General Purpose Financial Statements Flashcards
Define “current liability”.
A liability expected to be extinguished through the use of current assets or by the incurrence of other current liabilities.
What is the operating cycle?
The period of time from the purchase of inventory, to payment of the payable on inventory purchase, to the sale of goods, to the collection of receivable, and then to purchasing inventory all over again.
What is a valuation account used for?
Used to increase or decrease the book value of an item to a measure of current value.
Define “measurement base”.
The attribute of an account being measured and reported.
Define “net realizable value”.
The amount the firm expects to receive from the sale or collection of an item.
Describe the formula for quick or acid test ratio.
(Cash + short-term investments + Accounts Receivable)/Current Liabilities.
What is another name for the balance sheet?
The statement of financial position.
How are current assets listed on the balance sheet?
Declining order of liquidity.
How are unusual or infrequent items reported?
They must be separately reported if material as a component of income from continuing operations.
Define “gains”.
Increases in equity or net assets from peripheral or incidental transactions.
What is economic income?
The change in the net worth of a business enterprise during an accounting period.
What is operating margin?
The excess of operating revenues over operating expenses.
What represent increases in net assets or settlements of liabilities by providing goods and services?
Revenues
Define “expenses”.
Decreases in net assets or incurrence of liabilities through the provision of goods or services.
What items are not shown on the income statement?
- Prior period adjustments; 2. Foreign currency translation adjustments; 3. Unrealized gains and losses on available for sale (AFS) securities; 4. Unrecognized pension items; 5. Cumulative effect of changes in accounting principle; 6. Unrealized gains and losses on cash flow hedges.
Does accounting income take a transactions-based determination of income or a change in net worth?
Accounting income is transaction based.
What is the order of income statement presentation?
- Income from Continuing Operations; 2. Income from Discontinued Operations (net of tax); 3. Extraordinary Items (net of tax); 4. Net Income.
Define “losses”.
Decreases in equity or net assets from peripheral or incidental transactions.
What does the single-step income statement present?
Total revenues and gains less total expenses and losses.
What does the multiple-step income statement present?
Includes multiple subtotals of revenues, expenses, gains, and losses. (Sales - Cost of Goods Sold = Gross profit; Gross profit - operating expenses = income from operations; Income from operations + or ? other income / expenses= Income B/F Taxes; IBT ? taxes = Net Income.)
What is presented in the related party transaction disclosures?
Nature of relationship, description of all transactions for years presented, dollar amounts of transactions, and receivables to or from parties.
What is the Management Discussion & Analysis (MD&A) section?
Management Discussion & Analysis: a narrative written by management that is an integral part of the disclosure of the financial statements.
Define “nominal dollars”.
Measurements in the price level in effect at a transaction date. These measurements are not adjusted for inflation.
Define “purchasing power loss”.
Losses that result from holding monetary assets during inflationary times or having monetary liabilities during deflationary times.
What disclosure is required by firms in hyperinflationary economies under International Financial Reporting Standards (IFRS)?
Disclosure of the impact of inflation on the financial statements is required.
Define “constant dollars”.
Measurements in the general price level as of a specific date.
What is the difference between errors and irregularities?
Errors are unintentional, irregularities are intentional.
What is included in illegal acts for companies?
Illegal contributions and bribes.
Define “inflation”.
It is the increase in general prices for a period of time; deflation is the decrease in general prices.
Under International Financial Reporting Standards (IFRS), what should the Summary of Significant Accounting Policies include?
Judgments and key assumptions made in applying those policies; Measurement bases used for recognition (e.g., historical cost, fair value); Information enabling an assessment of the estimation uncertainty that could result in a material adjustment to the balances of assets and liabilities, which are point estimates in many cases.
Define “purchasing power gain”.
Gains that result from holding monetary assets during deflationary times or having monetary liabilities during inflationary times.
What are the disclosure requirements for noncurrent liabilities?
Combined aggregate amount of maturities on borrowings 5+ years after balance sheet, sinking fund requirements; the aggregate amount of payments for unconditional obligations to purchase fixed or minimum amounts of goods or services; the fair value of each financial debt instrument in the financial statements or in the notes; the nature of the firm’s liabilities, interest rates and maturity dates, conversion options, assets pledged as collateral, and restrictions.
Define “monetary items”.
The specific price of monetary items cannot change.
Define “purchasing power”.
The purchasing power of an asset is the amount of goods and services that can be obtained by transferring the asset to another party.
