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83 Cards in this Set

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  • Back
The process of identifying, recording, and communicating the economic events of a business to interested users of the information.
Annual Report
A report prepared by corporate management that presents financial information including financial statements, notes, and the management discussion and analysis.
Recourses owned by a business.
Auditor's Report
A report prepared by an independent outside auditor stating the auditor's opinion as to the fairness of the presentation of the financial position and results of operations and their conformance with accepted accounting standards.
Balance Sheet
A financial statement that reports the assets, liabilities, and stockholder's equity at a specific date.
Basic Accounting Equation
Assets = Liabilities + Stockholder's Equity.
Certified Public Accountant (CPA)
An individual who has met certain criteria and is thus allowed to perform audits of corporations.
Common Stock
Stock representing the primary ownership interest in a corporation. In the balance sheet it represents the amount paid in by stockholders.
Comparative Statements
A presentation of the financial statements of a company for multiple years.
A business organized as a seperate legal entity having ownership divided into transferable shares of stock.
Cost Principle
Assets should be recorded at their cost.
Distributions of cash or other assets from a corporation to its stockholders.
Economic Entity Assumption
Economic events can be identified with a particular unit of accountability.
The cost of assets consumed or services used in ongoing operations to generate revenues.
Full Disclosure Principle
Circumstances and events that make a difference to financial statement users should be disclosed.
What are the components of an Income Statement?
Add Revenues
Less Expenses
= Net Income
What are the components of a retained earnings statement?
Retained earnings, <beg. date>
Add: Net Income
Less: Dividends
= Retained earnings, <end date>
What are the components of a balance sheet?
Assets = Liabilities and Stockholder's Equity
What are the components of a Statement of Cash Flows?
Cash flows from Operating activities, Investing activities, and Financing activities = Net increase/decrease in cash
Combine with cash at beginning of period = Cash at end of period.
What does Financing Activities Include?
Amounts owed to creditors/Liabilities
Sell ownership interest to shareholders/Common Stock
What are Investing activities?
All purchases of those recourses a company needs in order to operate (purchase or sell of investments): cash, accounts receivable, inventory, buildings, equipment, furniture.
What are Operating activities?
Main activities for which the organization is in business:
Revenues and Expenses.
List Liabilities.
1. Accounts payable
2. Notes payable
3. Wages payable
4. Taxes payable
5. Bonds payable
Going concern assumption
the assumption that the enterprise will continue in operation long enough to carry out its existing objectives and commitments.
Income statement
A financial statement that presents the revenues and expenses and resulting net income or net loss of a company for a specific period of time.
The debts and obligations of a business. Liabilities represent claims of creditors on the assets of a business.
Management discussion and analysis
A section of the annual report that presents management's views on the company's short-term debt paying ability, expansion, financing, and results.
Monetary unit assumption
An assumption stating that only transaction data that can be expressed in terms of money be included in the accounting records of the economic entity.
Net income
The amount by which revenues exceed expenses.
Net loss
The amount by which expenses exceed revenues.
Notes to the financial statements
Notes that clarify information presented in the financial statements, as well as expand upon it where additional detail is needed.
A business owned by more than one person.
Retained earnings
The amount of net income kept in the corporation for future use, not distributed to stockholders as dividends.
Retained earnings statement
A financial statement that summarizes the changes in retained earnings for a specific period of time.
The assets that result from the sale of a product or service.
Sole proprietorship
A business owned by one person.
Statement of cash flows
A financial statement that provides information about the cash inflows (receipts) and cash outflows (payments) for a specific period of time.
Stockholder's equity
The stockholder's claim on total assets.
Time period assumption
An accounting assumption that the economic life of a business can be divided into artificial periods of time.
To present a picture at a point in time of what your business owns and what it owes. . . .
Balance sheet
To show how successfuly your business performed during a period of time you would report its revenues and expenses in the. . . .
Income statement
To indicate how much of previous income was distributed to you and the other owners of your business in the form of dividends, and how much was retained in the business to allow for future growth, you would present a. . . .
Retained earnings statment
Of particular interest to your bankers and other creditors, you would present a. . . .
Statement of cash flows
Objectives of Financial Reporting are. . . .
1. Useful information
2. Constraints
generally accepted accounting principles = a set of rules and practices, that are recognized as a general guide for financial reporting purposes.
financial accounting standards board = a private organization that establishes generally accepted accounting principles.
securities and exchange commission = the agency of the U.S. government that oversees U.S. financial markets and accounting standards-setting bodies.
Qualitative characteristics of financial information are. . . .
1. relevance
2. reliability
3. comparability
4. consistency
1. provides a basis for forecasts
2. confirms or corrects prior expectations
3. is timely
1. is verifiable
2. is a faithful representation
3. is neutral
different companies use similar accounting principles
company uses same accounting methods from year to year.
permit a company to apply generally accepted accounting principles without jeopardizing the usefullness of the reported information. The constraints are materiality and conservatism.
for small amounts, GAAP does not have to followed.
When in doubt, choose the solution that will be least likely to overstate assets and income.
classified balance sheet
Assets =
1. current assets
2. long term investments
3. property, plant, equipment
Liabilites and Stockholders' Equity =
1. current liabilites
2. long-term liabilities
3. stockholders' equity
current assets
assetsv that are expeted to be converted to cash or used up by the business within one year. (cash, short-term investments, accounts receivable, inventories, supplies, prepaid insurance)
long-term investments
investment in stock of a company, investment in real estate
property, plant, and equipment
assets with relatively long useful lives that are currently being used in operating the business. (land, office equipment, less: accumulated depreciation)
intangible assets
assets that do not have physical substance yet often are very valuable. (patents, copyrights, and trademarks, or trade names that give the company exclusive right of used for a specified period of time.)
long-term liabilities
obligations expected to be paid after one year. (bonds payable, mortgages payable, long-term notes payable, lease liabilities, and pension liabilities)
current liabilities
obligations that are to be paid within the coming year. (accounts payable, wages payable, current maturities of long term obligations, interest payable, etc.)
stockholders' equity
divided into common stock and retained earnings.
ratio analysis
expresses the relationship among selected items of financial statement data.
liquidity ratios
measures of short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
profitability ratios
measures of the income or operating success of a company for a given period of time.
solvency ratios
measures of the ability of the company to survive over a long period of time.
intracompany comparisons
covering 2 years for the same company
industry average comaparisons
based on average ratios for particular industries
intercompany comparisons
based on comparisons with a competitor in the same industry
earnings per share (EPS)
measures the net income earned on each share of common stock. It is computed by dividing net income by the average number of common shares outstanding during the year.
price-earnings ratio (P-E)
a measure of the ratio of the market price of each share of common stock to the earnings per share; it reflects the stock market's belief about a company's future earnings potential.
statement of stockholders' equity
a financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change.
working capital
the difference between the amounts of current assets and current liabilities.
working capital
working capital = current assets - current liabilities
liquidity ratios
measure the short-term ability of the enterprise to pay its maturing obligations and to meet unexpected needs for cash
current ratio
current assets/current liabilities
a company's ability to pay interest as it becomes due and to repay the balance of a debt due at its maturity
solvency ratios
measure the ability of the enterprise to survive over a long period of time
debt to total assets ratio
total liabilities/total assets

measures % of assets financed by creditors rather than stockholders
What 2 operations do companies get cash from?
operating and financing activities
current cash debt coverage ratio
cash provided by operations/average current liabilities
cash debt coverage ratio
cash provided by operations/average total liabilities