flows related to the acquisition and disposal of long-term
assets and investments (other than cash equivalents and trading securities - these
are operating).
Example:
Investing cash outflows include purchases of plant assets and investments. Cash inflows include proceeds from the sale of these items.
Financing – Cash flows related to the liabilities and owners’ equity sections of the
balance sheet.
Example:
Financing cash inflows include issuing debt and equity securities. Cash outflows include retirement of debt and equity securities, and dividend payments.
