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48 Cards in this Set

  • Front
  • Back
Accounting Principles
-The Conceptual Framework of Accoutning
-Assumptions
-Principles
-Constraints in Accounting
-Statement Presentation and Analyses
The Conceptual Framework of Accounting
-Objectives of reporting
-Qualitative Characteristsics
-Elements of Financial Statements
-Operating Guidelines
Assumptions
-Monetary Unit
-Economic Entity
-Time Period
-Going Concern
Principles
-Revenue Recognition
-Matching
-Full Disclosure
-Cost
Constraints in Accounting
-Materiality
-Conservatism
-Summary of Conceptual Framework
Statement Presentation and Analyses
-Classified Balance Sheet
-Classified Income Statement
-Analyzing Financial Statements
-An International Perspective
GAAP
Generally Accepted Accounting Principles
-Standards set by the SEC and FASB
FASB Conceptual Framework
-Objectives of Financial Reporting
-Qualitative Characteristics of Accounting Information
-Elements of Financial Statements
-Operating Guidelines (assumptions, principles and constraints)
Objectives of Financial Reporting
Must be:
-Useful to those making investment and credit decisions
-helpful in assessing future cash flows
-identifies assets and liabilities and the changes in those resources and claims
Qualitative Characteristics of Accounting Information
-Relevance
-Reliability
-Comparability
-Consistency
Relevance
to have relevance the information must have:
-predictive value (forecasts future events)
-feedback value (confirms or corrects expectations)
-timely(must be available before it loses it's value)
Reliablility
-verifiable
-faithful representation
-neutral
Comparability
Through the use of the same methods of accounting comparisons are able to be made across companies
Consistency
The company uses the same methods (lifo, fifo, average) from year to year
Elements of Financial Statements
Assets, Liabilties, Equity, Revenue, Expenses
Operating Guidelines
-Assumptions
-Principles
-Constraints
Assumptions
-Monetary Unit
-Economic Entity
-Time Period
-Going Concern
Principles
-Revenue Recognition
-Matching
-Full Disclosure
-Cost
Constraints
-Materiality
-Conservatism
Monetary Unit Assumption
Only transaction data that can be expressed in terms of money be included in the accounting records
Economic Entity Assumption
Activities of the entity be kept separate from the economic activities of the owner and all other economic entities.
Time Period Assumption
The economic life of a business can be divided into artificial time periods
Going Concern Assumption
The enterprise will continue in operation long enough to carry out its existing objectives
Revenue Recognition Principle
Revenue is recognized in the period in which it is earned
Matching Principle (Expense Recognition)
Expenses are matched with revenue in the period in which efforts are made to generate revenues
costs
source of expenses
expired costs
Costs that will generate revenue only in the current accounting period-advertising, sales, salaries and repairs
unexpired costs
costs that will generate income in future accounting periods-merchanidise inventory, prepaid expenses, plant assets-assets whose benefits decrease over time
Full Disclosure Principle
Circumstances and events that make a difference to financial statement users be disclosed
Cost Principle
Assets are recorded at their cost
Materiality Constraint
an items impact on a firm's overall financial condition and operations (what is expensed immediately and what depreciates over time) For small amounts GAAP does not have to be followed.
Conservatisim Constraint
when in doubt use the method that will be least likely to overstate assets and income (lower of cost or market method, lifo
Classified Balance Sheet
Assets
-current assets
-long term investment
-property, plant and equipment
-intangible assets
Liabilities and Stockholders Equity
-current liabilities
-long-term liabilities
-stockholder's equity
Classified Income Statement
-Sales Revenue section
-Cost of Goods (merchandise) Sold
-Operating Expenses
-Other Revenues and Gains
-Other Expenses and Losses
-Income Tax Expense
-Earnings per Share
Income Tax Expense
has own section on the income statement before net income
ledger:
Income tax expense 46,800
Income Tax Payable 46,800
(to record income taxes for 2006)

income statement:
Income before income taxes 156,000
Income Tax Expense 46,800
Earnings per Share
the net income earned by each share of outstanding common stock

net income ÷ # of common shares outstanding = earnings per share

reported below net income on the income statement:

net income 109,200
earnings per Share 2.00
Analyzing Financial Statements
Evaluate:
Liquidity
Profitability
Solvency
Measuring Liquidity
Current Ratio
Working Capital
Current Ratio
a companies ability to pay obligations and meet unexpected needs
assessed by analyzing the current ratio to determine liquidity:
curent assets÷current liabilities=current ratio (ideal 2:1)
Working Capital
indicates the companies ability to meet its existing current obligations

current assets - current liabilities = working capital
Profitability
measures the income or operating success of an enterprise for a given period of time.
measured with:
-Profit Margin Percentage
-Return on Assets
-Return on Common Stockholder's Equity
Profit Margin Percentage
The percentage of each dollar of sales that results in net income

net income ÷ net sales = profit margin percentage
Return on Assets
a tool for investors to determine expectations and risks associated with the investment

net income÷total assets = rate of return
Return on Common Stockholder's Equity
measures profitability from stockholder's perspective

net income÷stockholders equity=return on common stockholder's equity
Solvency
measures the ability of an enterprise to survive over a long period of time with debt to total assets
Debt to Total Assets Ratio
total debts÷total assets = debt to total assets ratio
Multinational Corporation
A firm that conducts operations in more than one country
IASB
International Accounting Standards Board
working towards gloabl standards of accounting principles