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
