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Accounting: Principles of Financial Accounting IESE Business School > Week 1 The Balance Sheet > Flashcards

Week 1 The Balance Sheet Flashcards

1
Q

___ of a firm contains a list of its resources and of its sources of capital as of a particular day.

A

The balance sheet

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2
Q

___ is by far the most important financial statement.

A

The balance sheet

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3
Q

___ gives a picture of the financial position of the firm at a specific date.

A

The balance sheet

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4
Q

The balance sheet is also called ___.

A

the statement of financial position

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5
Q

The resources of the firm are ___; the sources of capital are the liabilities (L) and the owners’ equity (OE).

A

the assets (A)

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6
Q

The resources of the firm are the assets (A); the sources of capital are ___ and the owners’ equity (OE).

A

the liabilities (L)

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7
Q

The resources of the firm are the assets (A); the sources of capital are the liabilities (L) and ___.

A

the owners’ equity (OE)

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8
Q

___ : A = L + OE

A

the accounting identity

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9
Q

the accounting identity: ___

A

A = L + OE

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10
Q

___ are a) resources owned or controlled by the firm b) that are expected to generate future economic benefits and c) that arise from a past transaction or event.

A

Assets

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11
Q

Assets are a) ___ b) that are expected to generate future economic benefits and c) that arise from a past transaction or event.

A

resources owned or controlled by the firm

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12
Q

Assets are a) resources owned or controlled by the firm b) ___ and c) that arise from a past transaction or event.

A

that are expected to generate future economic benefits

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13
Q

Assets are a) resources owned or controlled by the firm b) that are expected to generate future economic benefits and c) ___.

A

that arise from a past transaction or event

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14
Q

Asset recognition: an asset is recognized in the balance sheet if a) ___ and if b) these benefits can be measured reliably.

A

it is probable that economic benefits will flow to the firm

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15
Q

Asset recognition: an asset is recognized in the balance sheet if a) it is probable that economic benefits will flow to the firm and if b) ___.

A

these benefits can be measured reliably

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16
Q

___ are a) present obligations of the firm b) arising from past events, c) the settlement of which is expected to result in outflows of economic benefits.

A

Liabilities

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17
Q

Liabilities are a) ___ b) arising from past events, c) the settlement of which is expected to result in outflows of economic benefits.

A

present obligations of the firm

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18
Q

Liabilities are a) present obligations of the firm b) ___, c) the settlement of which is expected to result in outflows of economic benefits.

A

arising from past events

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19
Q

Liabilities are a) present obligations of the firm b) arising from past events, c) ___.

A

the settlement of which is expected to result in outflows of economic benefits

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20
Q

Liability recognition: a liability is recognized in the balance sheet if a) ___ and if b) these benefits can be measured reliably.

A

it is probable that economic benefits will flow from the firm

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21
Q

Liability recognition: a liability is recognized in the balance sheet if a) it is probable that economic benefits will flow from the firm and if b) ___.

A

these benefits can be measured reliably

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22
Q

___ is the wealth of the owners in the firm. It consists of two elements: a) the capital contributed by them and b) the earnings generated by the operations and retained in the firm.

A

Owners’ equity

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23
Q

Owners’ equity is the wealth of the owners in the firm. It consists of two elements: a) ___ and b) the earnings generated by the operations and retained in the firm.

A

the capital contributed by them

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24
Q

Owners’ equity is the wealth of the owners in the firm. It consists of two elements: a) the capital contributed by them and b) ___.

A

the earnings generated by the operations and retained in the firm

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25
Q

___ = OE

A

A – L

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26
Q

A – L = ___

A

OE

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27
Q

The difference between assets and liabilities (A – L) is called ___.

A

net assets

28
Q

___ is called net assets.

A

The difference between assets and liabilities (A – L)

29
Q

Assets are classified into two categories: ___.

A

current assets and non-current assets

30
Q

___ are the resources of the firm that are either cash or that the firm expects to convert into cash, to sell, or to consume during the next 12 months or during the firm’s operating cycle, whichever is longer.

A

Current assets (CA)

31
Q

Current assets (CA) are the resources of the firm that are either ___ or ___

A

cash / that the firm expects to convert into cash, to sell, or to consume during the next 12 months or during the firm’s operating cycle, whichever is longer.

32
Q

___ are resources that the firm intends to use for a long period of time to conduct its operations

A

Non-current assets (NCA)

33
Q

Non-current assets (NCA) are ___

A

resources that the firm intends to use for a long period of time to conduct its operations

34
Q

Liabilities are classified into ___.

A

current and non-current liabilities

35
Q

___ are present obligations of the firm that have to be paid in less than one year or the firm’s operating cycle, whichever is longer.

A

Current liabilities (CL)

36
Q

Current liabilities (CL) are ___

A

present obligations of the firm that have to be paid in less than one year or the firm’s operating cycle, whichever is longer.

37
Q

___

Cash
Short-term investments or Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Most Common Current Assets

38
Q

Most Common Current Assets

___
Short-term investments or Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Cash.

Cash includes cash (cash in hand and bank deposits) and cash equivalents, which are highly liquid, short-term investments with maturities lower than three months, such as treasury bills, commercial paper, etc. Cash is the most liquid asset of the firm.

39
Q

Most Common Current Assets

Cash
___
Accounts receivable
Inventories
Prepaid expenses
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Short-term investments or Marketable securities.

These are short-term financial investments in debt or equity instruments with maturities between three and 12 months, such as bonds and shares of other firms.

40
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
___
Inventories
Prepaid expenses
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Accounts receivable.

The amounts owed by the customers of the firm. They are reported net of
expected defaults.

41
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
Accounts receivable
___
Prepaid expenses
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Inventories.

Products purchased or produced by the firm that are held for sale. Manufacturing firms have three types of inventory accounts: a) raw materials inventory, which contains the items
that will be used in production; b) work in progress inventory, which contains products undergoing
production; and c) finished goods inventory, which contains the finished products ready for sale.

42
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
Accounts receivable
Inventories
___
Interest receivable
Taxes receivable
Non-current assets held for sale

A

Prepaid expenses.

These are payments for insurance, rent, etc. that will provide benefits to the firm in the future: for example, a one-year fire insurance policy that provides coverage to the firm or prepaid rent that grants the firm the right to use office space for a specific period of time.

43
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
Accounts receivable
Inventories
Prepaid expenses
___
Taxes receivable
Non-current assets held for sale

A

Interest receivable.

Interest earned on the firm’s investments not yet received.

44
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Interest receivable
___
Non-current assets held for sale

A

Taxes receivable. Taxes not yet refunded by the tax authorities.

45
Q

Most Common Current Assets

Cash
Short-term investments or Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Interest receivable
Taxes receivable
___

A

Non-current assets held for sale.

These are non-current assets that the firm has put up for sale. They have been reclassified from the non-current asset section to the current asset section of the balance sheet.

46
Q

___

Property, plant and equipment
Deferred tax assets
Intangible assets
Financial investments
Goodwill

A

Most Common Non-Current Assets

47
Q

Most Common Non-Current Assets

___
Deferred tax assets
Intangible assets
Financial investments
Goodwill

A

Property, plant and equipment.

These are long-lived assets with physical substance that the firm intends to use in its operations for a long period of time. Examples are land, buildings, machines, vehicles, tools, etc.

48
Q

Most Common Non-Current Assets

Property, plant and equipment
___
Intangible assets
Financial investments
Goodwill

A

Deferred tax assets.

Income taxes recoverable in the future.

49
Q

Most Common Non-Current Assets

Property, plant and equipment
Deferred tax assets
___
Financial investments
Goodwill

A

Intangible assets.

These are long-lived assets, with no physical substance and not financial in
nature. They include acquired patents, copyrights, trademarks, etc. If these assets do not have indefinite lives, they must be amortized in a systematic way.

50
Q

Most Common Non-Current Assets

Property, plant and equipment
Deferred tax assets
Intangible assets
___
Goodwill

A

Financial investments.

These are long-term investments of the firm in debt or equity securities.

51
Q

Most Common Non-Current Assets

Property, plant and equipment
Deferred tax assets
Intangible assets
Financial investments
___

A

Goodwill.

This is an intangible asset that only arises when a firm acquires another firm. It captures
the value of intangibles that cannot be separated from the rest of assets acquired (e.g., growth
opportunities, the reputation of the acquired firm, the know-how of its workforce, synergies, etc.).

52
Q

___

Accounts payable
Salaries payable, utilities payable, interest payable
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
Notes payable
Current portion of long-term loans

A

Most Common Current Liabilities

53
Q

Most Common Current Liabilities

___
Salaries payable, utilities payable, interest payable
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
Notes payable
Current portion of long-term loans

A

Accounts payable.

The amounts owed to suppliers of merchandise, services and goods used in the business.

54
Q

Most Common Current Liabilities

Accounts payable
___
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
Notes payable
Current portion of long-term loans

A

Salaries payable, utilities payable, interest payable.

These are amounts owed by the firm to employees, utilities and lenders. These payables are also referred to as accrued expenses.

55
Q

Most Common Current Liabilities

Accounts payable
Salaries payable, utilities payable, interest payable
___
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
Notes payable
Current portion of long-term loans

A

Taxes payable. Amounts owed to the tax authorities.

56
Q

Most Common Current Liabilities

Accounts payable
Salaries payable, utilities payable, interest payable
Taxes payable
___
Short-term loans
Notes payable
Current portion of long-term loans

A

Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue.

This liability reflects the money received from customers for goods or services not yet delivered.

57
Q

Most Common Current Liabilities

Accounts payable
Salaries payable, utilities payable, interest payable
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
___
Notes payable
Current portion of long-term loans

A

Short-term loans. Borrowings due in the next 12 months

58
Q

Most Common Current Liabilities

Accounts payable
Salaries payable, utilities payable, interest payable
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
___
Current portion of long-term loans

A

Notes payable.

These are like accounts payable but are based on a formal written contract; they usually carry explicit interest. Notes payable have stronger legal enforceability in case of default than accounts payable.

59
Q

Most Common Current Liabilities

Accounts payable
Salaries payable, utilities payable, interest payable
Taxes payable
Advances from customers or Deposits from customers or Deferred revenue or Unearned revenue
Short-term loans
Notes payable
___

A

Current portion of long-term loans.

Quite often, long-term loans require annual repayments of the principal borrowed. This liability reflects the amount of the next repayment due.

60
Q

___

Long-term loans, Mortgages
Pension obligations
Restructuring provisions, Litigation provisions
Capital lease obligations
Deferred tax liabilities

A

Most Common Non-Current Liabilities

61
Q

Most Common Non-Current Liabilities

___
Pension obligations
Restructuring provisions, Litigation provisions
Capital lease obligations
Deferred tax liabilities

A

Long-term loans, Mortgages. Amounts due for borrowings with maturities longer than one year.
They are interest-bearing obligations.

62
Q

Most Common Non-Current Liabilities

Long-term loans, Mortgages
___
Restructuring provisions, Litigation provisions
Capital lease obligations
Deferred tax liabilities

A

Pension obligations. Obligations with employees, payable when they retire.

62
Q

Most Common Non-Current Liabilities

Long-term loans, Mortgages
Pension obligations
___
Capital lease obligations
Deferred tax liabilities

A

Restructuring provisions, Litigation provisions.

These are obligations of the firm for losses incurred but not yet paid as a result of restructuring plans (e.g., the closing of certain lines of business, the elimination of redundant employees) or lawsuits that the firm expects to lose with certainty.

62
Q

Most Common Non-Current Liabilities

Long-term loans, Mortgages
Pension obligations
Restructuring provisions, Litigation provisions
___
Deferred tax liabilities

A

Capital lease obligations.

These are the amounts owed for the right to use leased assets during
periods longer than one year. Technically, these obligations are the present value of the future
lease payments for the use of the leased asset.

63
Q

Most Common Non-Current Liabilities

Long-term loans, Mortgages
Pension obligations
Restructuring provisions, Litigation provisions
Capital lease obligations
___

A

Deferred tax liabilities. Income taxes payable in the future as a result of temporary taxable
differences.

63
Q

___

Share capital or Common stock
Share premium or Additional paid in capital
Preferred shares or Preferred stock
Retained earnings or Retained profits
Accumulated other comprehensive income
Non-controlling interests

A

Most Common Owners’ Equity Accounts

63
Q

Most assets and liabilities are reported on the balance sheet at ___.

A

historical cost

Accounting: Principles of Financial Accounting IESE Business School (4 decks)

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