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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
Liquidity
the company's ability to pay obligations expected to become due within the next year or operating cycle seen on balance sheet
26
Solvency
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
Working Capital
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
Current ratio
_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
Debt to total assets ratio
_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
Generally Accepted Accounting Principles (GAAP)
A set of standards and rules for reporting financial info set by standard-setting bodies
31
Securities and Exchanges Commision (SEC)
The agency of the U.S government that oversees the financial markets and accounting standard setting bodies
32
Financial Account Standards Board (FASB)
Primary standard setting bodies in the United States
33
International Accounting Standards Board (IASB)
The international equivelant of FASB
34
International Financial Reporting Standard (IFRS)
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
Public Company Accounting Oversight Board (PCAOB)
Created as a result of SOX to determine auditing standards and to review the performance of audit firms
36
Accounting principles
set of standards and rules that are recognized as a general guide for financial reporting
37
Primary objective of financial reporting
To provide financial info that is useful to investors and creditors for making decisions about providing capital
38
Relevance
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
Faithful representation
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
5 enhancing qualities
Comparability Consistency Verifiability Timeliness Understandability
41
Comparability
When different companies use the same accounting principles allowing investors to compare them
42
Consistency
When a company uses the same accounting principles and methods from year to year
43
Verifiability
When financial info users are able to prove that the info is free from error
44
Timeliness
When financial info is available to it's users before it loses capacity to influence their decisions
45
Understandability
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
How does a company choose when to end a fiscal year?
Chooses a down time to end the fiscal year because it requires a lot of resources to provide financial reports
47
Assumptions in Financial Reporting
Monetary unit Economic entity Periodicity Going concern Accrual-Basis
48
Monetary unit
Requires that only those things that can be expressed in money are included in the accounting records
49
Economic entity
States that every economic entity can be seperately identified and accounted for ex. keep personal finances off company books
50
Periodicity
States that the life ofa business can be divided into artificial time periods
51
Going Concern
The business will remain in operation for the foreseeable future
52
Accrual-Basis
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
Cost principle
"historical principle" Dictates that companies record assets at their costs more faitful representation
54
Fair value principle
Indicates that assets and liabilities should be reported at fair value (predicted current value) More relevant
55
Full disclosure principle
Requires that companies disclose all circumstances and events that would make a difference to financial statement users
56
Materiality Constraint
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
Cost constraint
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

accounting (31 decks)

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