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accounting > Powerpoint 2 > Flashcards

Powerpoint 2 Flashcards

1
Q

Basic accounting equation Reversed

A

Assets - Liabilities = Equity

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2
Q

Current Assets

A

Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is first

Listedin the order in which they are expected to be converted to cash

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3
Q

Operating cycle

A

The average time it takes from the purchase of inventory to the collection of cash from consumers

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4
Q

Long-term investments

A

Investments in stocks and bonds of other companies that are held for more than one year

Investments in long-term assets such as land or building not currently being used in operating activities

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5
Q

Property, Plant, and Equipment

A

Long useful lives

Currently used in operations

Depreciation occurs

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6
Q

Depreciation

A

Allocating the cost of assets to a number of years

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7
Q

Accumulated depreciation

A

The total amount of depreciation expensed thus far in the asset’s life

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8
Q

Intangible assets

A

Assets that do not have physical substance

ex. trademark, goodwill, patent, copyright

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9
Q

Current liablities

A

Obligations the company is to pay within the coming year

Usually lists notes payable first, followed by accounts payable

Other items follow in order of magnitude

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10
Q

Long-term liabilities

A

Obligations a company expects to pay after one year

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11
Q

Stockholder’s Equity

A

Comprised of common stock and retained earnings

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12
Q

Common stock

A

investments of assets into the businesss by the stockholers

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13
Q

Retained earnings

A

income retained for use in business

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14
Q

Ration analysis

A

An analysis of the relationship between elements of financial statement data that helps to better understand the economic condition of the economy

ex. intracompany, industry-average, intercompany

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15
Q

Intracompany comparisons

A

two year comparisons of the same company

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16
Q

Industry-average comparisons

A

average ratios for particular industries

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17
Q

Intercompany comparisons

A

Comparison with a competitor in the same industry

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18
Q

Profitability ratios

A

Measure the income or operating success of a company for a given period of time

ex. EPS

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19
Q

Liquidity ratios

A

Measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

ex. current ratio, working capital

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20
Q

Solvency ratios

A

Measure the ability of the company to survive over a long period of time

ex. Debt to total assets ratio

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21
Q

Income statement use

A

Reports how successful a company is at generating profit from its sales

reports amount earned (revenue) and the cost incurred (expenses)

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22
Q

Net income shows what

A

What we have earned after sales and paying off expenses

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23
Q

Earings Per Share (EPS)

A

Profitability ratio that measures the net income earne on each share of common stock

*earnings available to common stock holders

Comparrisons can calculate the relative earnings performance from the perspective of a stockholder

Net income - Preferred Stock Dividends

Average Common Shares Outstanding

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24
Q

Stockholder’s Equity use

A

retained earnings and common stock

reports all changes in stockholders equity accounts

ex. buyback/issue/sell

25
Q

Liquidity

A

the company’s ability to pay obligations expected to become due within the next year or operating cycle

seen on balance sheet

26
Q

Solvency

A

the company’ ability to pay interest as it comes due and to repay the balance of debt at its maturity

seen on balance sheet

27
Q

Working Capital

A

WC = Current Assets - Current liabilities

Positive means there is a greater likelihood the company will pay its liabilities

NEgative means a company might not be able to pay its short term debt and might go bankrupt

is a liquidity ratio

28
Q

Current ratio

A

Current assets

current liabilities

The higher the current ratio, the more capable the company is of paying its obligations

.97:1

for every 1 dollar of current liabilities, it has 97 cents of assets

ex. of a liquidity ratio

29
Q

Debt to total assets ratio

A

Total liabilities

Total assets

measures the % of financing provided by creditors rather than stockholders

the higher the %, the riskier the company

71% - every dollar of asset was financed by 71 cents of debt

30
Q

Generally Accepted Accounting Principles (GAAP)

A

A set of standards and rules for reporting financial info set by standard-setting bodies

31
Q

Securities and Exchanges Commision (SEC)

A

The agency of the U.S government that oversees the financial markets and accounting standard setting bodies

32
Q

Financial Account Standards Board (FASB)

A

Primary standard setting bodies in the United States

33
Q

International Accounting Standards Board (IASB)

A

The international equivelant of FASB

34
Q

International Financial Reporting Standard (IFRS)

A

SEt of standards and rules adopted by most international countries, for reporting financial information by public companies.

FASB and IASB have been working together to minimize the differences in their standards

convergence is under way

35
Q

Public Company Accounting Oversight Board (PCAOB)

A

Created as a result of SOX to determine auditing standards and to review the performance of audit firms

36
Q

Accounting principles

A

set of standards and rules that are recognized as a general guide for financial reporting

37
Q

Primary objective of financial reporting

A

To provide financial info that is useful to investors and creditors for making decisions about providing capital

38
Q

Relevance

A

Accounting info is considered relevant if it makes a difference in a business decision by:

  1. Helping provide accurate expectations about the future (predictive value)
  2. Confirming and correcting prior expectations (confirmatory value)
39
Q

Faithful representation

A

Means that info accurately depicts what really happened by:

  1. ensuring that nothing important has been omitted (complete)
  2. making sure that the information is not biased towards one position or another (neutral)
40
Q

5 enhancing qualities

A

Comparability

Consistency

Verifiability

Timeliness

Understandability

41
Q

Comparability

A

When different companies use the same accounting principles allowing investors to compare them

42
Q

Consistency

A

When a company uses the same accounting principles and methods from year to year

43
Q

Verifiability

A

When financial info users are able to prove that the info is free from error

44
Q

Timeliness

A

When financial info is available to it’s users before it loses capacity to influence their decisions

45
Q

Understandability

A

When financial info is presented in a clear and concise fashion so that reasonably informed users can interpret and comprehend the meaning of the information provided

46
Q

How does a company choose when to end a fiscal year?

A

Chooses a down time to end the fiscal year because it requires a lot of resources to provide financial reports

47
Q

Assumptions in Financial Reporting

A

Monetary unit

Economic entity

Periodicity

Going concern

Accrual-Basis

48
Q

Monetary unit

A

Requires that only those things that can be expressed in money are included in the accounting records

49
Q

Economic entity

A

States that every economic entity can be seperately identified and accounted for

ex. keep personal finances off company books

50
Q

Periodicity

A

States that the life ofa business can be divided into artificial time periods

51
Q

Going Concern

A

The business will remain in operation for the foreseeable future

52
Q

Accrual-Basis

A

Transactions are recoreded in the periods in which the events occur

ex. if you work in september and get paid in october, needs to be recorded in september

53
Q

Cost principle

A

“historical principle”

Dictates that companies record assets at their costs

more faitful representation

54
Q

Fair value principle

A

Indicates that assets and liabilities should be reported at fair value (predicted current value)

More relevant

55
Q

Full disclosure principle

A

Requires that companies disclose all circumstances and events that would make a difference to financial statement users

56
Q

Materiality Constraint

A

An item is material when its size makes it likely to influence the decision of an investor or creditor, required adherence to GAAP.

Immaterial if it does not make a difference

57
Q

Cost constraint

A

Accounting standard-setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from it

58
Q
A

accounting (31 decks)

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