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Accounting 550-Foundations of Financial Accounting > Module 1 > Flashcards

Module 1 Flashcards

1
Q

All Companies engage in four types of activities:

A
  1. ) They plan business activities.
  2. ) They finance those activities.
  3. ) They invest in those activities.
  4. ) They engage in operating activities.
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2
Q

Business Forces are:

A

Market constraints and competitive pressures.

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3
Q

Prior financial statements:

A

Provide crucial input for strategic planning.

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4
Q

Current financial statements:

A

Provide information about the relative success of those plans.

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5
Q

The strategic decisions of a company involve:

A

Company financing, asset investment and management, and daily operations.

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6
Q

Business Strategy:

A

A company’s strategic (or business) plan reflects how it plans to achieve its goals and objectives.

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7
Q

Historical financial statements provide:

A

Important relevant information that allows managers to effectively plan their company’s business for the upcoming year.

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8
Q

To properly analyze the information contained in financial statements:

A

It is important to understand the business context in which the information is created.

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9
Q

Financial statements provide:

A

Substantial information that is used in all phases of the planning process, including the way in which the company is financed and the way investments are pursued.

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10
Q

Financial statements provide:

A

Important input into the evaluation of the company’s success in carrying out its strategic plan.

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11
Q

Managers and employees:

A

Interested in the company’s current and future financial health.

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12
Q

Investment analysts and information intermediaries:

A

Are interested in predicting companies’ future performances. Accounting information is the bedrock for equity analysis.

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13
Q

Creditors and suppliers:

A

Demand financial accounting information to help determine loan terms, loan amounts, interest rates, and required collateral.

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14
Q

Covenants:

A

Contractual requirements that restrict the borrowers behavior in some fashion.

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15
Q

Stockholders and directors:

A

Demand financial accounting information to asses the profitability and risks of companies and other information useful in their investment decisions.

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16
Q

Fundamental analysis:

A

Uses financial information to estimate company value to form buy-sell stock strategies.

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17
Q

Customers and strategic partners:

A

Demand accounting information to assess a company’s ability to provide products or services and to assess the company’s staying power and reliability.

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18
Q

Regulators and tax agencies:

A

Demand accounting information for antitrust assessments, public protection, setting prices, import-export analyses, and setting tax policies.

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19
Q

Voters and their representatives:

A

Need accounting information for policy decisions. The decisions can involve economic, social, taxation, and other initiatives. They also use accounting information to monitor government spending.

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20
Q

Supply of Financial Accounting Information:

A

The quantity and quality of accounting information that companies supply are determined by managers’ assessment of the benefits and costs of disclosure.

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21
Q

Form 10-K:

A

The audited annual report that includes the four basic financial statements with explanatory notes and the management’s discussion analysis (MD&A) of financial results.

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22
Q

Form 10-Q:

A

The unaudited quarterly report that includes summary versions of the four financial statements and limited additional disclosures.

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23
Q

Privately Held Companies:

A

Audits, reviews, and compilations, include the four basic financial statements as well as other information depending on the type of report.

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24
Q

Benefits of Disclosure:

A

The benefits of supplying accounting information extend to a company’s capital, labor, input, and output markets.
-Cost of capital (as reflected in lower interest rates
or higher stock prices)
-Recruiting efforts in labor markets
-The ability to establish superior Supplier-customer relations in the in the input and output markets.

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25
Q

Is company management demonstrating good stewardship of the resources that have been entrusted to it?

A

Stockholders and directors.

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26
Q

What product lines have performed well compared with competitors?

A

Managers and employees.

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27
Q

What regulated price is appropriate given the company’s financial condition?

A

Regulators and tax agencies.

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28
Q

Is the strategic partnership providing reasonable returns to both parties?

A

Customers and strategic partners.

29
Q

What expectations about the company’s future profit and cash flow should we use as input into the pricing of its stock.

A

Investment analysts and information.

30
Q

Is the company in compliance with the contractual terms of its existing loan covenants?

A

Creditors and suppliers.

31
Q

The goal of the SEC’s Regulation Fair Disclosure (FD):

A

Is to curb the practice of selective disclosure by public companies.

32
Q

International Accounting Standards Involve:

A

Companies in more than 120 countries, including the European Union, the United Kingdom, Canada, and Japan use International Financial Reporting Standards (IFRS) for their financial reports.

33
Q

Oversees the International Financial Reporting Standards (IFRS):

A

International Accounting Standards Board (IASB)

34
Q

These two organizations work together cooperatively, often undertaking joint projects:

A

The International Accounting Standards Board (IASB) & The Financial Accounting Standards Board (FASB)

35
Q

The International Financial Reporting Standards (IFRS) and U.S. (GAAP) Generally Accepted Accounting Principles:

A

Are generally more alike than different for the most part.

36
Q

Companies use four financial statements;

A

Balance Sheet, Income Statement, Statement of Stockholders’ Equity, and Statement of Cash Flows.

37
Q

A balance sheet reports on an company’s financial position:

A

At a point in time.

38
Q

The income statement, statement of stockholder’s equity, and the statement of cash flows report on performance over:

A

A period of time.

39
Q

These three statements link the balance sheet from the beginning to the end of a period:

A

Income Statement, Statement of Stockholders’ Equity, and Statement of Cash Flows.

40
Q

The balance sheet reports the company’s:

A

Resources (assets), namely what the company owns.

41
Q

There are two ways a company can finance its assets:

A
  1. ) Stockholders (Owner Financing)

2. ) Banks or Other Creditors & Suppliers (Non-owner Financing)

42
Q

Owners Claims on Assets are referred to as:

A

Equity

43
Q

Non-owner Claims on assets are refereed to as:

A

Liabilities (Debt)

44
Q

Accounting Equation:

A

Investing = Non-owner financing + Owner Financing
Or
Assets = Liabilities + Equity

45
Q

Investing Activities:

A

Represented by the company’s assets. These assets are financed by a combination of non-owner financing (liabilities) and owner financing (equity).

46
Q

Assets are listed on the balance sheet in order of their:

A

Nearness to cash.

47
Q

The relative proportion of short and long-term assets is largely determined by:

A

A company’s industry and business model.

48
Q

To pay for assets, companies use:

A

A combination of Owner (or equity) and non-owner financing (liabilities or debt).

49
Q

Owner financing has two components:

A
  • Resources contributed to the company by its owners.

- Profits retained by the company.

50
Q

Reports on a company’s performance over a period of time and lists amounts for its top line revenues (also called sales) and its expenses.

A

Income statement.

51
Q

Revenues less expenses:

A

Bottom-line net income amount (also called profit or earnings)

52
Q

The amount a company pays to purchase or manufacture a good (inventories) that is sold.

A

Cost of goods sold (COGS)

53
Q

Revenues less cost of goods.

A

Gross Profit

54
Q

All of the operating expenses the company incurs including: salaries, marketing costs, occupancy costs, HR, and IT costs, etc.

A

Selling, general, and administrative expenses (SG&G)

55
Q

Arises when revenues exceed expenses. Also the ability to create barriers to competitive pressure, either by patent protection, effective marketing, etc. This is a key factor in determining their level of profitability.

A

Net income.

56
Q

Report on year-over-year changes in the equity accounts that are reported on the balance sheet.

A

Statement of Stockholders’ equity.

57
Q

The stockholders’ net contributions to the company.

A

Contributed Capital.

58
Q

Net income over the life of the company minus all dividends ever paid.

A

Retained earnings.

59
Q

Reports the change (either an increase or a decrease) in a company’s cash balance over a period of time. This includes operating, investing, and financing activities.

A

Statement of Cash Flows.

60
Q

Allows companies choices in preparing financial statements.

A

GAAP (Generally Accepted Accounting Principles: )

61
Q

The choice of financial statement ___________ can yield financial statements that are markedly different from one another in terms of reported income, assets, liabilities, and equity amounts.

A

Methods.

62
Q

Financial statements also comprise numerous:

A

Estimates.

63
Q

The SEC requires the chief executive officer (CEO) of the company and its chief financial officer (CFO) to personally sign a statement attesting to the accuracy and completeness of the financial statements.

A

Sarbanes-Oxley Act (SOX)

64
Q

-Both the CEO and CFO have personally reviewed the
annual report.
-There are no untrue statements of a material fact that
would make the statements misleading.
-Financial statements fairly presents in all material
respects the financial condition of the company.
-All material facts are disclosed to the company’s
auditors and board of directors.
-No changes to its system of internal controls are made
unless properly communicated.

A

Declarations contained in the SOX Act.

65
Q

As earning go down stock prices go down, as earnings go up stock prices go up.

A

Relation between earnings and stock prices.

66
Q

Financial statements are influenced by five important forces that determine competitive intensity:

A

Industry competition, buyer power, supplier power, product substitutes, and threat of entry.

67
Q

Strengths, Weaknesses, Opportunities, and Threats:
(Internal - Strengths & Weaknesses)
(External - Opportunities & Threats)

A

S.W.O.T Analysis of the Business Environment

68
Q

-Does the company have a competitive advantage,
and, if so, what factors explain it?
-Is the competitive advantage sustainable?
-If the company has no competitive advantage, does its
management have a plan to develop a sustainable
competitive advantage that can be implemented in an
acceptable period of time and with a reasonable
amount of investment?

A

Analyzing Competitive Advantage

69
Q 
Product differentiation
-Technological innovation
-Product design
-marketing, distribution, and after-sale customer 
 support

Cost leader
-Access to low-cost raw materials or labor
-Manufacturing or service efficency
-Manufacturing scale efficiency’s, greater bargaining
power with suppliers, sophisticated IT systems, etc

A

Achieving Competitive Advantage

Accounting 550-Foundations of Financial Accounting (1 decks)

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