Midterm 1 (Ch 1-3) Flashcards
Return on Assets or Return on Investment
Net income / Average Assets.
Average Assets is the average of starting and ending assets
Debt Ratio
Total Liabilities / Total assets
Profit Margin
Net Income / Net Sales
Current Ratio
Current Assets / Current Liabilities
Measurement Principle / Cost Principle
Information is recorded at actual cost. It’s not based on what you think it’s worth, but on how much you actually paid.
Revenue Recognition Principle
Revenue is recognized when it’s earned (or incurred). Not when the money is received.
Expense Recognition Principle / Matching Principle
You must record the expenses incurred to generate the revenue reported.
Full Disclosure Principle
A company must include the details behind financial statements. Usually these take the forms of footnotes.
Going Concern Assumption
There’s an assumption that the business will continue to operate.
Monetary Unit Assumption
There’s an assumption that the transactions can be expressed in monetary units
Time Period Assumption
The life of a company can be divided into time periods
Business Entity Assumption
The business is accounted for separately from other entities and from the owner(s).
