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34 Cards in this Set
- Front
- Back
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What is the primary objective of financial reporting?
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The primary objective of financial reporting is to provide information to help people make decisions.
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What is the Separate entity assumption?
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The Separate Entity assumption that the financial statements of a business do not include any financial information about owners.
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What is the Time period assumption?
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The Time Period Assumption is the assumption that the life of a business can be divided into meaningful time periods of financial reporting,
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What is the Historical cost principle?
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The Historical cost principle means measuring assets at their cost at the time of the purchase
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What is the Going concern assumption?
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The Going Concern Assumptions means that a company will continue operating in the foreseeable future
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What are the four qualities of financial information?
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Relevant, reliable, comparable and consistent
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Define Relevant
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Relevant describes information useful to decision makers.
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Define Reliable
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Reliable describes information that is accurate, verifiable, and unbiased and therefore a faithful representation of a firm’s financial performance
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Define Comparability
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Comparability describes information that can be compared across firms because they use the same accounting principles
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Define Consistency
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Consistency is the use of the same accounting principles and methods from period to period.
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Describe a Classified balance sheet
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A classified balance sheet shows a subtotal for many items including current assets and current liabilities
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What are Current assets?
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Current assets are assets the company plans to turn into cash or use to earn revenue in the next fiscal year.
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What are Non-current assets?
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Non-current assets are assets that will not be used up within 12 months.
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What are Current liabilities?
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Current Liabilities are obligations that can be settled with current assets
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What are Non-current liabilities?
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Non-current liabilities are obligations that will be paid off in a period longer than one year.
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What is Interest
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Interest is the cost of using someone else’s money for some period of time.
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There are two parts to this section of the balance sheet - what section is it and what are the two parts?
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Shareholder’s equity. – The parts are - contributed capital and retained earnings
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What is the Revenue recognition principle?
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The Revenue recognition principle states that revenue should be recognized when it is earned and its collection is reasonably assured.
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What is the Matching principle?
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In the Matching princple expenses are recognized, that is, shown on the income statement, in the same period as the revenue they helped generate.
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What is Accrual basis accounting?
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Accrual based accounting means that accountants recognize revenue when it is earned and expenses when they are incurred to earn that revenue – no matter when the cash is received or paid.
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What is Earnings per share ?
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EPS – net income dividend by the average number of outstanding shares of (common) stock.
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What information does the Statement of shareholders equity contain?
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The statement of shareholders’ equity describes the changes in shareholder equity accounts.
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What is the format of the statement of retained earnings?
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The statement of retained earnings has the following format: Beginning balance retained earnings + Net income – Dividends +/- Other adjustments = Ending balance retained earnings.
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What is the Purpose of the statement of cash flows?
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The purpose of the statement of cash flows is to explain the detail of the change in the cash balance during the accounting period.
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The statement of cash flows includes three sections that relate to the three business activities: What are they?
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a. Operating.
b. Investing. c. Financing. |
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What is the full disclosure principle?
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The purpose of the notes is to provide information about any circumstances or events that would make a difference to the users of the statements. This is called the full disclosure principle.
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What is Materiality?
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Materiality refers to the importance of the item or transaction on the company’s financial performance or financial positions
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What is Conservatism?
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Conservatism refers to the choices accountants make when preparing the financial statements.
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What are the four steps you need to follow to record a transaction?
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1. Determine which of following are affected by the transaction: asset, liability, equity, revenue, expense;
2. Identify the specific account – i.e., which type of asset, liability, etc. – and whether it increases or decreases; 3. Determine the amount; and 4. Record the transaction in the accounting equation |
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Give the order of presentation of the statements.
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The income statement is always prepared first.
The second statement the accountant prepares is the statement of changes in shareholders’ equity. The balance sheet is prepared third. The final statement prepared is the statement of cash flows. |
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How do you compute the current ratio?
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The current ratio is computed by dividing current assets by current liabilities.
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What is the purpose of the current ratio?
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The current ratio is used to determine a firm’s ability to fund its current operations.
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What are Internals controls?
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Internal controls are designed to protect the accounting system from both intentional errors and fraud.
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What are the three types of internal controls and what are their purposes?
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a. Preventive controls help prevent errors in an accounting system.
b. Detective controls help a company find errors. c. Corrective controls correct any errors that have been discovered. |
