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Financial Statement Analysis > First Exam > Flashcards

First Exam Flashcards

0
Q

What is the realization concept?

A

Revenue and expenses are recorded when they occur and not when cash is received or paid out

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1
Q

What are The GAAP rules?

A 
Separate entity
Going concern
Monetary unit
Time period
Historical cost
Conservatism
Realization
Matching 
Consistency
Materiality
Full disclosure
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2
Q

What is the consistency concept?

A

Once an accounting method has been chosen, that method should be used unless there is a sound reason to do otherwise

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3
Q

What is the going concern concept?

A

The business entity for which accounts are being prepared is in good condition and will continue to be in business in the foreseeable future. If the firm can no longer operate or is liquidated then it will no longer be a going concern

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4
Q

What is the conservatism concept?

A

Shows least favorable position

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5
Q

What is the time period concept?

A

A business should report the financial results of its activities over a standard time period, usually monthly, quarterly or annually

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6
Q

What is the separate entity concept?

A

You must separately record the transactions associated with a business from its owners or other businesses.

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7
Q

What is the full disclosure concept?

A

Financial statements and their notes should contain all relevant data

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8
Q

What is the matching concept?

A

The costs of doing business are recorded in the same period as the revenue they help to generate

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9
Q

What is the historical cost concept?

A

It is the original cost at the the time of a transaction

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10
Q

What is the materiality concept?

A

Accountants are required to follow GAAP except where it makes no real difference if the rules are ignored and when doing so would be exceedingly expensive or difficult.

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11
Q

What is the monetary unit concept?

A

Recording business transactions that can be expressed in terms of currency

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12
Q

How is the matching principle related to the realization concept?

A

The matching principle deals with the costs to be matched again ex revenue, the realization concept has to do with the determination of revenue. The combination of revenue and costs determine income.

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13
Q

What is accounting?

A

The process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by the users of the information

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14
Q

Cash basis of accounting

A

Recognize revenue when cash is collected

Recognize expense when cash is paid

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15
Q

Accrual basis of accounting

A

Revenue recognized when earned-realization concept

Expenses recognized when incurred( not yet paid for…..taking out on credit)- matching concept

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16
Q

Definition of assets

A

Probable economic benefits obtained or controlled by a particular entity as a result of past transactions or events

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17
Q

Define expenses

A

Outflows or other consumption or using up of assets or incurrences of liabilities (or a combination of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing major or central operations.

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18
Q

Auditors opinion

A

Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion

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19
Q

Unqualified opinion

A

The financial statements present fairly, in all material respects, the results of operations, and cash flows of the entity, in conformity with GAAP

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20
Q

Qualified opinion

A

Except for the effects of the matter(s) to which the qualification relates, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of the entity, in conformity with GAAP

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21
Q

Adverse opinion

A

The financial statements do not present fairly the financial position, results of operations, and cash flows of the entity, in conformity with GAAP

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22
Q

Disclaimer of opinion

A

The auditor does not express an opinion on the financial statements. A disclaimer of opinion is rendered when the auditor has not performed an audit sufficient in scope to form an opinion

23
Q

What is the basic accounting equation?

A

Assets= liabilities + stockholder’s equity

24
Q

What are permanent accounts and what do they include?

A

Accounts that do not close at the end of the accounting year. Include accounts receivables

25
Q

What is a temporary account and what does it include?

A

Closed to retained earnings and not carried forward to the next period. Includes all of the income statement accounts

26
Q

Why are notes to statements necessary?

A

The notes to the financial statements provide important disclosures and details to the information reported in the financial statements

27
Q

What are contingent liabilities?

A

A contingent liability is a potential liability, it depends on a future event occurring or not occurring. Lawsuits against the firm is a contingent liability.

28
Q

Which depreciation method is best for reporting?

A

Straight-line depreciation is better because it results in higher profit.

29
Q

Which depreciation method is better for tax purposes?

A

Double-declining balance because it allows the highest depreciation and lower taxes in the early years of the life of the asset. It increases the firm’s cash flow in the short run

30
Q

What are current assets?

A
  1. In the form of cash
  2. Will normally be realized in cash
  3. Conserve the use of cash during the operating cycle of a firm or for one year, whichever is longer
31
Q

What are non-current assets?

A

Long-term assets that take longer than a year or an operating cycle to be converted into cash or to conserve cash.

32
Q

Current assets

A

Cash, marketable securities, short-term receivables, inventories and prepaids

33
Q

Long-term assets

A

Tangible assets, investments, intangible assets and others

34
Q

What is depreciation?

A

The process of allocating the cost of buildings and machinery over the periods of benefit

35
Q

What are donated capital?

A

Donated capital results from donations to the company by stockholders, creditors or other parties

36
Q

Straight-line method (equation)

A

Cost-salvage / amt. of life

37
Q

What are the rules of debit (Dr.) and credit (Cr.)?

A
  1. Assets Debit
  2. Liabilities. Credit
  3. Capital. Credit
  4. Withdrawal. Debit
  5. Income. Credit
  6. Expense. Debit
38
Q

What are the major components of the balance sheet?

A

Assets, liabilities and stockholder’s equity

39
Q

What is cash?

A

What the company has in the bank

CA

40
Q

What are marketable securities?

A

Short-term investments that can be both equity and/or debt securities for which a ready market exists

CA

41
Q

What are accounts receivables?

A

The money that is owed to the company for the goods and services it has provided to customers on credit

CA

42
Q

What is inventory?

A

Raw materials and items that are available for sale or are in the process of being made ready for sale

CA

43
Q

What are prepaid expenses?

A

Payments that have been made for services that the company expects to receive in the near future

CA

44
Q

What are investments?

A

Investments that management does not expect to sell within the year.

Bonds, common stock, long term notes, pension funds, sinking funds, etc.

NA

45
Q

What are fixed assets.

A

Durable physical properties used in operations that have a useful life longer than a year

Machinery & equipment, buildings or plants, land

NA

46
Q

What are other assets?

A

Special classification for unusual items that cannot be included in one of the other asset categories

NA

47
Q

What are intangible assets.

A

Assets that lack physical substance but provide economic rights and advantages

Patents, franchises, goodwill, copyrights, trademarks and organization costs

NA

48
Q

What is accounts payable?

A

The amount owed to suppliers for products and services that are delivered but not paid for

CL

49
Q

What are wages payable (rent, tax, utilities)?

A

This amount is payable to employees , landlords, government and others

CL

50
Q

What are notes payable?

A

An amount that the company owes to a creditor and it usually carries an interest expense

CL & NL

51
Q

What are dividends payable?

A

Occurs as a company declares a dividend but has not yet paid it out to its owners

CL

52
Q

What is bonds payable?

A

Long term debt net of current portion

NL

53
Q

What is deferred income tax liability?

A

Taxes due in the future on income that has already been recognized for the books

NL

54
Q

What are extraordinary item?

A

Events or transactions that are distinguished by their unusual nature and infrequency of occurrence.

Might include casualty losses or losses from expropriation or prohibition. Might be shown separately , net of tax, in order that trend analysis can be made of income before extraordinary items

Financial Statement Analysis (1 decks)

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