test 1 Flashcards
relevance
pertinent to the decision making at hand
predictive value
information is useful in predicting the future
timeliness
information is available prior to the decision
distribution to owners
decreases in equity resulting from transfers to owners
confirmatory value
information confirms expectations
understandability
users understand the information in the context of the decision being made
gain
results if an asset is sold for more than its book value
faithful representation
agreement between a measure and the phenomenon it purports to represent
comprehensive income
the change in equity from non owner transactions
materiatlity
concerns the relative size of an item and its effect on decisions
comparability
important for making inter firm comparisons
neutrality
the absence of bias
recognition
the process of admitting information into financial statements
consistency
applying the same accounting practices over time
cost effectiveness
requires consideration of the cost and value of information
verifiablility
implies consensus among different measures
economic entity assumption
all economic events can be identified with a particular entity
going concern assumption
assumes the entity will continue indefinitely
periodicity assumption
relates to the qualitative characteristic of timeliness
monetary unit assumption
inflation causes a violation of this assumption
historical cost principle
the basis for measurement of many assets and liabilities
realization principle
revenue is recognized only after certain criteria are satisfied
matching principle
cause-and-effect relationship between revenues and expenses
full-disclosure principle
information that could affect decision making should be reported
cost effectiveness
the benefit of providing accounting information should exceed the cost of doing so
materiality
a consequence is that gaap need not be followed in all situations
conservatism
not a qualitative characteristic, but a practical justification for some accounting choices
rate of return
dividends + share price appreciation / initial investment = %
cash basis accounting
reflects net operating cash flow = difference in cash receipts and cash pymnts
accrual accounting
net income = revenue - expenses
SEC
securities and exchange commission authority to set accounting and reporting standards
FASB
finaincail accounting standards board
the primary objective of financial reporting is to provide information
useful to capital providers
statements of financial accounting concepts issued by the FASB
identify the conceptual framework within which accounting standards are developed
in general, revenue is recognized as earned when the earning process is virtually complete and
there is reasonable certainty as to the collectibility of the asset to be received
in depreciating the cost of an asset, accountants are most concerned with
the matching principle
the primary objective of the matching principle is to
record expenses in the period that related revenue are recognized
true or false
the separate entity assumption states that, in the absence of contrarry eevidence, all entities will survive indefinitely
false
going concern
order of the income statement
sales revenue
cogs
gross profit
ops expense: salaries supplies rent depreciation total ops expense operating income other income (expense): rent revenue interest expense net income
order of the balance sheet
current assets:
cash
short-term investments
ar
supplies
inventory
prepaid rent
total ca
Investments:
Marketable securities
Land held for sale
Total investments
PP&E:
land
Bldgs
Equipment
Less: accum deprec'n
Total PP&E
Intangible assets:
Patents
Total intangible assets
total assets
current liab:
ap
salaries payable
unearned rent revenue
interest payable
note payable
total cl
long-term liab:
note payable
shareholder equity:
common stock, 6,000 shares issued & outstanding
retained earnings
total shareholder equity
total liab & equity
retained earnings consist of
beginning retained earnings + net income - dividends
Cash & cash equivalents
Cash on hand and in bank
Checks and money orders
Negotiable items- commercial paper, money market, us treasury bills
Investments maturity less than 3 mo.
Credit card receivables, due from banks 3 mo or less
Short- term investments
Temp or short term marketable securities
Stock or debt securities intended to sale within 12 mo
Long-term investments
Also just investment section
Stock over 1 yr intent
Cash accumulated to pay debt in five yrs
Non current receivables 61 days or older
Accounts receivable
Sale of goods or services on credit
Due in 30 to 60 days
Net allowance for uncollectible amts
Inventories
Finished goods, wip, raw materials
Prepaid expense
Current asset under 1 yr
Non current asset over 1 yr
PP&E
Tangible, long lived, used in business
Intangible assets
No physical substance
Other assets
Long term prepaids aka Deferred charges
Non current assets not in other cats
Current liabilities
Ap, notes payable (shortterm borrowings), unearned revenues, accrued, current maturity of debt
30-60 day payment due
Notes payable is 1 yr
Reclass portions of long term notes, loans, mtgs,bonds payable when pymnts due in current year as current liab
Noncurrent liabilities
Payables over 1 yr
Paid in capital
Common stock
Preferred stock
Treasury stock
Retained earnings
= Beginning RE + rev - expense
Calculate cost of goods sold
Beg. Inv + purchases - end inv.
Liquidity ratios
Quick ratio & current ratio
Current ratio
Current assets/current liabilities
Quick or acid ratio
Quick assets (exclude prepaid & inventories)/ current liabilities
Debt to equity ratio
Total liabilities / total equity
