Test1 Flashcards
Income statement components
Revenues
Expenses
Net income for period
Reports success or failure of the company’s operations during a specific period
Order of financial statements
Income statement
Retained earnings statement
Balance sheet
Retained earnings statement
For point in time
Total net income or loss over life of company minus dividends paid out
Use previous retained earnings and add net income from income statement. Or subtract net loss from income statement.
Distinguished equity earned from that originally invested by owners
Balance sheet
Represents a specific date
Assets = liabilities plus owners equity
Assets
In order of liquidity
Cash Accts receivable Notes receivable Equipment Plant Property (Accumulated depreciation)
Has useful life of more than one year
Resources owned by the business
Liabilities
Accts payable
Notes payable
Salaries payable
Unearned revenue
Creditors claims on total assets
Stockholders (owners) equity
Capital stock Retained earnings (from retained earnings statement)
Ownership claim on total assets
Liquidity
Ability to pay near-term obligations
How easily readily can convert to cash
Capital resources
Ability to fund operations
Current asset
Something that you own that can turn to cash in less than one year.
Has useful lifetime of greater than one year
Current liability
What you expect to pay off within one year.
Goodwill
Fair market value - book value = goodwill.
Contra asset
Listed as asset but causes overall assets to decrease
Ex accumulated depreciation
GAAP
Generally accepted accounting principles
FASB
Financial accounting standards board
Relevant and reliable
Relevant to many audiences and free of error.
Comparability and consistency
Compare different companies
Compare from year to year
Materiality
Doesn’t make a difference financially.
Relative importance of an item or event. If immaterial do not need to do adjusting entries
Ex. Small items expense no need for depreciation. Utilities.
Conservatism
In gray areas. Do not overstate assets or income
Provide estimate that gives lowest net income
Full disclosure principle
Must include information that would effect how investors or creditors view the company
Economic entity principle
Economic events traced to an individual entity
Has to do with subsidiaries
Stable dollar assumption
Not adjusted for inflation or deflation
Going concern assumption
Business will continue to operate
Not headed for bankruptcy
Cost principle
Assets are recorded at cost
Objectivity principle
Values are factual and can be verified