Quiz 4 Flashcards
balance sheet (financial condition)
reports the company’s assets, liabilities and owners’ equity as of a specified date
balance sheet date
the specified date of the balance sheet reporting assets and liabilities
asset
anything owned by the company
accounts receivable
amounts due from customers for goods and services the co. has already provided
inventory
merchandise normally available for sale to customers
current asset
an asset expected to be converted to cash within one year
non current asset
an asset expected to be converted to cash in greater than one year - has 2 sub categories
categories of non current assets
fixed and intangible
fixed asset
land, buildings, equipment and other long-term (more than 1 year) assets, are also known as plant assets
intangible asset
sub category of long term assets - include patents, trademarks, copyrights and goodwill
alternate names for fixed assets
PP&E property plant and equipment
accounts payable
amount due to suppliers/distributor for goods and service co has already received
long term liability
a liability expected to be paid in greater than one year
current liability
a liability expected to be paid within one year
OE
indicates the owners’ investment in the business
B2B
Business-to-business is a situation where one business makes a commercial transaction with another.
current + non current assets equal
total assets
current liabilities + long-term debt equals
total liabilities
alt names for balance sheet
statement of financial condition/position
3 examples of intellectual property
patent, copyright, trademark
2 names for reinvested profits
owners equity and retained earnings
accumulated earnings and reinvested profits
who do the profits of the business belong to
the owners
another term for profit
earnings/income
total after expenses
corporations name for owners equity
stockholder/shareholder equity
is preferred stock listed before or after common on the balance sheet
before
income statement
reports the business’s revenues, expenses, and net income for a specified period of time
revenues / top line
total sales
expenses
the cost of operations incurred to generate revenue
bottom line
the net income of a company for a certain period
2 alternate names for income statement
P&L/statement of operations
alternate terms for income
profit, earnings
dividend
a distribution (payment) of a corporation’s net income to its shareholders
what happens to profits not paid as dividends
reinvested and show up as retained earnings on the balance sheet
term for reinvested profits on the balance sheet
retained earnings
capital structure of a business
the % of debt and equity financing used to pay for the businesses assets
debt financing + equity financing =
capital structure
how to calculate capital structure
debt financing + equity financing
debt-to-total assets ratio formula
total liabilities / total assets
alt name for debt-to-total assets ratio
debt ratio
debt-equity ratio formula
total liabilities / total equity
alt name for debt-equity ratio
debt to equity ratio
debt-to-total assets ratio (2 interpretations)
indicates % of assets financed by debt
indicates % of assets financed by equity
% above 50 means more debt than equity
interpretation of debt-equity ratio
indicates debt capital as a multiple of equity capital
greater than 1 means more debt
with debt to total asset how to calc if it is using more debt than equity
divide liabilities by total assets = (L+OE), if percentage is more than 50, using more debt
with debt to equity how to calc if it is using more debt than equity or equal amounts
divide debt by equity, comes out as a decimal, that is the multiple of debt - greater than 1 means more debt
whether a higher debt-to-total assets ratio indicates a greater risk of default, or a smaller risk of default, than a lower debt-to-total assets ratio
greater risk of default
whether a higher debt-equity ratio indicates a greater risk of default, or a smaller risk of default, than a lower debt-equity ratio
greater risk of default
basic accounting equation
A=L+OE
consolidated financial statement
financial statements of a parent company and its subsidiaries
parent company
a company that owns another
subsidiary
a company owned by another company
sister companies
companies that share a parent company
allowance of doubtful account
estimates the percentage of accounts receivable that are expected to be uncollectible
alt names for allowance of doubtful account
estimated uncollectibles
A/R net Formula
gross A/R - estimate of uncollectibles
which is the total amount owed by customers to the company, gross A/R or A/R net
Gross A/R
which is the amount the company actually expects to collect, gross A/R or A/R net
A/R net
which is included in the company’s total assets, gross A/R or A/R net
A/R net
which fixed asset is listed first
Land
which fixed asset does not depreciate
land
which indicates the total cost of the venture’s fixed assets, gross fixed assets or net fixed assets
historical cost/gross
which is included in the venture’s total assets, gross fixed assets or net fixed assets
net fixed assets
whether a fixed asset’s accumulated depreciation increases over time, or decreases
increases
whether a fixed asset’s net book value increases over time, or decreases
decreases
depreciation
spreading historical cost of a fixed asset over the assets estimated useful life
accumulated depreciation
a fixed assets total depreciation from acquisition to the balance sheet date
market value
price a buyer would pay to an unrelated seller
[liabilities]
debt capital
accrued payables
expenses that have been incurred but not yet paid
3 examples of accrued payables
accrued wages/salaries
accrued interest
taxes payable
2 other terms for contributed capital
invested capital
paid-in capital
retained earnings
reinvested profits
another term for retained earnings
owners equity and retained earnings
accumulated earnings and reinvested profits
dividend
a distribution of profits to the owners
whether the book value of a fixed asset is the same as its market value
it is not the same
what goodwill on the balance sheet indicates
indicates the co has acquired other companies
the type of asset that goodwill is
noncurrent - intangible
whether the par value of stock is the same as its market value
no
who determines if corp will pay dividend
board of directors
role of board of directors
deciding to pay dividends/to protect the interests of the shareholders
formula for ending gross fixed assets
beg gross fixed + historical cost of fixed assets purchased - historical cost of assets sold in period
net book value of a fixed asset
historical cost - accumulated depreciation
amt reported on balance sheet for preferred stock
number of pref shares issued x par value per pref share
amt reported on balance sheet for additional paid in capital preferred
anything contributed above preferred stock par value
amt reported on balance sheet for common stock
number of common shares issued x par value per common share
amt reported on balance sheet for additional paid in capital common
anything contributed above common stock par value
ending retained earnings formula
beg retained earning + net income - dividends
net working capital in dollars
current assets - current liabilities
current ratio formula
current assets/current liabilities
quick ratio formula
(current assets - inventory) / current liabilities
what does net working capital mean
amount of cash that can safely be spent
what does current ratio mean
measures if the firm has the resources to pay debt with cash and assets
what does quick ratio mean
how easily could you pay off liabilities in a very short amount of time (smaller than current ratio)
3 ways to analyze a ventures ratios
compare to competitors
compare to companies in the same stage of life cycle
analyze trends for the company over time (up/down)
3 limitations of financial statements
based on historical actual transactions and do not indicate future prospects
many valuable intangibles can not be recorded as assets on the balance sheet
net book value may be very different than their market value
3 intangibles useful to a venture but cant be on balance sheet
experienced personnel
efficiencies (established procedures)
customer loyalty/reputation (goodwill from owned co.)
2 examples of assets recorded on the balance sheet at lower than market value (undervalued)
land
buildings
cash basis accounting
revenue is recorded when cash is received
expenses are recorded when cash is paid
accrual basis accounting
revenues are recorded when earned or when services are performed REGARDLESS of when cash received
expenses are recorded when incurred or become liable for them REGARDLESS when cash paid
capitalizing
recording purchases as assets and not as expenses in the current period
expensing
recording purchases as expenses
revenue recognition
recording revenues in the accounting system
sales discounts
discounts given to A/R customers for paying early
whether capitalizing has an immediate impact on the income statement (and therefore net income), or a delayed impact
delayed
whether expensing has an immediate impact on the income statement (and therefore net income), or a delayed impact
immediate
examples of operating expense
utilities/salaries/depreciation
2 alt names for EBIT
operating income / operating profit
multistep income statement
revenues (returns, discounts) --- net sales (COGS) --- Gross profits (ops expense) --- EBIT (aka operating income) (interest expense) --- EBT (taxes) --- net income
matching principle
expenses are recorded in the same accounting period as the revenues they helped generate
