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39 Cards in this Set

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What info does the balance sheet convey?
It is a statement of financial position that reports dollar amounts for the assets, liabilities, and stockholders' equity at a specific point in time.
What is the equation used on the balance sheet?
Assets = Liabilities + Stockholders' Equity
What info does the income statement convey?
It is a statement of operations that reports revenues, expenses, and net income for a stated period of time.
What is the equation used on the income statement?
Revenues - Expenses = Net Income
What does the statement of retained earnings convey?
It explains changes to the retained earnings balance taht occurred during the reporting period.
What is the equation used on the statement of retained earnings?
Retained Earning, beginning of the period + Net Income - Dividends = Retained Earnings, end of the period
What does the statement of cash flows convey?
It reports inflows and outflows of cash for a stated period of time.
What equation is used on the statement of cash flows?
+/- Cash flow from Operating Activities +/- Cash Flow from Investing Activities +/- Cash Flow from Financing Activities = Net Change in Cash Flow
What are the GAAP?
Generally Accepted Accounting Principles are the measurement rules used to develop the info in financial statements.
Who is FASB?
The Financial Accounting Standards Board is the private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles.
What is the difference between the roles of managers and auditors in the accounting communication process?
Managers have the primary responsibility for the accuracy of a co's financial info and auditors are responsible for expressing an opinion on the fairness of the finacial statement presentation based on their examination of the reports and records of the co.
What is the primary objective of external financing reporting?
It provides useful economic info about a business to help external parties, primarily investors and creditors, make sound financial decisions.
define assets
probably future economic benefits owned by the entity as a result of past transactions
define liabilities
probably debts or obligations acquired by the entity as a result of past transactions, to be paid with assets or services
define stockholders' equity
the financing provided by the owners and by business operations
What constitutes a business transaction?
An exchange between a business and one or more external parties to a business OR a measurable internal event, such as adjustments for the use of assets in operations.
What accounts are found under assets on the balance sheet==?
cash, accounts receivable, inventor, prepaid expenses, and buildings and equiptment
What accounts are found under liabilities on the balance sheet?
accounts payable, notes payable, accrued expenses payable, unearned revenues, and taxes payable
What accounts are found under stockholders' equity on the balance sheet?
contributed capital and retained earnings
How are classified balance sheets structured?
Assets are categorized as current and non current assets. Liabilities are classified as current and long-term liabilities. Stockholders' equity is listed as CC then RE.
How do you find the financial leverage ratio and what is it good for?
average total assets/average stockholders' equity
The higher the ration, the more debt is used to finance assets. as the ratio increases, so does risk.
What are investing activities?
purchasing and selling long-term assets and making loans and receiving principal repayments from others
What are financing activities?
borrowing and repaying to banks the principal on loans, issuing and repurchasing stock, and paying dividends
What is the operating cycle (or cash-to-cash cycle)?
the time needed to purchase goods or services from suppliers, sell the goods or services to customers, and collect cash from customers
Why is the time assumption necessary?
to measure and report financial info periodically, we assume the long life of a company can be cut into shorter pieces
define revenues
increases in assets or settlements of liabilities from ongoing operations
define expenses
decreases in assets or increases in liablilities from ongoing operations
define gains
increases in assets or settlements of liabilities from peripheral activities
define losses
decreases in assets or increases in liabilities from peripheral activites
explain the accrual basis of accounting
revenues are recognized when earned and expenses are recognized when incurred
What does 2/10,n/30 mean?
The customer may deduct 2 percent from the invoice price if cash payment is made within 10 days from the date of sale. If cash payment is not made within the 10-day discount period, the full sales price (less any returns) is due within a maximum of 30 days.
define bad debt expense
It's the expense associated with estimated uncollectible accounts receivable
define allowance for doubtful accounts
It's a contra-asset account containing the estimated uncollectible accounts receivable.
What are the two ways to estimate bad debts?
the percentage of credit sales method and the aging of accounts receivable method
explain the percentage of credit sales method
It bases bad debt expense on the historical percentage of credit sales that result in bad debts.
explain the aging of accounts receivable method
It estimates uncollectible accounts based on the age of each account receivable. As receivables become older and more overdue, it is less likely that they will prove to be collectible.
What is the structure of the classified income statement?
Net Sales-COGS=Gross Profit
-Operating Expenses=Income from Operations
+/-Nonop rev/exp and gains/losses=Pretax Income
-Income Tax Expense=Net Income
How you do find earnings per share (EPS)?
Net Income Available to Common Shareholders/Weighted Average Number of Shares Outstanding During the Reporting Period
What are the differences between the Forms 10-K, 10-Q, and 8-K?
The 10-K is an annual report that must be filed with the SEC. The 10-Q is a quarterly report that must be filed with the SEC. The 8-K is used by publicly traded co.s to disclose any important current events.