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37 Cards in this Set
- Front
- Back
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information allows decision maker to compare the same company over two or more accounting periods or different companies over the same accounting periods
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Comparability
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particular accounting procedure, once adopted, should not be changed unless management decides it is no longer appropriate or unless reporting requirements change
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Consistency
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strict accounting practice need not be applied to items of insignificant dollar value
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Materiality
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an accountant who has a choice of acceptable accounting procedures should choose the one that is least likely to overstate assets and income
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Conservatism
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financial statements and their notes should contain all information relevant to the user's understanding of the statements
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Full Disclosure
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benefits to be gained from providing accounting information should be greater than the cost of providing it
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Cost-benefit
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general-purpose external financial statements that divide assets, liabilities, stockholders' equity, revenues, and expenses into subcategories, thus making the statements more useful to readers
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Classified Financial Statements
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Four parts:
1. Current Assets 2. Investments 3. Property, plant and equipment 4. Intangible assets |
Parts of classified balance sheet
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cash and other assets that are expected to be turned into cash or used up within a company's normal operating cycle or within one year, whichever is longer
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current assets
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average time between the purchase of inventory and the collection of cash from the sale of that inventory
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normal operating cycle
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stocks and bonds held for long-term investment, land held for future use, plant or equipment that is not used in the business, special funds, and large permanent investments made to control another company.
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investment
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land, buildings, delivery equipment, machinery,office equipment, and natural resources
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property, plant, and equipment
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no physical substance
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intangible assets
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obligations for which payment is due in the current period
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current liabilities
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debts that are due after the current period or that will be paid from non current assets
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long-tern liabilities
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contains several subtractions and subtotals. Has separate sections for cost of goods sold, operating expenses, and other non operating revenues and expenses
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multi-step income statement
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amount a merchandising company paid for the goods that it sold during an accounting period.
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cost of goods sold
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company's ability to pay its bills when they are due and to meet unexpected needs for cash
measures: working capital and current ratio |
liquidity
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Trademarks are categorized as:
a. current asset b. revenue c. an intangible asset d. property, plant, and equipment |
c. an intangible asset
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Accounting information is said to be useful if it is
a. timely and unbiased b. relevant and reliable c. relevant and certain d. accurate and faithful |
b. relevant and reliable
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To expense an item that would normally be recorded as an asset because the item is insignificant in amount is an application of
a. materiality b. conservatism c. full disclosure d. comparability |
a. materiality
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Which of the following would not be on the income statement?
a. cost of goods sold b. gross margin c. additional paid-in capitol d. sales returns and allowances |
c
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Land held for future use is classified as
a. current asset b. investment c. property, plant, and equipment d. an intangible asset |
b. an investment
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The current portion of long-term debt is normally classified as
a. current assets b. current liabilities c. long-term liabilities d. stockholder's equity |
b. current liabilities
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A disadvantage of the single-step income statement is that
a. gross margin is not disclosed separately b. other revenues and expenses are separated from operating items c. interest expense is not disclosed d. the cost of goods sold cannot be determined |
a. gross margin is not disclosed separately
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Net income is a component in determining each of the following ratios except
a. profit margin b. return on assets c. debt to equity ratio d. return on equity |
c. debt to equity ratio
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Asset turnover is expressed
a. in dollars b. as a percentage c. in times d. in days |
c. in times
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Which of the following terms does not mean the same as the others listed?
a. net worth b. owner's equity c. proprietorship d. working captial |
d. working capital
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The basis for clarifying assets as current or noncurrent is the period of time that a business normally needs to turn cash invested in
a. noncurrent assets back into current assets b. receivable back into cash, or one year, whichever is shorter c. inventories back into cash, or one year, which is longer inventories back into cash, or one year, whichever is shorter |
c
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Which of the following will not be found anywhere in a single-step income statement?
a. cost of goods sold b. net sales c. gross margin d. operating expenses |
c
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The current ratio would probably be of most interest to
a. stockholders b. creditors c. management d. customers |
b
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Which of the following would not appear in the stockholder's equity section of a corporation's balance sheet?
a. retained earnings b. common stock c. additional paid-in capital d. Dawn Roberts, capital |
d
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Net income divided by net sales equals
a. profit margin b, return on assets c. working capital d. income from operations |
a
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Operating expenses consist of
a. other expenses and cost of goods sold b. selling expenses and cost of goods sold c. selling expenses and general and administrative expenses d. selling expenses, general and administrative expenses, and other expenses |
c
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All of the following are objectives of financial reporting, as prescribed by the FASB, except
a. to provide information about the timing of cash flows b. to provide information to investors and creditors c. to provide information about business resources d. to provide information to management |
d
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If a company has a profit margin of 4.0 percent and an asset turnover of 3.0 times, its return on assets is approximately
a. 1.3 percent b. 3.0 percent c. 4.0 percent d. 12.0 percent |
d
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The multistep income statement of a service company would not contain which of the following components?
a. income taxes b. gross margin c. other revenues and expenses d. operating expenses |
b
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