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25 Cards in this Set

  • Front
  • Back
Three major financial statements
balance sheet-statement of financial position
income statement-summarized the reult of the company's income producing activities
statement of cash flows-summarizes the cash inflows and outflows for the accouting period
FASB defines revenues and expenses as
in terms of changes in assets and liabilties
Balance Sheet Purpose
assess the company's liquidity financial flex. and operating capability
evaluate the information about its income producing performance during the period
Capital Maintenance
TO provide for a return of investment equity must be maintained
Definition of Assets
Probable future economic benefits obtained or controlled by a company as a reult of past transactions or events.
Three characteristics of an asset
1. The resource must be able to contribute directly or indirectly to the company's future net cash inflows.
2. The company must be abe to obtain the future benefit and control others access to it.
3. The transaction or event gigint the company the right to or control over the benefit must have occurred.
Definition of Liabilties
Probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Charateristics of Liabilty
1. Must involve a respnsibilty to another entitiy that will be settles by a sacrifice.
2. The responsibilty must obligate the company in such a way that it has little or no discretion to avoid th future sacrifice.
3. The transaction or other event obligation the company must have occurred.
Definition of Equity
Residual interest in the assets of a company that remians after deducting its liabilties
Limitations of Balance Sheet
1. does not include all of its economic resources and obligations
2. many of the amounts that a company reports are based on estimates which are subject to change
3.In periods of inflation the mounts listed on a company's balance sheet do not shlow the purchasing power of its assets and liabilties.
Classifications on the Balance sheet
1. Assets
current assets
longterm investments
property plant and equipment
intangible assets
other assets
2. Liabilties
current liabilties
long term liabilties
other liabilties
3. Stockholder's equity
contributed capital
capital stock
additional paid in capital
retained earnings
accumulated other comprehensive income
Definition of Current assets
cash and other assets that are expected tobe converted into cash sold or consumed within one year or the normal operating ccle whichever is longer
Current Assets Include five Items
1. Cash and cash equivalents
2. temporary investments in marketable securities
3. receivables
4. Inventories
5. prepaid items
Definition of cash equivalents
risk free securities such as money market fund and treasury bills that will mature in three months or less from the date acquired by the holder.
What are temporary investments in marketable securities
include debt and equity securities that are classified as trading securities and available for sale securities and that management intends to convert into cash within one year or the normal operating cycle if longer than a year.
What do receivables include
accounts recievable and note receivable with short term maturity dates. They are listed at their estimated collectable amounts.
Guidelines for Reporting assets and liabilties
1. Report assets according to their type or expetd function tin the central operations or other activities of the company.
2. Report as separet items assets and liabilties that affect the financial flexibility of the company differently
3. Report assets and liabilties according to the measurement method used to value the items for example assets and liabilities measured at net realizable value versus those measured at current cost.
Three Components of Stockholder's equity
1. contributed capital
2. retained earnings
3. accumulated other comprehensive income
When balance sheet affected by stockholder
when atockholder acquire shares directly from the corporation
When does a company report a loss from a contigency is probable that a liability has been incurred
2. the amount can be reasonably estimated
Subsequent Event
one the occurs between the balance sheet date and the date of issuance of the annual report
When make adjustments for subsequent events?
1.provide addtional evidence concerning conditions that existed on the blance sheet date
2. significantly affects the estimate used in the preparation of the company's financial statements
Reporting Techniques
report form- vertical format
account form- horizontal fashion
Net Realizable Value
Amount of cash or its equivalent into which he asets is expected to be converted in due course of business les direct costs necessary to make that conversion.
Present Value
Present value of future cash inflows into which the asset is expected to be onverted in due course of business less present value of cash outflows necessary to obtain those inflows