Theory Flashcards
what is gaap
-publicte?
-priva
Accounting rules and practices for the preparation of
financial statements
o Publicly-traded corporations use International Financial
Reporting Standards (IFRS)
o Private corporations may use IFRS or Accounting Standards for
Private Enterprises (ASPE)
SOI
Statement of income
o Reports revenues and expenses for a specific period of
time
REV-EXP=NI
SOCE
Statement of changes in equity
o Reports the changes in each component of shareholders’
equity during a period of time
CS+RE= TOTAL EQUITY
BALANCE START
NI
DIV DEC
ISS CS
BALANCE END
SOFP
Shows the assets, liabilities and shareholders’ equity at a
specific point in time
A=L+SE
SOCF
Shows, for a specific period of time, how company
obtained cash and how that cash was used
OIF
Correct definition of current asset
asset expected to be converted to cash, sold, or used in one year or one operating cycle (which ever is longer)
define operating cycle
avg time between when a business pays cash to obtain proucts and when it receives cash from customers
ORDER OF CURSRENT ASSETS
CTA (nuts) ISP
cat that ate (nuts) is still pooping
CASH
TRADING INVEST
AR
Notes receivable
INVENTORY
SUPPLIES
PREPAID EXPENSE
non current assets order
LPIO
Long term investments
Property Plant and Equipment
Intangisble assets
goodwill
other assets
Current Liabilities Order
Bank indebtedness
AP
Deferred Rev
Bank loan/Notes Payable
Current portion of long term debt
NC Liabilities
Bank loan notes payable
lease liabilities
pension and benefit obligations
deferred liabilities
Liquidity Ratios
defintition
types
higher or lower?
Measure a company’s short-term ability of a company to meet unexpected needs for cash
Working Capitall= CA-CL
Current Ratio= CA/CL
Higher is better for both
Solvency Ratios
DEFINITION
TYPES
HIGHER OR LOWER
Measure a company’s ability to survive over a long
period of time:
o The higher the percentage of debt to total assets, the
greater the risk that debts cannot be repaid when they
are due
D2A: Total Liabilities/Total Assets (%)
Lower is better
Profitability Ratios
Measure the income or operating success of a
company for a given period of time, usually one yea
Earnings Per Share= Income Available to SH/Weighted Avg # of CS
PE Ratio= Market Price per share/ Earnings Per Share
Higher is better
Objective of Financial Reporting
provide financial indo that is USEFUL
Fundamental Qualitative Characteristics
RF
1) Relevance: should be important to decisions, may be predictive/confirmatory ; Materiality is important: will info thats not there influence decisions of user?
2)Faithful Representation: info should reflect truth; complete neutral and error free
Enhancing Qualitative Charactteristics
CVTU
1) Comparability: using the same principles of gaap (whole industry is comprable)
2)Verifiablility: independant consensus that info is represented faithfully
3) Timeliness: useful in period
4) Understandability: classified (organized) and clear and concise
Const Constraint
info provided should be more benefit than the cost of getting the info togeteher
going concern assumption
the business will continue to operate in the future
wHAT DICTATES HOW elements are measured
GAAP
Two ways of measuring elements
Historical cost:
-A/L should be recorded at cost acquired
always
Fair value:
-certain assets/liabilities can be recorded and reproted at fair value
How does accounting care about the environenmnet
they create sustainability reports relating to ESG factors
IFRS ASPE depreciaiton ammortization
ifrs: DEPRECIAITON AND AMMORITIZATION (INTANGIBLE GOODS)
aspe: ammortization both
Basic earnings per share ratio IFRS vs ASPE
IFRS requried to submit in financial statements
ASPE not required to present in financial statement
debit/credit effect
the respoective side increases
debit / credoit balance
whichever side has the greater balnace
which sides have a debit balance
dead
debit
expnses
asset
div decle
3 purposes of the general journal
1) disclose complete effect of a transaction in one place + a brief explanation of the transaction below
2) provides chronological record of transactions
3) helps prevent and locate errors
General Ledger
all accounts are listen, it is called the “Chart of accounts”
What is posting
transferring JE from General journal to General Ledger
what is trial balance
general ledger accounts and their balances
all it does is prove sum of debits = sum of credits
supports in the prepartion of financial statments
LIMITATIOS OF TB
DOES NOT PROVE GENERAL LEDGER IS CORRECT (missing transactions, incorrect accoutns, duplicate postings can mess it up)
Aspe: when can revenue be recognized
1) service provided/ risks of ownership passed on
2) revenue can nbe measured
3) collection is certain
IFRS : when can be recognized
when company satisifies a performance obligationn
1) identify the contract
2)idenetify performance obligation
3) determine transaction price
4) allocate transaction price to performance obligations in the contract
5) recognize revenue when or as the company satisfies the performance obligation
What is over/under stated before adjusted for prepaid expenses
A and SE is overstated
What is over/under stated before adjusted for deferred revenues
L is overstated and SE is undesrstated
What is over/under stated before adjusted for Accrued revenue
A and SE understated
What is over/under stated before adjusted for accrued expenses
L understated and SE overstated
review of acct cycle
- Analyze transactions
- Journalize the transactions
- Post to the ledger accounts
- Prepare a trial balance
- Journalize and post adjusting entries
- Prepare an adjusted trial balance
- Prepare financial statements
- Journalize and post closing entries
- Prepare a post-closing trial balance
Data analytics and the arrow
Descriptive
Diagnostic
Predictive
Prescripritve
Hindsight insight foresight
inflow outflow for
OPERATING
INVESTING
FINACNCING
Operation:
Inflow= revenues
Outflow= expenses
Investing:
inflow= long term investment/ money from selling long term assets
outflow= buying PPE, buying shares of other companies
Financing:
inflow= issuing shares/ taking out a loan
outflow= paying dividends, buying shares
SOI - how to list exxpenses
largest to smallest expense
Salaries expense
Supplies expense1,500
Rent expense900
Depreciation expense83
Insurance expense50
Interest expense
ACCUMULATED OTHER COMPREHENSIVE INCOME
se account
notes receivable
amounts owed to a company by customers/others that bear interest
“investments” is used without any modifier (trading or long-term), it is assumed
non curent asset
what is the conceptual framework
interrelated objectives that lead to consistent standards in accounting!! these prescribe the nature, function, and limits of accounting financial statemetns!!
objective of general purpose financial resporting
provide financial info to investors lenders and others that will be useful in decision making
what are the qualitiative charactersistc
fundamental and enhancing
historical cost or fair value\?
historical cost
accrued expense- interest questions
AT THE END OF THE TERM OF THE LOAN, how much interest do you have to pay
loan x percent of interest / 12
COMMON SHARES ARE NOT ADJUSTED !! IF THIS IS AN ADJUSTING ENTRY THEY R TRYING TO FOOL YOU
YES WORD
post closing trial balance has no?
temporary accounts
Paying dividend next month?
note payable
GOOD WILL IS NOT A ——-
INTANGIBKE ASSET
what is an invoice
AN EXPENSE!
Ethical financial accounting
for info to be valuable, you need high ethical standards,
Actions should be legal and responsible, while considering orgs interests
FOLLOW GAAP
Changes in CS formula
Common shares @ beginning + Common shares issued- common shares repurchased= common shares @ end
SOCE order
balance originally
net income
div decl
cs
balance end
common shares is on which finsnandial statements
SOCE
SOFP
SOCF
div decl is on which fs
soce
socf
