Untitled Deck Flashcards
What is Accrued Revenue?
Revenue earned but not yet received in cash. Reflects timing difference between service delivery and payment, requiring adjustment to match revenue with proper period.
What is Deferred Revenue?
Advance payment received before earning revenue. Represents obligation to deliver future goods/services, treated as liability until earned.
What are Accrued Expenses?
Expenses incurred but not yet paid, recognizing economic obligation before cash payment. Ensures expenses match the period they benefit.
What are Deferred Expenses?
Prepayment for future expenses, recorded as asset until consumed. Represents right to receive future benefits from advance payment.
What are Trading Securities?
Investments held for short-term profit from market price changes. Marked to market with unrealized gains/losses flowing through income statement due to trading intent.
What are Available-for-Sale Securities?
Investments not held for trading or maturity. Changes in value recorded in OCI to reduce income volatility while maintaining fair value reporting.
What are Held-to-Maturity Securities?
Debt investments company intends and can hold to maturity. Recorded at amortized cost since temporary market changes aren’t relevant to holding strategy.
What are Equity Method Investments?
Used when investor has significant influence (usually 20-50% ownership). Recognizes proportionate share of earnings to reflect economic reality of influence.
What is Bad Debt Estimation?
Process of estimating uncollectible accounts using historical data and current conditions. Essential for matching principle and presenting receivables at net realizable value.
What is FIFO Inventory?
Assumes oldest inventory sold first, approximating physical flow in many businesses. During inflation, leads to lower COGS and higher income.
What is LIFO Inventory?
Assumes newest inventory sold first, often different from physical flow. During inflation, provides tax advantages through higher COGS but reduces reported income.
What is Weighted Average Inventory?
Averages all purchase costs, smoothing price fluctuations. Practical approach when specific identification impossible or too costly.
What is Straight-line Depreciation?
Allocates equal cost amounts over asset’s life. Appropriate when benefits from asset received evenly over time.
What is Declining Balance Depreciation?
Allocates higher costs in early years, decreasing over time. Reflects assets that lose efficiency quickly or become technologically obsolete.
What is Units of Production Depreciation?
Allocates costs based on actual usage. Most appropriate when asset wear directly relates to production levels.
What is Operating Lease Recognition?
Records right-to-use asset and lease liability on balance sheet. Reflects economic reality that lease creates both asset and obligation.
What is Product Warranty?
Estimated future repair/replacement costs for products sold today. Matches warranty cost with product sale revenue.
What is Extended Warranty?
Separate performance obligation sold beyond standard warranty. Treated as deferred revenue because service period extends beyond sale.
What is a Contingent Liability?
Possible future obligation depending on uncertain events. Recognition depends on probability and measurability of loss.
What is Current Ratio?
Measures ability to pay short-term obligations using current assets. Below 1.0 suggests potential liquidity problems.
What is Acid-Test Ratio?
Stricter liquidity measure excluding inventory. Better indicates immediate ability to pay current obligations.
What is Interest Coverage Ratio?
Shows ability to meet interest payments from operating earnings. Key indicator of financial distress risk.
What is Return on Assets?
Measures how efficiently management uses assets to generate earnings. Useful for comparing capital-intensive businesses.
What is Cash Conversion Cycle?
Measures time between paying for inventory and collecting from customers. Shorter cycle indicates more efficient working capital management.
What is Working Capital Management?
Strategies for optimizing current assets and liabilities. Critical for maintaining liquidity while minimizing idle resources.
What is Operating Cycle?
Time required to convert inventory to cash through sales and collections. Varies by industry and affects working capital needs.
What is Capital Structure?
Mix of debt and equity used to fund operations. Affects cost of capital, risk, and return to shareholders.
What is Materiality?
Information important enough to influence decisions of reasonable investors. Determines required level of accounting precision and disclosure.
What is Going Concern?
Assumption that business will continue operating indefinitely. Affects asset valuation and liability classification.
What is the Matching Principle?
Connects expenses with related revenues in same period. Fundamental for measuring periodic performance accurately.
What is Full Disclosure?
Provides all information needed for fair presentation. Includes notes and supplementary data beyond basic statements.
What are Capital Expenditures?
Long-term investments in assets that generate future benefits. Not just physical assets but includes research, development, and customer acquisition costs that create lasting value.
What is the Revenue Recognition Model?
Five-step process: identify contract, identify performance obligations, determine price, allocate price, recognize when satisfied. Ensures consistent, economic-based revenue recording.
What is the difference between Principal and Agent?
Determines whether to record gross revenue (principal) or just commission (agent). Based on who controls goods/services before customer transfer.
What are Performance Obligations?
Distinct promises to customers requiring separate revenue recognition. May be explicit or implied by business practices.
What are Bill-and-Hold Arrangements?
Customer purchases but requests delayed delivery. Revenue recognition allowed only if customer has substantive business purpose.
What are Contract Modifications?
Changes to scope or price of customer contracts. Treatment depends on whether new goods/services are distinct.
What are Contra Accounts?
Offset related accounts on balance sheet, showing both gross and net values. Examples include accumulated depreciation and allowance for doubtful accounts.
What are Asset Retirement Obligations?
Liability for future cost of retiring long-lived assets. Recorded at present value when asset installed.
What is Capitalized Interest?
Interest cost added to asset value during construction. Links financing cost to asset being financed.
What is Construction in Progress?
Temporary account for incomplete capital projects. Costs accumulated until asset ready for use.
What is Impairment Testing?
Two-step process evaluating asset recovery and fair value. Required when events suggest carrying value may be too high.
What is Research and Development?
Immediate expense for research, possible capitalization for development. Reflects uncertainty of future benefits.
What is Segment Reporting?
Separate financial information for major business components. Helps users understand diverse business operations.
What is Transfer Pricing?
Pricing of transactions between company divisions. Affects segment profitability and tax obligations.
What are Discontinued Operations?
Results of major business components being disposed. Separated from continuing operations to show ongoing business performance.
What is Foreign Currency Translation?
Converting foreign subsidiary financial statements to parent’s currency. Affects reported results and equity.
What are Hedging Activities?
Using derivatives to manage business risks. Treatment depends on hedge effectiveness and type.
What is Earnings Management?
Techniques to smooth or manipulate reported earnings. Important to identify for financial analysis.
What are Non-GAAP Measures?
Alternative performance measures beyond standard accounting. Must be reconciled to GAAP numbers.
What is Sustainable Growth Rate?
Maximum growth rate without external financing. Function of profitability, dividend policy, and leverage.
What is Operating Leverage?
Relationship between fixed costs and operating income. Higher leverage means greater profit sensitivity to sales changes.
What is Financial Leverage?
Using debt to increase potential return on equity. Amplifies both gains and losses.
What is Cost of Capital?
Required return for company’s funding sources. Used for investment decisions and company valuation.
What is Economic Value Added?
Profit less capital charge for all funding sources. Measures true economic profit creation.
What is Working Capital Efficiency?
Managing current assets and liabilities to minimize funding needs. Critical for cash flow management.
What is Credit Risk Analysis?
Evaluating customer ability to pay. Affects revenue recognition and receivables valuation.
What is Inventory Management?
Balancing holding costs against stockout risks. Affects profitability and customer service.
What is Fixed Asset Management?
Optimizing capital investment and utilization. Critical for capital-intensive businesses.
What is Cash Management?
Strategies for balancing liquidity against investment returns. Includes banking, investing, and foreign exchange.
What are Internal Controls?
Procedures ensuring accurate reporting and asset protection. Required for reliable financial statements.
What is Audit Evidence?
Information supporting financial statement accuracy. Must be sufficient and appropriate.
What is Professional Judgment?
Using knowledge and experience for accounting decisions. Required when standards allow alternatives.
What is Substance Over Form?
Recording economic reality rather than legal form. Fundamental for faithful representation.
What is Industry Analysis?
Understanding business context for accounting choices. Affects comparability and interpretation.
What is Market Efficiency?
How quickly information affects security prices. Influences usefulness of financial reports.
What is Stakeholder Theory?
Considering all parties affected by business decisions. Impacts reporting choices and disclosures.
What is Corporate Governance?
Structures ensuring proper business management. Affects reliability of financial reporting.
What is Risk Assessment?
Evaluating potential negative outcomes. Influences recognition and disclosure decisions.
What are Professional Ethics?
Principles guiding accountant behavior. Essential for financial reporting integrity.
