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36 Cards in this Set
- Front
- Back
GAAP is a body of guidelines and standards for...
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measurement of a firms economic activity, timing of when such measurements are made and recorded, disclosures surrounding the activities, preparation and presentation of summarized economic information in the form of financial statements
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historical cost
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items on the balance sheet are based on the original dollar value of the transaction
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productive asset
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property, plant, equipment
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matching principle
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companies will report revenues and the expenses that genrated the revenue in the same accounting period
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What are 3 limitations of GAAP?
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the use of historical cost can cloud an analyst's ability to recognize current values, the matching principle can obscure the receipt and payment of cash, GAAP permits for several alternatives to account for the same kinds of transactions
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what are the 4 financial statements
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balance sheet, income statement, reconciliation of stockholders equity, statement of cash flows
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what is on the balance sheet?
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assets, liabilities, net worth
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what is on the income statement?
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revenue, expenses, profit
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what is on the reconciliation of net worth?
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profits retained, distribution to owners, net paid-in capital, other comprehensive income
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what is on the statement of cash flows
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operating, financing, investing
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what is the basic accouting equation?
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assets=liabilities+owners equity
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what is an asset
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what the comany owns, resources to generate earnings
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what is a liability
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the source of thw resources
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What is owners equity
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the owners risidual interst in the assets of the company
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give examples of assets
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cash, accounts receivable, inventory, paid expenses, property, intangibles
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give examples of liabilities
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accounts payable, notes payable, income tax payable, long term debt, deferred taxes
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give examples of owners equity
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common stock, additional paid-in capital, treasury stock, retained earnings
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what is liquidity
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a company's ability to meet its near term obligations
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what are the 2 liquidity ratios
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working capital=current assets - current liabilities
current ratio=current assets ÷ current liabilities |
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what is the leverage ratio
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debt to worth = total liabilities ÷ owners equity
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what is the income statement equation
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revenues-expenses=net income
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define revenue
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the inflow of assets or satisfaction of liabilities resulting feom the delivery of goods or services to customers
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define expenses
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The outflow or using up if assets or incurring liabilities from providing services to customers
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what is comprehensive income
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measures the profit on its operations plus any special holdings on gains or losses ie. foreign exchange accounts
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what is the interest coverage ratio
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interest coverage=operating profit ÷ interst expense
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what does the income statement tell us?
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how well the company has used its resouces on the balance sheet to make money
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what does the statement of retained earnings tell us
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it represents all the net income the company has generated less all dividends that have been paid since operations began
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what types of notes are added to the financial statements
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nature of the operations, reporting entity, accouting policies, nature of intangibles, explanation of extraordinary items
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what is paid-in capital
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contributions or payments made to the company in exchange for an ownership share
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what is earned capital
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earnings of the company that have been retained in the entity from its beginning
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what does it mean when revenues are shown as net on the income statement
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the company has allowed discounts, price adjustments, or refunds of goods sold
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what is comprehensive income
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net income plus gains and or losses not reported on the income statement
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what are the steps in the accounting cycle
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teansaction, journal, ledger, trial balance, adjusting entries, adjusted trial balance, financial statement prep, closing entries, post closing tial balance
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what is revenue recognition
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revenues are recognized when goods or services have beeb provided to the customer regardless of when cash is received
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what is the purpose of the adjusting period
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to get all the revenues in the current accounting period that belong in that accounting period
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give 3 examples of adjusting entries
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create a liability calles accounts payable on the balance sheet and rent expense on the income statement, reduce inventory on the balance sheet and recognize cist if goods sold on the income statement, create a liability on the balance sheet called interst payable and recognize interst expense on the income sheet
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