Chapter 5 ( Balance Sheet And Statement Of Cash Flows)

Front 1

What is balance sheet?

Back 1

- aka statement of financial position

- report assets, liabilities, and Stockholder's Equity of an enterprise at a specific date

Front 2

What is liquidity?

Back 2

amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until liability has to be paid

Front 3

What is solvency?

Back 3

ability of a company to pay its debts as they mature

Front 4

What is financial flexibility?

Back 4

measure the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities

Front 5

What are assets?

Back 5

- probably future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Front 6

What is liabilities?

Back 6

probably future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of a past transaction or events

Front 7

What is equity?

Back 7

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

- aka ownership market

Front 8

What are current assets?

Back 8

cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer

Front 9

What are the 3 portfolios for debt and equity securities?

Back 9

- held to maturity

- trading

- available-for-sale

Front 10

What is held-to-maturity portfolio?

Back 10

debt securities that a company has the positive intent and ability to hold to maturity

Front 11

What is trading portfolio?

Back 11

debt and equity securities bought and held to primarily for sale in the near term to generate income on short-term price

Front 12

What is the available-for-sale portfolio?

Back 12

debt and equity securities not classified as held to security or trading securities

Front 13

What are long-term investments?

Back 13

- expected to be held for many years

- tangible fixed assets not currently used in operations

- bonds, securities, common stocks or long-term notes

- set aside in special funds

- nonconsolidated subsidiaries or affilliated companies

Front 14

What is property, plant, and equipment?

Back 14

tangible long life assets used in the regular operations of the business

Front 15

What are intangible assets?

Back 15

lack physical substance and are not financial instruments

- EX: patents, copyrights

Front 16

What are current liabilities?

Back 16

obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities

Front 17

What is working capital?

Back 17

excess of total current assets over total current liabilites

Front 18

What are long-term liabilities?

Back 18

obligations that a company doesn't reasonably expect to liquidate within the normal operating cycle

- EX: bonds payable

Front 19

What is captial stock?

Back 19

par or stated value of the shares issued

Front 20

What is additional paid-in capital?

Back 20

excess of amounts paid in over the par or stated value

Front 21

What is retained earnings?

Back 21

company's undistributed earnings

Front 22

What is the account form?

Back 22

- 1 common arrangement that companies use in presenting a classified balance sheet

- lists assets, by sections on the left side, and liabilities and Stockholder's equity on the other

Front 23

What is the report form?

Back 23

lists the sections above one another on the same page for balance sheet

- order of assets, liabilities, then equity

Front 24

What is the primary purpose of the statement of cash flows?

Back 24

- provide relevant information about the ash receipts, and cash payments of an enterprise during a period

- reports; operating activities, investing activities, financing activities, and net (+/-) in cash during the period

Front 25

What is operating activities?

Back 25

involves the cash effect of transactions that enter the determination of net income

Front 26

What is investing activities?

Back 26

include making and collecting loans and acquiring and disposing of investments and property, plant, and equipment

Front 27

What are financing activities?

Back 27

- involve liability and owner's equity items

- include

= obtaining resources from owners and providing them with a return on their investments

= borrowing money from creditors and repaying the amounts borrowed

Front 28

What is the sources of the statement of cash flows?

Back 28

- comparative balance sheets

- current income statements

- selected transaction data

Front 29

What are the steps of statement of cash flows?

Back 29

- determine cash provided or used by operating activities

- determine cash provided or used in investing and financing

- determine the change in cash during the period

- recognize the change in cash with the beginning and ending cash balances

Front 30

What questions does statement of cash flows asnwer?

Back 30

- how successful is the company in generating net cash provided by operating activities

- what are the trends in net cash flow provided by operating activities over time

- what are the major resources for the (+/-) net cash provided by operating activities

Front 31

What is the current cash coverage ratio?

Back 31

indicates whether the company can pay off its current liabilities from its operations in a given year

- net cash provided by operating activities/average current liabilites

Front 32

What is cash debt coverage ratio?

Back 32

- provides information on financial flexibility

- IDs a company's ability to repay its liabilities from net cash provided by operating activities, without having to liquidate the assets employed in its operations

- net cash provided by operating activities/average total liabilites

Front 33

What is free cash flow?

Back 33

- amount of discretionary cash flow a company has

- net cash provided by operating activities minus capital expenditures minus dividends

Front 34

What are questions free cash flows answer?

Back 34

- is the company able to pay its dividends without

resorting to external financing?

- If business operations decline, will the company be able to maintain its needed capital investment?

- what is the amount of discretionary cash flow that can be used for additional investments, retirement of debt, purchase of treasury stocks or addition to liquidity

Front 35

What are contingencies?

Back 35

material events that have an uncertain outcome

Front 36

What are accounting policies?

Back 36

explanations of the valuation methods used or the basic assumptions made concerning inventory valuations, depreciation methods, investments and subsidiaries, etc.

Front 37

What are contractual situations?

Back 37

explanations of certain restrictions or covenants attached to specific assets, or, more likely to liabilities.

Front 38

What are fair values?

Back 38

disclosure of fair values, particularly for financial investments

Front 39

What is contingency?

Back 39

existing situation involving uncertainty as to possible (+/-) that will ultimately be resolved when 1 or more future events occur or fail to occur

Front 40

What are techniques for disclosure?

Back 40

- parenthetical explanations

- notes

- cross-reference and contra items

- supporting schedules

Front 41

What is the usefulness of the balance sheet?

Back 41

- provide financial information a bout a company at a given point in time

= liquidity, solvency financial flexibility, and operating capability of a business entity

Front 42

What are assets?

Back 42

resources with future economic benefit to a business entity as a result of a past transaction

Front 43

What are current assets?

Back 43

cash and other assets that are reasonably expected to be realized in cash or sold or consumed during a normal operating cycle or one year whichever is longer

Front 44

What are long-term investments?

Back 44

- comprised of; securities, fixed assets, special funds, nonconsolidated subsidiaries or affiliated companies

Front 45

What is property plant, and equipment?

Back 45

- assets used in the firm's operations and meet the following criteria;

= economic life of 7 or more years

= acquired for use in operations

= not for resale to customers

= has materiality

Front 46

What are intangible assets?

Back 46

assets with no physical substance but have value based on rights or privledges that belong to the owner

Front 47

What are other assets?

Back 47

- includes assets sufficiently different from other assets in the category

EX: long-term prepayments, deferred income tax

Front 48

What are liablilties?

Back 48

legal obligations requiring future payments of assets or services as a result of a business entity's past transactions or events