Acct 1 & 2

Front 1

Accounting

Back 1

an information system that identifies, records and communicates the economic events of an organization to interested users

Front 2

describe institutional users of accounting

Back 2

Includes pension, mutual, endowment and other funds that invest on the behalf of others

Front 3

describe private users of accounting

Back 3

individuals who purchase share in companies

Front 4

describe lenders and creditor users of accounting

Back 4

suppliers, banks commercial credit companies, and other financial institutions that lend money to companies

Front 5

What do security analysts do (2) ?

Back 5

1. forecast earnings and other key financial numbers

2. recommend stocks

Front 6

Where do security analysts get their information (7)?

Back 6

1. Published financial statements (10k, 10Q and 8K)

2. Company Websites

3. Earnings calls

4. Management forecasts and other voluntary disclosures

5. Industry information

6. Business periodicals

7. Information Services

Front 7

define the objective of financial reporting

Back 7

provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in making decisions in their capacity as capital providers

Front 8

According the the FASB what two fundamental qualities should useful information possess?

Back 8

Predictive value

Confirmative value

Front 9

define Relevance

Back 9

the information has a direct bearing on a decision. In other words, if the information were not available, a different decision would be made.

Front 10

What must information have to be relevant? (2 possible)

Back 10

one or both of the following:

1. Predictive Value

2. Confirmative Values

Front 11

define predictive value

Back 11

information has predictive value if it helps captial providers make decisions about future actions

Front 12

define confirmative value

Back 12

information has confirmative value if it confirms or changes previous evaluations

Front 13

What is relevant information subject to?

Back 13

The materiality constraint

Front 14

define the materiality constraint that relevant information is subject to.

Back 14

information is material if its omission or misstatement could influence the user's economic decisions taken on the basis of the specific entity's financial statements.

Front 15

define materiality as it pertains to the materiality constraint that relevant information is subject to (define and 3 rules)

Back 15

Materiality is related to both the nature of an item and its size or misstatement.

1. the materiality of an item normally is determined by relating its dollar value to an element of the financial statements, such as net income or total assets

2. As a rule of thumb, when an item is work .5-2% of total assets, .5-2% of total revenue; or 5-10% of net income, accountants treat it as material.

3. However, many small errors can add up to a material amount.

Front 16

define 'faithful representation' as a quality of useful information

Back 16

that information accurately depicts what really happened. To provide a faithful representation, information must be:

1. Complete

2. Neutral

3. Free from error

Front 17

define 'complete' as it pertains to faithful representation (a quality of useful information)

Back 17

complete: provides all information necessary for a reliable decision

Front 18

define neutral as it pertains to faithful representation (a quality of useful information)

Back 18

neutral: free from bias intended to achieve a certain result or to bring about a particular behavior

Front 19

define 'free from error' as it pertains to faithful representation (a quality of useful information)

Back 19

free from error: information meets a minimum level of accuracy so it does not distort what is being reported.

Front 20

List the Quality of Useful Information (6)

Back 20

1. Relevance

2. Faithful representation

3. Comparability (Enhancing)

4. Verifiability (Enhancing)

5. Understandability

6. Timeliness

Front 21

define Comparability as it pertains to qualities of useful information

Back 21

results when different companies use the same accounting principles.

1. included within comparability is consistency.

Front 22

define consistency as it pertains to comparability as it pertains to qualities of useful information

Back 22

consistency means that a company uses the same accounting principles and methods from year to year

Front 23

define verifiability as it pertains to qualities of useful information

Back 23

information is verifiable if independent observers, using the same methods, obtain similar results.

Front 24

define understandability as it pertains to the qualities of useful information

Back 24

information has the quality of understandability if it is presented in a clear and concise fashion

Front 25

define timeliness as it pertains to the qualities of useful information

Back 25

for accounting information to have relevance, it must have timeliness

Front 26

List the assumptions in financial reporting (4)

Back 26

1. Monetary Unit

2. Economic Entity

3. Periodicity

4. Going Concern

Front 27

define Monetary Unit as it pertains to the assumptions in financial reporting

Back 27

requires that entity accounts for and reports its financial results primarily in terms of the national monetary unit.

Front 28

define Economic Entity as it pertains to the assumptions in financial reporting

Back 28

All the business transactions should be separate from the business owner's personal transactions

Front 29

define Periodicity as it pertains to the assumptions in financial reporting

Back 29

the entity's activities are spearated into periods of time such as months, quarters or years. Transactions must be accounted for within the time period they occur

Front 30

define going concern as it pertains to the assumptions in financial reporting

Back 30

financial statements are prepared under the assumption that the company will remain in business indefinitely unless there is suffcient evidence otherwise.

Front 31

List the Principles in Financial Reporting

Back 31

1. Historical Cost or Fair Value

2. Revenue Recognition

3. Expense Recognition

4. Full disclosure

Front 32

define Historical Cost as it pertains to the Principles in Financial Reporting

Back 32

aka Cost Principle: dictates that companies record assets at their historical cost.

Front 33

define Fair Value as it pertains to the Principles in Financial Reporting

Back 33

indicates that assets and liabilities should be reported as fair value (the price received to sell an asset or settle a liability)

Front 34

define Revenue Recognition as it pertains to the Principles in Financial Reporting

Back 34

Part of the Accrual basis of accounting

Revenue is earned and recognized upon product delivery or service completion, without regard to when case is actually received.

Front 35

list 3 Principles in Financial Reporting in the Accrual basis of accounting

Back 35

1. Revenue Recognition

2. Expense Recognition

3. Full disclosure

Front 36

define Expense Recognition as it pertains to the Principles in Financial Reporting

Back 36

aka Matching Principle: the costs of doing business are recorded in the same period as the revenue they help generate, regardless of when the money is actually paid.

Front 37

define Full Disclosure as it pertains to the Principles in Financial Reporting

Back 37

requires that companies disclose all circumstances and events that would make a difference to financial statement users

Front 38

List the 3 Constraints of Accounting

Back 38

1. Conservatism constraint

2. Cost constraint

3. Industry Practice Constraint

Front 39

define the Conservatism constraint as it pertains to the Constraints of Accounting

Back 39

holds that, when faced with choosing between two equally acceptable procedures or estimates, the accountant uses their judgment to choose the one that is least likely to overstate assets and revenues or understate liability and expenses.

1. can be abused and lead to incorrect or misleading statements

2. should be applied only when their is uncertainty about which accounting procedure or estimate to use

Front 40

define Cost Constraint as it pertains to the Constraints of Accounting

Back 40

the cost of providing accounting information should not exceed the benefit that financial statement users will gain from this information

Front 41

define the Industry Practice Constraint as it pertains to the Constraints of Accounting

Back 41

one size does not fit all when reporting financial activies. Some industries have peculiar products/services or have special ways of distributing the products/services to customers

Front 42

SEC Regulation FD

Back 42

aka Fair Disclosure: requires that companies provide all investors equal access to all important company news

2. Managers and other insiders are prohibited from insider trading

Front 43

define insider trading as it pertains to SEC Regulations FD

Back 43

trading their company's shares based on nonpublic (insider) information so that no party benefits from early access

Front 44

Name some ways companies disclose information to satisfy SEC Regulations FD

Back 44

1. Press releases

2. SEC Reports (10K, 10Q and 8K)

Front 45

define 10K financial report

Back 45

due within 60-90 days of the fiscal year-end.

contains audited financial statements

Front 46

define 10K financial report

Back 46

due within 40-45 days of the end of the quarter

financial statements can be unaudited

Front 47

define 8k financial report

Back 47

due 4 days of the major event date

financial statements can be unaudited

Front 48

what kinds of information should a 10k include (6)?

Back 48

1. Risk factors

2. Selected financial data

3. Management Discussion and Analysis of Financial Condition and Results of Operations (MD&A)

4. Independent Auditor's report

5. Financial Statements

6. Notes to Financial Statements

Front 49

define 'Risk Factors' as it pertains to the contents of a 10k financial report

Back 49

includes information about the most significant risks that apply to the company or to its securities. Companies generally list the risk factors in order of their importance. In practice, this section focuses on the risks themselves, not how the company addresses those risks. Some risks may be true for the entire economy, some may apply only to the company's industry sector or geographic region, and some may be unique to the company

Front 50

What 4 main items does the MD&A cover as part of 10k financial report

Back 50

aka Management's discussion and Analysis of Financial Condition and Results of Operations

1. Results of operations

2. Liquidity and capital resources

3. key business risks

4. Critical account policies

Front 51

What is the job of an independent auditor?

Back 51

to express an opinion on whether the financial statements and notes present fairly in all material respects, a firm's financial position, results of operations, and cash flow in accordance with generally accepted accounting principles

Front 52

List 5 types of Notes to Financial Statements

Back 52

1. A summary of significant accounting policies

2. Additional information about the summary totals found in the statements

3. Disclosure of important information not recognized in the statement

4. Supplementary information required by the FASB or the SEC

5. Voluntary disclosures

Front 53

define the summary of significant accounting policies as it pertains to the types of notes to Financial Statements

Back 53

both IFRS and GAAP require disclosures about

1. accounting policies followed

2. judgments that management has made in the process of applying the entity's accounting plicies

3. the key assumptions and estimation uncertainty that could result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year

Front 54

define the Accounting Equation

Back 54

Assets = Liabilities + Owner's Equity

Front 55

define Assets as it pertains to the Accounting Equation

Back 55

resources to use to generate revenues

Front 56

define Liabilities as it pertains to the Accounting Equation

Back 56

Creditors' claims against resources

Front 57

define Owners' Equity as it pertains to the Accounting Equation

Back 57

Owners' claims against resources

Front 58

List the 2 sources of financing for a corporation

Back 58

Liabilities and Owners' Equity

Front 59

describe the usefulness of the Balance Sheet (5).

Back 59

1. Analyze the company's liquidity

2. Analyze solvency

3. Analyze financial flexibility

4. Evaluating the capital structure

5. Assess risk

Front 60

define analyzing liquidity as it pertains to the Balance Sheet (2)

Back 60

how quickly can assets be converted to cash

what ratio helps assess liquidity

Front 61

define analyze solvency as it pertains to the Balance Sheet (2)

Back 61

Can the company pay their debts when they mature

ratio

Front 62

define analyze financial flexibility as it pertains to the Balance Sheet (2)

Back 62

Can the firm respond quickly to new investment opportunities

Can the firm survive a downturn or other unforeseen or foreseeable problems?

Front 63

define Evaluating the capital structure as it pertains to the Balance Sheet (2)

Back 63

how much of the assets have been financed by debt

how much of the assets have been contributed by shareholders

Front 64

List 3 limitations of the Balance Sheet

Back 64

1. Most assets and liabilities are reported at historical cost not current or market value

2. Use of judgments and estimates

3. many items of financial value are omitted

Front 65

List 6 fundamental Accounting Concepts Underlying Recording of Balance Sheet Transactions

Back 65

1. Comparability/consistency

2. Economic Entity Assumption

3. Going Concern Assumption

4. Historical Cost principle

5. Conservative Constraint

6. Materiality

Front 66

define comparability/consistency as it pertains to the fundamental accounting concepts underlying recording of balance sheet transaction

Back 66

present 2 years of balance sheets; no changes in accounting policies unless compelling reason

Front 67

define economic entity assumption as it pertains to the fundamental account concepts ....

Back 67

balance sheet should only include assets, liabilities, and owners' equity of ONE entity

Front 68

define Going Concern Assumption as it pertains to the fundamental accounting concepts....

Back 68

balance sheet prepared under the assumption that the company is going to stay in business for the "foreseeable future" (typically 1 year)

Front 69

define Historical Cost Principle as it pertains to the fundamental accounting concepts....

Back 69

record at original cost because that number is reliable

Front 70

define Conservatism Constraint as it pertains to the fundamental accounting concepts....BS

Back 70

don't overstate assets or understate liabilities

Front 71

define Materiality as it pertains to the fundamental accounting concepts...BS

Back 71

items on balance sheet should be economically meaningul.

Front 72

see Classified Balance Sheet on slide 40 Class 2

Back 72

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Front 73

define Asset as it pertains to the Balance Sheet

Back 73

Probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events

Front 74

define liability as it pertains to the Balance Sheet

Back 74

Probable future sacrifice of economic benefit arising from a present obligation of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Front 75

define equity as it pertains to the Balance Sheet

Back 75

residual interest in the assets of an entity that remains after deducting its liabilities

Front 76

define Valuation

Back 76

the process of assigning a value to an item in the financial statements once it is determined it should be recognized.

Front 77

2 rules of valuation

Back 77

1. should be reliable: independent parties can agree on the value AND

2. should be relevant: reflects information that financial statement users care about

Front 78

What 4 asset categories are on the Classified Balance Sheet

Back 78

1. Current assets

2. investments

3. Property, plant and equipment

4. Intangible assets

Front 79

how are the 4 categories of assets listed on the Classified Balance Sheet

Back 79

in the order of how easily they can be converted into cash

Front 80

What other way can you list investments, intangible assets and other misc assets on a Balance Sheet

Back 80

Other assets

Front 81

define current assets

Back 81

include cash and other assets that a company can reasonably expect to convert to cash, sell, or consume within one year or its normal operating cycle, whichever is longer

Front 82

define a normal operating cycle

Back 82

the average time it nees to go from spending to receiving cash

Front 83

list 5 kinds of current assets

Back 83

Cash

investments

Receivables

Inventories

Prepaid expenses

Front 84

List the 5 major categories of Long-Term Investments on the Balance Sheet

Back 84

Investments

Property, plant and equipment

Long term Notes Receivable

Intangibles

Other Assets

Front 85

what is included in the major category investments under Long-Term Investments on the Balance Sheet

Back 85

in other firms stocks and bonds (passive or influence control)

IFRS: stock is referred to as Shares

Land held for future use

Plant or equipment not used in business

Long-term notes receivable

Front 86

what is included in the major category Property, plant and equipment under Long-Term Investments on the Balance Sheet

Back 86

land

buildings

machinery and equipment

furniture, etc

less accumulated depreciation

Front 87

what is included in the major category Intangibles under Long-Term Investments on the Balance Sheet

Back 87

patents, copyrights, trademarks, franchises, goodwill

Front 88

define Current Liabilities as it pertains to the Balance Sheet

Back 88

obligations the company is to pay within the next year or operating cycle, whichever is longer

they are listed in the order of payment date or magnitude

Front 89

List 7 types of Current Liabilities from the Balance Sheet

Back 89

accounts payable

salaries and wages payable

notes payable

interest payable

income tax payable

unredeemed giftcards/unearned income

Front 90

List 5 categories of Long-Term Liabilities on the Balance Sheet

Back 90

Long-term debt

Capital lease obligations

Deferred income taxes

Pension and other post-retirement obligations

Other liabilities

Front 91

what makes up long-term debt on the balance sheet (4)

Back 91

loans, notes, bonds and mortgages

Front 92

what makes up capital lease obligations on the balance sheet

Back 92

represent leases of plant asssets which are equivalent to debt-financed purchases

Front 93

what makes up Deferred income taxes on the Balance Sheet

Back 93

income tax expected to be paid in the future years on income already reported on the income statement

Front 94

what makes up Pension and other post-retirement obligations in the Long-term Liablities of the Balance Sheet

Back 94

relate to a compnay's promise to pay benefits after the employee's retirement

Front 95

What comes after Long-term Liabilities on the Balance Sheet

Back 95

Commitments and contingencies

Front 96

What 3 major categories make up Stockholders' Equity on the Balance Sheet

Back 96

Contributed capital

Retained Earnings

Accumulated other comprehensive income

Front 97

what makes up contributed capital under Stockholders' Equity on the Balance Sheet (4)

Back 97

Common Stock (at par)

Preferred stock (at par)

Additional paid-in capital

Treasury stock

Front 98

define common stock (at par) as found under Stockholders' Equity on the Balance Sheet

Back 98

common stockholders have the most risk and have the potential to reap the greatest return

IFRS: referred to as share capital-ordinary

Front 99

define Preferred stock (at par) as found under Stockholders' Equity on the Balance Sheet

Back 99

Preferred stockholders usually have a fixed return on their investment

Have fewer ownership rights than common stockholders

Have lower risk than common stockholders

Front 100

define Additional paid-in capital as found under Stockholders' Equity on the Balance Sheet

Back 100

the amount paid above par for stock

Front 101

par

Back 101

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Front 102

define Treasury stock as found under Stockholders' Equity on the Balance Statement

Back 102

the company's own shares that have been repurchased

Front 103

define Retained Earnings as found under Stockholders' Equity on the Balance Sheet

Back 103

amount of income left in the firm less dividends

Front 104

define Accumulated other comprehensive income as found under Stockholders' Equity on the Balance Sheet

Back 104

Reports the movement of market prices from certain investments and certain exchange rates

may arise from

1. foreign currency translation adjustments

2. Unrealized gains and losses on available-for sale-securities

Unrealized gains and losses on derivaties

Front 105

foreign currency translations adjustments

Back 105

arise from the change in equity of foreign subsidiaries as a result of changes in foreign currency exchange rates

Front 106

Unrealized gains and losses on available-for-sale securities

Back 106

unrealized gains and losses are fluctuations in the market prices of securities before they are sold

Front 107

Unrealized gains and losses on derivatives

Back 107

derivatives are financial instruments that derive their value from the movement of a price, an exchange rate, an interest rate, or an interest rate associated with another item

Front 108

What order do IFRS companies present statement of financial position information

Back 108

1. Noncurrent assets

2. Current assets

3. Equity

4. Noncurrent liabilties

5. Current liabilities

Front 109

IFRS requires a classified statement of financial position expcept in very limited situations

Back 109

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Front 110

IFRS follows the same guidelines as GAAP for distinguishing between current and noncurrent assets and liabilities

Back 110

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Front 111

Under IFRS, current assets are usually listed in the reverse order of liquidity

Back 111

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Front 112

Some companies report the subtotal net assets, which equals total assets minus total liabilties

Back 112

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Front 113

define business transactions.

Back 113

economic events that should be recorded in the accounting records.

Front 114

what are the three steps to recognizing business transactions

Back 114

recognition

valuation

classification

Front 115

define recognition as it pertains to business transactions

Back 115

refers to the decision as to when to record a business transaction.

Front 116

define valuation as it pertains to business transactions

Back 116

is the process of assigning a monetary amount to business transactions and the resulting assets and liabilities.

GAAP requires Fair Value Valuations

Front 117

define Fair Value as it pertains to Valuation of business transactions

Back 117

the exchange price of an actual or potential business transaction between market participants.

Front 118

define the cost principle

Back 118

recording transactions at the exchange price at the point of recognition

Front 119

define Classification as it pertains to business transactions

Back 119

the process of assigning all the transactions in which a business engages to appropriate categories, or accounts.

Front 120

list the 2 steps of Transaction Analysis

Back 120

1. Identify and classify accounts and effects

2. Verify accounting equation is in balance