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principles of financial accounting > MIDTERM 1 terms > Flashcards

MIDTERM 1 terms Flashcards

1
Q

consolidated balance sheet

A

all branches of the firm + what the company owns

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2
Q

cash equivalents

A

i.e bonds

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3
Q

balance sheet normally are released few months before/after the highest revenue

A

after

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4
Q

net

A

depreciation

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5
Q

GOODwill

A

when one company acquires another company

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6
Q

assets

A

1 probable & quantifiable future economic benefits (excludes R&D expenses)

  1. as a result of past transaction or events (exchange of money must take place in the past –> excludes all promises and future contracts + all assets that have not been purchased + most anticipated profits)
  2. eventual cash flow to the entity
  3. company must have control to the assets
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7
Q

short-term marketable securities

A

asset

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8
Q

current asset vs. noncurrent asset

A

whether an asset can be turned into cash within one year

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9
Q

economic asset

A

not purchased - logo, brand name, reputation

benefit must be quantifiable — R&D expenses, anticipated profits

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10
Q

fair market value (marketable securities)

A

the price that a person reasonable interested in buying a given asset would pay to a person reasonably interested in selling it for the purchase of the asset or asset would fetch in the market place

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11
Q

historical cost = inventories + prepaid costs + land

depreciated historical cost = pp& e

A

will be less than FMV, therefore they will not be counted

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12
Q

notes receivable is a () term asset

account receivable is a () term asset

A

long

short

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13
Q

apple bought a company for 18b, and put 5b of the market price into good will. the company is only worth 15b right now. what is the current value of goodwill

A

5 - (18-15) = 2b

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14
Q

the firm sends a check for $600,000 to a landlord for two months’ rent in advance (asset?)

A

prepaid expense - no

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15
Q

the firm purchases a patent on a laser printer (asset?)

A

intangible assets – yes

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16
Q

(asset? ) a firm spent 6000 on developing a new computer system

A

r&d expense –> unquantifiable –> no

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17
Q

how to estimate account receiveable

A

past statistics, credit scores

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18
Q

how to estimate inventories

A

labor, cost of production etc

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19
Q

how to increase the value of PP&E

A

move things around + adjust depreciation

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20
Q

prepaid expense is an asset, and is a kind of deferred expense —> assets

A

these are the expense already paid for but have not yet incurred

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21
Q

liability (probable future sacrifices of assets or services where the amounts and timing of the economic resource are known and estimable)

A

conditions
1. past transactions must take place (excludes all future promises / liabilities / contracts)

  1. the amount to be sacrificed must be quantifiable and probable (excludes all unsettled lawsuits)
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22
Q

accrued expenses

A

liability term
expense has been incurred but not paid because money is paid after its used (i.e utility bill, taxes, wages etc.)

  1. also includes interests on debt
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23
Q

deferred revenue

A

liability

cash is received before services are provided (we owe customers our services)

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24
Q

accrued revenue

A

previously recorded in the asset account

services / products are delivered but cash is not received

25
Q

deferred expense

A

previously recorded as an asset

prepaid expenses, supplies etc. of which cash is paid before services are provided

26
Q

commercial paper

A

borrowing money from another company

liability

27
Q

economic liabilities

A

firm needs to receive something today excludes contracts

quantifiable sacrifices excludes unsettled lawsuits

28
Q

monetary value VS. Present Value

A

accounts payable + accrued expenses + deferred revenue VS. borrowings (commercial paper + long-term debt + leases_

29
Q

contingencies

A

reasonable possible and/or loss cannot be reasonably estimated

30
Q

firm receives — firm owes

  1. cash in — cash out
  2. product in – cash out
  3. cash in – product out
  4. service in – cash out
A
  1. borrowing (notes payable, commercial paper)
  2. accounts payable
  3. deferred revenue
  4. accrued expenses
31
Q

the company issuses bonds to investors and it will owe creditors

A

cash in - cash out –> bonds payable (it will owe creditors the amount of present value rather than the value of 10 years later)

32
Q

shareholder’s equity = contributed capital ( the amount invested by shareholders) + retained earnings + accumulated comprehensive income + additional paid-in capital

A

xx

33
Q

statement of cash flows

A

how cash and cash equivalents from the balance sheet changed over time

34
Q

operating activities

A

related to earnings, supplies

35
Q

investing activities

A

related to acquiring or selling pp&e or investments

36
Q

financing activities

A

related to borrowing or lending, or to cash receipts or payments to investors (stocks & dividends)

37
Q

cash must take place and be present in order for the transaction to be accounted as a statement of cashflow

A

purchasing something on credit X

38
Q

Accounts payable = receiving products today but paying the money tomorrow

A

to suppliers –> operating expense

39
Q

market -to-book ratio = MV/BV

A

for every dollar on the book, the company spends MTB value to the stock price

40
Q

working capital = current assets - current liabilities

current ratio = current assets (CA) / current liabilities (CL)

A
  1. if CR >1, the company has positive working capital
41
Q

working capital = current assets - current liabilities

current ratio = current assets (CA) / current liabilities (CL)

A
  1. if CR >1, the company has positive working capital because CA>CL –> CA-CL >0
  2. there is no ideal current ratio
  3. what matters is the year-to-year direction of the firm’s current ratio
42
Q

working capital = current assets - current liabilities

current ratio = current assets (CA) / current liabilities (CL)

A
  1. if CR >1, the company has positive working capital because CA>CL –> CA-CL >0
  2. there is no ideal current ratio
  3. what matters is the year-to-year direction of the firm’s current ratio
43
Q

when Chipotle issued stocks, which two SE accounts are affected?

A

common stock & additional paid-in capital

44
Q

income statement

A

revenues + expenses (COGS) –> net income

45
Q

revenues = actual or expected cash inflows that have occurred or will occur as a result of the entity’s ongoing major operations

A

conditions

  1. must be EARNED (what does the company do?)
  2. cash collection is “reasonably assured” - REALIZED
  3. no self-dealing, price is known, arrangement is in place
  4. actual & expected cash flows
46
Q

an order by DKNY from Saks for clothes (revenue ?)

A

no because products are not delivered –> not earned

47
Q

the sale of tickets in February by Sox for a ball game in April (revenue?)

A

no because the product is not delivered

48
Q

expenses = outflows from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity’s ongoing operations

A

conditions

  1. are NOT recognized as cash basis
  2. in the same time period that the related revenues are recognized (use expenses to generate more revenue)
49
Q

operating expense

A
  1. relates to the generation of revenues or sales
  2. COGS + depreciation & amortization expenses + R&D+ advertising + wages + selling, general ,administrative expenses (SG&A)
50
Q

Tax expense / PROVISION FOR INCOME TAXES

A

income tax = taxes owed now + taxes owed later - taxes paid in advance

51
Q

factory machine is depreciated throughout year –> () expense

A

SG&A

52
Q

other income (non-operating)

A

income earned from non-company-business

53
Q

is dividends an expense? Does it reduce income?

A

NOOOOO & NOO

54
Q

what account does Dividends affect

A

retained earnings

55
Q

what account does Dividends affect

A

retained earnings

56
Q

A= L + paid-in capital + revenues - expenses - dividends

A

revenue - expenses –> income statement

57
Q

EPS (earnings per share) = (net income - dividends) / weighted # of shares outstanding

A

basic EPS = uses actual numbers

diluted EPS = hypothetical ( everything you own that can possibly be shares is counted as shares)

58
Q

what does EPS represent

A

price is the present value of firm’s future EPS

  1. If EPS drops –> price drops
  2. if EPS increases –> price increases
59
Q

paying off an interest expense – ( ) expense

A

operating

principles of financial accounting (3 decks)

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