Notes to Financials Flashcards

1
Q

Concentration of Credit Risk

A

GAAP requires disclosure of all significant concentrations of credit risk from receivables and other financial instruments in the notes.

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2
Q

Summary of significant accounting policies

A

The summary of significant accounting policies footnote presents information that helps assist users in understanding the recognition, measurement, and disclosure decisions made by the firm.

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3
Q

Accounting Policy Footnote

A

The accounting policy footnote discloses both the methods of accounting used by the firm and other information useful for understanding the bases under which the financial statements were prepared.

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4
Q

Accounting policies include:

A

the choice of accounting methods made by the firm, the principles and methods specific to an industry, and any unusual or innovative applications of GAAP.

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5
Q

Which type of material related-party transactions require disclosure?

A

All those other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business.

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6
Q

What inventory method produces the highest value of ending inventory in an inflationary economy?

A

Fifo. To produce the lowest inventory turnover ratio, we need the highest value of ending inventory.

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7
Q

Debt to Equity Ratio

A

Total Debt / Owners Equity

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8
Q

Working Capital

A

Current Assets - Current Liabilities

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9
Q

Working Capital Ratio

A

Current Assets / Current Liabilities

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10
Q

Acid Test Ratio (Quick Ratio)

A

(Cash + (Net) Receivables + Marketable Securities) / Current Liabilities

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11
Q

Times Interest Earned Ratios

A

(Net Income + Interest Expense + Income Tax) / Interest Expense

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12
Q

Operating Number of Cycle = Days in Operating

A

Number of days sale in A/R + Length Cycle Number of Days Supply in inventory

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13
Q

Successful use of leverage is evidence by a

A

Rate of return on investment greater than the cost of debt.

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14
Q

Rate of return on assets

A

Net income / average total assets

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