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28 Cards in this Set

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Purpose of Balance Sheet
To show the financial condition of a company on a particular date.
What is the balance sheet?
It is a statement that is a summary of what the firm owns (assets) and what the firm owes to outsiders (liabilities) and to internal owners (stockholders' equity)
What does it mean to have consolidated statements?
This occurs if a parent company owns more than 50% of the voting stock of a subsidiary.
What is the Balance Sheet date?
The balance sheet balance in each account is as of a given date.
What is Comparative data?
Balance sheets must provide (2) years of audited financial data. All other statements must provide (3) years of audited financial data.
Where would you find 3 years of balance sheet data?
in the Summary of Financial Statements
What are included in the ASSETS section?
* Current Assets
* Property, Plant and Equip (less accum depreciation)
* Long-term investments
* Intangibles (patents, trademarks, goodwill)
What are included in the LIABILITIES section?
* Current Liabilities (Accts Payable, Notes Payable, Accrued Liabilities)
* Long-term Liabilities
What are included in the STOCKHOLDERS' EQUITY section?
* Common Stock (par value)
* Additional Paid-in Capital
* Retained Earnings
Retained Earnings
* Net income reinvested into company
* Not spendable source of funds
* Usually invested in Assets owned by shareholders
Treasury Stock
* Company has bought back on the market
* Shown as a reduction from Stockholders' Equity
Define Current Assets
Those assets expected to be converted into cash within 1 year or 1 operaing cycle, whichever is longer.
Define Operating cycle
The time it takes to procure the materials to produce inventory, sell the product, and collect the cash.
Define Marketable Securities
Cash substitutes and have maturities less than 1 year.
Cash and Marketable Securities
Must be relatively riskless securities and highly liquid.
Examples of Cash and Marketable securities
* U.S. Treasury bills
* CDs
* Commercial paper
Requirements of FASB #115
(Marketable Securities)
Separation of Investment securities into 3 categories:
* Must be held to maturity
* They are trading securities, so can be held for resale in the short term
* Securities available for Sale
Current Assets include:
(Balance Sheet)
* Cash
* Marketable Securities
* Accounts Receivable (less allowance for doubtful accts)
* Inventories
* Prepaid Expenses
Property, Plant and Equipment includes:
(Balance Sheet)
* Land
* Buildings and leasehold improvements
* Equipment
* Less accumulated depreciation and amortization
How can the allowance for doubtful accounts be used to assess earnings quality?
Changes in allowance account relative to sales level and the amount of accounts receivable outstanding may be an indication that earnings quality is or is not being improved (ADA should move in same direction as Sales and A/R)
What are inventories?
(balance sheet)
Items held for resale or used in the manufacture of products that will be sold
Types of Inventories
(Bal Sheet)
* Raw materials
* Work-in progress
* Finished Goods
What does the principle of conservatism require firms to do with inventory?
To carry inventory in the accounting records at the lower of cost or market value. The amount of write-down will affect comparability, thus quality, of the profit margins from period to period.
What is the assumption that Inventory valuation is based on?
Regarding the flow of goods, but has nothing to do with the actual order in which products are sold.
Types of Inventory of valuation
FIFO - first units purchased are the first units sold during an accounting period
LIFO - items bought last are sold first
AVERAGE - avg purchase price is calculated to determine the cost of products sold.
The cost of goods sold computed under the LIFO method most closely approximates what?
The current cost of inventory items since they are the most recent purchases.
In times of inflation what type of inventory valuation is better to use, and why?
LIFO, because it results in better matching
Ending Inventory
(End balance - Beg Balance) X Avg cost of inventory