I. Conceptual Framework and Financial Reporting Flashcards
Recall the purpose and characteristics in the conceptual framework for businesses
Conceptual framework is the guiding principles, make financial reporting useful for making decisions.
Two primary qualitative characteristics
Faithful Representation - Completeness, Neutral, Free From Errors
Relevance - Predictive value, Confirmatory value, Material
Four Enhancing characteristics - Comparability, Verifiability, Timeliness, Understandability
Recall the due process steps followed by FASB to establish financial accounting and reporting standards
Project gets added to the agenda
Conduct research
issue discussion memorandum
hold public hearings on the topic
evaluate research and comments from interested parties.
Issue exposure draft
solicit additional comments and modify exposure draft
finalize new accounting guidance, need 4 of 7 members vote
Prepare a classified BS from a trial balance and supporting doc
Current assets, LT assets, Current Liab, LT Liab, Shareholder Eq.
Assets in order of liquidity
Common ratios for balance sheet
Current Ratio - Current Assets / Current Liab
Quick Ratio - Current Assets - Inv - Prepaids / Current Liab
Debt to Equity - Total Liab / Total Equity
Prepare multiple step income statement
Sales - COGS = Gross Income - Selling, general and admin exp - Depr = Operating Income \+/- misc rev, gains, expenses, losses (interest, misc) =Income before taxes -tax expense =Income from continuing operations \+/- income from discontinued operations =Net Income
Common ratios for income statement
Gross Margin - Gross Profit / Sales
Profit Margin - Net Income / Sales
Earnings per share - Net Income / Weighted avg common shares
Prepare statement of comprehensive income
Net income + other comprehensive income = comprehensive income
Unrealized gains or losses on AFS securities
Unrecognized gains or losses from pension costs
Foreign currency translation adjustments
Unrealized gains or losses from certain derivative transactions
Calculate reclassification adjustments for items of other comprehensive income
Accumulated other comprehensive income is reported in the shareholder equity section of BS.
OCI is accumulated until a gain or losses is realized.
Reclass through net income and AOCI is reduced by that amount.
Reported in notes to the FS.
Prepare statement of changes in Equity
Show changes in
Common Stock, Preferred Stock, APIC, Retained Earnings, Treasury Stock, AOCI
Footnotes or separate statement.
Statement of cash flows direct method
CF from operating activities + Cash received from customers, interest - Paid to suppliers, paid to employees,
CF from Investing activities + sale of PPE - Purchase of PPE
CF from financing activities + sale of stock - payment of dividends
=Net change in cash
Statement of cash flows indirect method
CF from Operating -Net Income + Depreciation, Decrease in AR, Inc AP - Increase in Inv, Gain on Sale
CF from investing - + Sale of PPE - Purchase PPE
CF from financing - + Sale of stock - Payment of dividends
Notes to the FS
Management D & A Significant Accounting Policies Related party transactions Concentration of credit risk Contingent liabilities - must be probable and reasonable estimate to accrue Other
consolidation terms
Controlling Interest - owns more than 50%
Non-controlling interest - less than 50%
Variable Interest Entity - controlled by another entity but not through voting rights
Primary Beneficiary - direct or indirect ability to make decisions for entity, obligation to absorb losses, right to receive returns from entity if they occur
Issuance costs / legal fees in consolidation
Costs to register and issue stock to acquire are netted against APIC.
Legal or consulting fees are expensed as incurred.
