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ACCT 201 > Quiz 2 > Flashcards

Quiz 2 Flashcards

1
Q

Classified Balance Sheet

A

Items with common characteristics are placed together in a “group” or classification

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2
Q

Current assets

A

assets that a company expects to be converted to cash within one year or one operating cycle, whichever is longer
- listed in order of liquidity

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3
Q

liquidity

A

the order in which the company expects to convert them into cash

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4
Q

long-term investments

A
  • Stocks and bonds held for long-term investment ( > one year)
  • Property, plant, and equipment and / or land NOT currently used in operations of the business (purchased and held for investment only)
  • Long-term notes receivable
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5
Q

Property, Plant, and Equipment (PP&E)

A

assets used in operations of the business

  • Ex: land, buildings, equipment, machinery, etc.
  • assets are depreciated
  • includes accumulated depreciation
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6
Q

depreciation

A

spread the cost of purchasing the asset over the number of years the company expects to use the asset
- Cost is called depreciation expense and goes with other expenses on the I/S

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7
Q

accumulated depreciation

A

running total of the amount of depreciation expense

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8
Q

intangible assets

A

assets which have no physical substance and represent long-lived exclusive rights or privileges

  • some are amortized
  • includes accumulated amortization
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9
Q

amortization

A

spread the cost of the asset over the number of years the company expects to use the asset

  • Annual cost = amortization expense
  • Some intangibles will be used “forever” - these are NOT amortized
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10
Q

accumulated amortization

A

running total of the amount of amortization expense

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11
Q

current liabilities

A

obligations that are expected to be paid within one year or one operating cycle, whichever is longer

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12
Q

long-term liabilities

A

obligations that are expected to be paid after one year

- Ex: long-term notes payable, mortgages payable, bonds payable

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13
Q

Stockholders equity

A
  • Common stock: investments of assets into the business by stockholders
  • Retained earnings: income retained for future use in the business
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14
Q

intracompany comparisons

A

examining the same ratio over time (prior year vs. current year) to assess whether the company’s condition is improving or deteriorating

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15
Q

industry-average comparisons

A

compare one company’s ratios to the average ratio for other companies in the same industry

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16
Q

intercompany comparisons

A

compare one company’s ratios to the ratios of a direct competitor

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17
Q

earnings per share

A

measures net income earned on each share of common stock

- measure of PROFITABILITY

18
Q

working capital

A

current assets - current liabilities

  • Measures the amount of current assets that would remain if all current liabilities are paid
  • Higher is better
  • measure of LIQUIDITY
19
Q

current ratio

A

current assets / current liabilities

  • A standardized measure of liquidity
  • Current ratio of 1.0 or greater is generally required to be “liquid”
  • Higher is better
20
Q

debt-to-assets ratio

A

measures the proportion of the business that is financed by creditors (rather than stockholders)

  • The higher the percentage of debt financing, the riskier the business
  • Lower is better
  • measure of SOLVENCY
21
Q

Free cash flow ratio

A

operating cash flow - capital expenditures

22
Q

financial reporting

A

describes all the financial info presented by a company (financial statements and additional disclosures)
Basic objective is to provide info that is:
- Useful to those making investment and credit decisions
- Useful in assessing future cash flows
- Useful in understanding the enterprise’s resources, claims to resources, and changes in them

23
Q

Generally Accepted Accounting Principles (GAAP)

A

guidance used by US companies to determine how to appropriately record and disclose accounting events
- FASB sets standards

24
Q

Securities and Exchange Commission (SEC)

A

responsible to establishing and enforcing accounting and auditing policy to enhance the transparency and relevancy of financial reporting

25
Q

Public Company Accounting Oversight Board (PCAOB)

A

oversees audits of publicly traded companies in the US

26
Q

qualities of useful accounting info

A
  • relevance (materiality)

- faithful representation

27
Q

relevance

A

the info has relevance if it would make a difference in a business decision

28
Q

materiality

A

aspect of relevance where a material item has ability to influence a decision maker

29
Q

faithful representation

A

information accurately depicts what really happened

Must be complete, neutral, and free from error

30
Q

comparability

A

when different companies use the same accounting principles

31
Q

consistency

A

company uses the same accounting principles from period to period

32
Q

verifiable

A

independent users would obtain the same results

33
Q

timely

A

info is available to decision makers on a timely basis

34
Q

understandability

A

info is presented in a clear and concise manner

35
Q

monetary unit assumption

A

only transactions expressed in terms of money (dollars) is included in accounting records

36
Q

economic entity assumption

A

assumes economic events can be identified with a particular unit of accountability
- Requires economic activities of an entity to be kept separate from those of its owner

37
Q

periodicity assumption

A

business can be divided into artificial time periods

38
Q

going concern assumption

A

assumes the business will be in operation for the foreseeable future

39
Q

historical cost principle

A

most assets and liabilities to be recorded at its original cost (a reliable estimate if fair value is not available)

40
Q

fair value principle

A

some info is more useful than historical cost for certain types of assets and liabilities.
- Fair value = the price to sell as asset or the amount to settle a liability

41
Q

full disclosure principle

A

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

ACCT 201 (5 decks)

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