General Purpose Financial Statements - WIley Flashcards
Define “current liability.”
A liability expected to be extinguished through the use of current assets or by the incurrence of other current liabilities
How are current assets listed on the balance sheet?
Declining order of liquidity
Define “measurement base.”
The attribute of an account being measured and reported
Describe the formula for quick or acid test ratio.
(Cash + Short-term investments + Accounts receivable)/Current liabilities
Define “net realizable value.”
The amount the firm expects to receive from the sale or collection of an item
What is a valuation account used for?
Used to increase or decrease the book value of an item to a measure of current value
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 another name for the balance sheet?
The statement of financial position
Define “expenses.”
Decreases in net assets or incurrence of liabilities through the provision of goods or services
Define “gains.”
Increases in equity or net assets from peripheral or incidental transactions
Define “losses.”
Decreases in equity or net assets from peripheral or incidental transactions
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
What is the order of income statement presentation?
- Income from continuing operations
- Income from discontinued operations (net of tax)
- Net income
How are unusual and/or infrequent items reported?
They must be separately reported if material as a component of income from continuing operations.
What represent increases in net assets or settlements of liabilities by providing goods and services?
Revenues
Does accounting income take a transactions-based determination of income or a change in net worth?
Accounting income is transaction based.
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 before taxes Income before taxes − Taxes = Net Income
What is operating margin?
The excess of operating revenues over operating expenses
What is comprehensive income?
Net income plus or minus unrealized gains and losses on securities available for sale, unrealized pension cost, certain unrealized gains and losses on derivatives, and foreign currency translation adjustments
What are other comprehensive income items?
- Unrealized gains and losses on securities available for sale
- Unrecognized pension gains and losses
- Foreign currency translation adjustments
- Certain derivative gains and losses
What type of account is accumulated other comprehensive income (AOCI)?
Owner’s equity
What are the two ways of reporting comprehensive income?
- As a separate statement of comprehensive income
2. As part of the income statement
What are the types of statements of other comprehensive income?
- Single statement of net income and comprehensive income
2. Two separate statements: a statement of net income and a statement of comprehensive income
What is net income plus or minus other components of comprehensive income?
Comprehensive income
What are the forms of the statement of comprehensive income?
- Single statement
2. Two statements
What is the main purpose of disclosing comprehensive income?
To report the net change in equity in a single amount
What is other comprehensive income (OCI) reclassification adjustment?
When an OCI item from a previous year is removed from accumulated other comprehensive income (AOCI)
List the other names for statement of changes in equity.
- Statement of changes in owners’ equity
- Owners’ equity statement
- Statement of shareholders’ equity
- Statement of owners’ equity
In what type of format does the statement of changes in equity appear?
The format is vertical and horizontal.
How are accounts listed in the vertical format?
They are listed in separate columns.
What do vertical format statements allow accountants to do?
Check accuracy by comparing total owner’s equity (OE) computed as (1) the sum of each transaction affecting OE and (2) the sum of individual OE account balances
Does accumulated other comprehensive income (AOCI) have its own column in the vertical format?
Yes, it has its own column.
How many years of owners’ equity (OE) must be reported by Securities and Exchange Commission (SEC) registrants?
Three years of OE statements
Is the statement of changes in equity required under international financial reporting standards (IFRS)?
Yes, it is required.
