Accounting Ch. 2

Front 1

Working capital

Back 1

The difference between the amounts of current assets and current liabilities.

Front 2

Verifiable

Back 2

The quality of information that occurs when independent observers, using the same methods, obtain similar results.

Front 3

Understandability

Back 3

Information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

Front 4

Timely

Back 4

Information that is available to decision-makers before it loses its capacity to influence decisions.

Front 5

Statement of stockholders' equity

Back 5

A financial statement that presents the causes of changes in stockholders' equity during the period, including those that caused retained earnings to change.

Front 6

Solvency ratios

Back 6

Measures of the ability of the company to survive over a long period of time.

Front 7

Solvency

Back 7

The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity.

Front 8

Securities and Exchange Commission (SEC)

Back 8

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

Front 9

Relevance

Back 9

The quality of information that indicates the information makes a difference in a decision.

Front 10

Ratio analysis

Back 10

A technique that expresses the relationship among selected items of financial statement data

Front 11

Ratio

Back 11

An expression of the mathematical relationship between one quantity and another

Front 12

Public Company Accounting Oversight Board (PCAOB)

Back 12

The group charged with determining auditing standards and reviewing the performance of auditing firms.

Front 13

Property, plant, and equipment

Back 13

Assets with relatively long useful lives that are currently used in operating the business.

Front 14

Profitability ratios

Back 14

Measures of the operating success of a company for a given period of time.

Front 15

Periodicity assumption

Back 15

An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.

Front 16

Long-term liabilities (long-term debt)

Back 16

Obligations that a company expects to pay after one year.

Front 17

Operating cycle

Back 17

The average time required to purchase inventory, sell it on an account, and then collect cash from customers—that is, go from cash to cash.

Front 18

Monetary unit assumption

Back 18

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

Front 19

Materiality

Back 19

Whether an item is large enough to likely influence the decision of an investor or creditor.

Front 20

Long-term investments

Back 20

Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year; (2) long-term assets, such as land and buildings, not currently being used in the company's operations; and (3) long-term notes receivable.

Front 21

Liquidity ratios

Back 21

Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

Front 22

Liquidity

Back 22

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.

Front 23

International Financial Reporting Standards (IFRS)

Back 23

Accounting standards, issued by the IASB, that have been adopted by many countries outside of the United States.

Front 24

International Accounting Standards Board (IASB)

Back 24

An accounting standard-setting body that issues standards adopted by many countries outside of the United States.

Front 25

Intangible assets

Back 25

Assets that do not have physical substance.

Front 26

Historical cost principle

Back 26

An accounting principle that states that companies should record assets at their cost.

Front 27

Going concern assumption

Back 27

The assumption that the company will continue in operation for the foreseeable future.

Front 28

Generally accepted accounting principles (GAAP)

Back 28

A set of accounting standards that have substantial authoritative support, that guide accounting professionals.

Front 29

Full disclosure principle

Back 29

The accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.

Front 30

Free cash flow

Back 30

Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid.

Front 31

Financial Accounting Standards Board (FASB)

Back 31

The primary accounting standard-setting body in the United States.

Front 32

Faithful representation

Back 32

Information that is complete, neutral, and free from error.

Front 33

Fair value principle

Back 33

Assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).

Front 34

Economic entity assumption

Back 34

An assumption that every economic entity can be separately identified and accounted for.

Front 35

Earnings per share (EPS)

Back 35

A measure of the net income earned on each share of common stock; computed as net income minus preferred dividends divided by the average number of common shares outstanding during the year.

Front 36

Debt to assets ratio

Back 36

A measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors.

Front 37

Current ratio

Back 37

A measure of liquidity computed as current assets divided by current liabilities.

Front 38

Current liabilities

Back 38

Obligations that a company expects to pay within the next year or operating cycle, whichever is longer.

Front 39

Current assets

Back 39

Assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer.

Front 40

Cost constraint

Back 40

The constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available.

Front 41

Consistency

Back 41

Use of the same accounting principles and methods from year to year within a company.

Front 42

Comparability

Back 42

Ability to compare the accounting information of different companies because they use the same accounting principles.

Front 43

Classified balance sheet

Back 43

A balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections.