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118 Cards in this Set
- Front
- Back
Who are the providers of financial information?
- ________-oriented companies (corporations) - ________ entities - ________ |
profit, not-for-profit, households
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The financial accounting environment:
Providers of financial information (profit-oriented companies, not-for-profit entities, households) provide relevant financial information to ________ user groups (investors, creditors, employees, labor unions, customers, suppliers, government agencies, financial intermediaries) |
external
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Who are the main external users of financial accounting information?
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investors & creditors
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Relevant financial information is provided primarily through ________ statements and related ________ notes.
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financial, disclosure
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What are the 4 most frequently provided financial statements?
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1. Balance Sheet
2. Income Statement 3. Statement of Cash Flows 4. Statement of Shareholders' Equity |
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________ notes explain what's in the financial statements.
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Disclosure
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A ________ is owned by a single individual.
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sole proprietorship
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A ________ is owned by two or more individuals.
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partnership
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A ________ is owned by shareholders.
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corporation
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Accounting information should help investors and creditors evaluate the amount, timing and uncertainty of the enterprise's ________ cash flows.
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future
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Financial accounting information is used to predict the ________ based on the ________
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future, past
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Shareholders receive cash in the form of ________ and ________ of stock.
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dividends, sale
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Creditors (bank) receive cash in the form of ________ and repayment of ________.
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interest, principle
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Revenue is recognized when cash is received. Expenses are recognized when cash is paid. This is known as ________ accounting.
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cash basis
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GAAP requires ________ accounting.
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accrual
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Revenue is recognized when earned. Expenses are recognized when incurred. This is known as ________ accounting.
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accrual
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Cash flows in any one year may not be a predictor of ________ cash flows. Accrual accounting is a better way of predicting future cash flows.
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future
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________ is considered a better indicator of future cash flows.
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Net income
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Concepts, principles, and procedures developed to meet the needs of external users
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Generally Accepted Accounting Principles (GAAP)
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The ________ has the ultimate authority to set accounting rules, which they delegate to the ________ sector, where the ________ sets accounting standards.
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SEC, private, FASB
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The current US Accounting Standard Setting is done by the ________.
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FASB (Financial Accounting Standards Board)
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The FASB is supported by the Financial Accounting Foundation, has ________ full-time, independent, voting members. Members of the FASB are not required to be ________.
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seven, CPAs
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The ________ project integrates and organizes all relevant accounting pronouncements into a searchable, online database.
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codification (FASB Accounting Standards Codification)
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The main objective of the ________ is to develop a single set of high quality, understandable, and enforceable global accounting standards to help participants in the world's capital markets and other users make economic decisions.
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International Accounting Standards Board (IASB)
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________ serve as independent intermediaries to help ensure that management has appropriately applied U.S. GAAP in preparing the company's financial statements.
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Auditors
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As a result of numerous financial scandals, Congress passed the Public Company Accounting Reform and Investor Protection Act of 2002 (aka ________). The goal was to restore credibility and investor confidence in the financial reporting process.
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Sarbanes-Oxley Act
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The Code of ________ provides guidance and rules to help accounting professionals perform their professional responsibilities in an ethical manner.
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ethics
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The Conceptual Framework (what the rules are based on) has been described as an Accounting ________. It provides the underlying foundation for accounting ________.
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Constitution, standards
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Conceptual Framework -
Objective - To provide ________ information that is useful to ________ providers |
financial, capital
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one of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness.
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relevance
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one of the primary decision-specific qualities that make accounting information useful; made up of predictive value and/or feedback value, and timeliness.
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faithful representation
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confirmation of investor expectations about future cash-generating ability.
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predictive value/ confirmatory value
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confirmation of investor expectations about future cash-generating ability.
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materiality
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neutral with respect to parties potentially affected.
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neutrality
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practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered.
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conservatism
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practice followed in an attempt to ensure that uncertainties and risks inherent in business situations are adequately considered.
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comparability
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permits valid comparisons between different periods.
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consistency
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permits valid comparisons between different periods.
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verifiability
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information that is available to users early enough to allow its use in the decision process.
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timeliness
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users must understand the information within the context of the decision being made.
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understandability
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the perceived benefit of increased decision usefulness exceeds the anticipated cost of providing that information. (key constraint)
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cost effectiveness
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What assumption says that all economic events identified with a particular economic entity?
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Economic Entity
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What assumption says that a business will continue to operate indefinitely?
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Going concern
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What assumption says that the life of a company is divided into time periods to provide timely information?
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Periodicity
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What assumption says that financial statements are measured in a particular monetary unit (like the U.S. dollar)?
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Monetary Unit
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Process of admitting information into the basic financial statements (criteria: definition, measurability, relevance, reliability)
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recognition
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Process of associating numerical amounts with the elements (measurement attributes: historical cost, net realizable value, current cost, present value of future cash flows, fair value)
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measurement
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Process of including additional supplemental information
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disclosure
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Two criteria for revenue recognition (Realization)
1. Earnings process is _______ pr virtually complete. 2. Reasonable certainty as to the _______ of the asset to be received (usually cash). |
complete, collectability
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The matching principle requires that all _______ incurred in generating revenue for a period also be recognized in the same period.
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expenses
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What is the Accounting Equation?
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A = L + OE
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What is the Accounting Equation for a Corporation?
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A = L + SE
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Stockholders' Equity is made up of what two things:
1. 2. |
Paid-in Capital (Common Stock)
Retained Earnings |
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Equation for Retained Earnings
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Revenues + Gains - Expenses - Losses - Dividends
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Retained earnings = total _______ the company has earned less _______
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net income, dividends
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What are the permanent accounts and where are they located?
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assets, liabilities, paid-in capital, retained earnings
Balance Sheet |
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What are the temporary accounts that we close at the end of the period?
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revenues, gains, expenses, losses
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Debit = _______
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Left
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Credit = _______
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Right
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The Accounting Processing Cycle:
1. _______ Documents (invoice, check, receipt - anything that triggers a transaction) 2. _______ Analysis 3. Record in _______ 4. Post to _______ 5. Prepare an _______ trial balance 6. Record & post _______ entries 7. Prepare an _______ trial balance 8. Prepare _______ statements At the end of the year: 9. Close _______ accounts. 10. Post _______ trial balance. |
1. Source
2. Transaction 3. Journal 4. Ledger 5. Unadjusted 6. Adjusting 7. Adjusted 8. Financial 9. Temporary 10. Closing |
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A _______ balance is a list of all accounts and their balances at a particular date.
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trial
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At the end of the period, adjusting entries are required to satisfy the _______ principle and the _______ principle.
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realization, matching
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Transactions where cash is paid or received before a related expense or revenue is recognized
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prepayments
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Transactions where cash is paid or received after a related expense or revenue is recognized
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accruals
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Accountants must often make _______ in order to comply with the accrual accounting model
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estimates
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The process of allocating the cost of plant and equipment over their expected useful lives
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depreciation
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Straight line depreciation equation
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(Asset Cost - Salvage Value) / Useful Life
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BV = Asset netted with _______
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accumulated depreciation
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Accumulated Depreciation is a _______ asset, and _______ assets.
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contra, reduces
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Accountants often must make estimates of future events to comply with the accrual accounting model. Examples: _______ and _______
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Depreciation, Uncollectible Accounts
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The _______ statement summarizes the results of profit-generating activities of the company.
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income
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A few types of gains and losses, called other _______ income (OCI) or loss items, are excluded from the determination of net income and the income statement, but are included in the broader concept of comprehensive income.
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comprehensive
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The Statement of Comprehensive Income:
- In the _______ statement approach, net income is a subtotal within the statement followed by these OCI items, culminating in a final total of comprehensive income. - In the _______ statement approach, a company presents an income statement followed by a statement of comprehensive income. |
single, two
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The _______ sheet presents the financial position of the company on a particular date.
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balance
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The statement of _______ discloses the changes in cash during a period.
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cash flows
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The statement of _______ presents the changes in permanent shareholder accounts.
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shareholders' equity
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When closing temporary accounts, close all _______ and _______ to _______(which should equal net income) and then close _______ to _______.
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revenues, expenses, income summary, income summary, retained earnings
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Balance Sheet - Reports a company's financial position on a particular date
Limitations: - The balance sheet does not report _______ value. -Resources such as _______ skills and _______ are not recorded in the balance sheet. |
market, employee, reputation
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Usefulness of the Balance Sheet:
- It describes many of the resources a company has for generating _______ cash flows. - It provides _______ information useful in assessing a company's ability to pay its current obligations. - It provides long-term _______ information relating to the riskiness of a company with regard to the amount of liabilities in its capital structure. |
future, liquidity, solvency
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Assets are listed in the balance sheet in order of _______.
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liquidity
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A Classified balance sheet splits the balance sheet into _______ and _______ assets.
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current, noncurrent
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A comparative balance sheet shows _______ years.
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2
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_______ Assets will be converted to cash or consumed within one year or the operating cycle, whichever is longer.
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Current
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Cash _______ include certain negotiable items such as commercial paper, money market funds, and U.S. treasury bills (mature in 3 months or less).
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equivalents
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Current operating cycle or 1 year, whichever is _______
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longer
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_______ Assets are not expected to be converted to cash or consumed within one year or the operating cycle, whichever is longer.
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Noncurrent
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Some examples of noncurrent assets: _______, property, plant & _______, _______ assets, & other assets
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investments, equipment, intangible
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Noncurrent Assets -
Investments - Include both _____ and _____ securities of other corporations, land held for speculation, noncurrent receivables, and cash set aside for special purposes |
debt, equity
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Noncurrent Assets -
Property, Plant, and Equipment - Are _____, long-lived, and used in the operations of the business - Include land, buildings, equipment, machinery, and furniture as well as natural resources such as mineral mines, timber tracts, and oil wells - Reported at _____ cost less _____ depreciation, except for land which is not depreciated (doesn't decrease in value) |
tangible, original, accumulated
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Noncurrent Assets
Intangible Assets - - Used in the operations of the business but have no _____ substance. - Include: _____, _____ and _____ - Reported net of accumulated _____ |
physical, patents, copyrights, franchises, amortization
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With noncurrent assets, _____ assets is a catch all for everything that doesn't fit into the other categories (investments, PPE, intangibles)
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other
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Obligations to other entities
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liabilities
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Obligations expected to be satisfied through current assets or creation of other current liabilities within one year or the operating cycle whichever is longer
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current liabilities
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When you accrued an expense before you pay for it, that is an accrued _____.
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liability
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When you receive cash before you perform a serve, that is _____ revenue.
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unearned
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Current liabilities are due in _____ 1 year. Some examples are: A/P, N/P, accrued liabilities, unearned revenues, and current maturities of long-term debt (what's due in the cycle)
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less than
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Obligations that will not be satisfied within one year or the operating cycle, whichever is longer
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long-term liabilities
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There are more similarities than differences in balance sheets prepared according to U.S. GAAP and those prepared applying IFRS.
Some differences are: - FASB doesn't specify a _____ list of items to be presented in the balance sheet, while the IFRS does - Under FASB, some U.S. companies use the statement of _____ title, it is officially the title under the IFRS(although title is not required) - Under FASB, current assets and liabilities are presented before noncurrent assets & liabilities, whereas the IFRS usually reports _____ items first |
minimum, financial position, noncurrent
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The _____ and _____ are working together on the Financial Statement Presentation project to establish a common standard for presenting information in the financial statements.
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FASB, IASB
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Disclosure notes:
- _____ - Conveys valuable information about the company's choices form among various alternative accounting methods - _____ - A significant development (ex: lawsuit) that occurs after the company's fiscal year-end but before the financial statements are issued or available to be issued - _____ Events and Transactions - Transactions or events that are potentially important to evaluating a company's financial statements, e.g., related-party transactions, errors and irregularities, and illegal acts |
summary of significant accounting policies, subsequent events, noteworthy
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The _____ discussion & analysis provides a biased but informed perspective of a company's operations, liquidity, and capital resources
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management
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_____ is responsible for preparing the financial statements and other information in the annual report.
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Management
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Management is responsible for maintaining and assessing the company's _____ control procedures.
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internal
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The auditors' report expresses the auditors' opinion as to the _____ of presentation of the financial statements in conformity with generally accepted accounting principles. The auditors' report must comply with specifications of the Public Companies Accounting Oversight Board (PCAOB).
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fairness
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An auditors opinion that is issued when the financial statements present fairly the financial position, results of operations, and cash flows and are in conformity with U.S. GAAP.
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unqualified (good)
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An auditors opinion that is issued when there is an exception that is not of sufficient seriousness to invalidate the financial statements as a whole.
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qualified
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An auditors opinion that is issued when the exceptions are so serious that a qualified opinion is not justified (rarely happens)
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adverse
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An auditors opinion that is issued when insufficient information has been gathered to express an opinion
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disclaimer
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A _____ statement is sent each year to all shareholders, usually in the same mailing with the annual report. It includes information such as: salary, bonus, stock awards, option awards and other compensation.
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proxy
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_____ Financial Statements allow financial statement users to compare year-to-year financial position, results of operations, and cash flows.
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Comparative
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_____ Analysis expresses each item in the financial statements as a percentage of that same item in the financial statements of another year (base amount).
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Horizontal
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_____ Analysis involves expressing each item in the financial statements as a percentage of an appropriate corresponding total, or base amount, within the same year.
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Vertical
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_____ Analysis allows analysts to control for size differences over time and among firms.
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Ratio
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You generally want a _____ current ratio.
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higher
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The _____ ratio measures a company's ability to satisfy its short-term liabilities.
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current
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The _____ ratio eliminates some current assets (inventories, prepaids, other assets) that are not as easily converted to cash and provides a more stringent indication of a company's ability to pay its current liabilities.
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Acid-test
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The _____ ratio indicates the extent of reliance on creditors, rather than owners, in providing resources.
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debt to equity
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The _____ ratio indicates the margin of safety provided to creditors.
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times interest earned
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