General Purpose Financial Statements Flashcards
How are current assets listed on the balance sheet?
Declining order of liquidity.
What is another name for the balance sheet?
The statement of financial position.
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.
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 “current liability”.
A liability expected to be extinguished through the use of current assets or by the incurrence of other current liabilities.
Describe the formula for quick or acid test ratio.
(Cash + short-term investments + Accounts Receivable)/Current Liabilities.
A contra account must have a credit balance.
FALSE
Historical cost , market value, and present value are all measurement attributes presented on the balance sheet.
TRUE
Could a firm with an operating cycle of three years in duration report as current a liability due two years from the balance sheet date?
YES
All contra accounts are also valuation accounts.
FALSE
Account Form is the term applied to the balance sheet format that shows assets on the left and liabilities and equity on the right.
TRUE
An account balance of $10,000 may represent different attributes, depending on the account.
TRUE
Are at least two formats for reporting balance sheet information found in common use?
YES
Does accounting income take a transactions-based determination of income or a change in net worth?
Accounting income is transaction based.
What represent increases in net assets or settlements of liabilities by providing goods and services?
Revenues.
Define “losses”.
Decreases in equity or net assets from peripheral or incidental transactions.
Define “gains”.
Increases in equity or net assets from peripheral or incidental transactions.
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;
Foreign currency translation adjustments;
Unrealized gains and losses on available for sale (AFS) securities;
Unrecognized pension items;
Cumulative effect of changes in accounting principle;
Unrealized gains and losses on cash flow hedges.
What is economic income?
The change in the net worth of a business enterprise during an accounting period.
How are unusual and/or infrequent items reported?
They must be separately reported if material as a component of income from continuing operations.
What is the order of income statement presentation?
Income from Continuing Operations;
Income from Discontinued Operations (net of tax);
Net Income.
What is operating margin?
The excess of operating revenues over operating expenses.
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 does the single-step income statement present?
Total revenues and gains less total expenses and losses.
GAAP prescribes detailed reporting requirements for items appearing above continuing operations in the income statement.
FALSE
All inflows of assets are revenues.
FALSE
Prior period adjustment is not found below income from continuing operations in the income statement.
TRUE
All items of operating income would appear above income from continuing operations in the income statement.
TRUE
Gross margin is subject to intraperiod tax allocation.
FALSE
Both losses and expenses cause income to decrease and cause a benefit for the firm.
FALSE
A loss could be associated with the incurred liability.
TRUE
Intraperiod tax allocation requires that cumulative effects of accounting principle changes be reported net of tax.
TRUE
Unusual and infrequent items appear above income from continuing operations.
TRUE
Miscellaneous revenues and expenses appear below income from continuing operations in the income statement.
FALSE
One example of an expense is an increase in a liability from providing the firm’s main service.
TRUE
Gains and revenues arise from the same transactions.
FALSE
Intraperiod tax allocation is the process that adjusts deferred tax accounts.
FALSE
Income from continuing operations is more indicative of future performance than is net income.
TRUE
The income tax expense account reflects the tax effect only on those items above income from continuing operations.
TRUE
