Financial Accounting - Chapter 2

Front 1

Classified Balance Sheet

Back 1

A balance sheet that contains a number of standard classifications and sections.

Front 2

Comparability

Back 2

Ability to compare the accounting information of different companies because they use the same accounting principles.

Front 3

Conservatism

Back 3

The approach of choosing an accounting method, when alternatives exist, that will least likely overstate assets and net income.

Front 4

Consistency

Back 4

Use of the same accounting principles and methods from year to year within a company.

Front 5

Cost principle

Back 5

An accounting principle that states that companies should record assets at their cost.

Front 6

Current assets

Back 6

Cash and other resources that companies reasonably expect to convert to cash or use up within one year or the operating cycle, whichever is longer.

Front 7

Current liabilities

Back 7

Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer.

Front 8

Current ratio

Back 8

A measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities.

Front 9

Debt to total assets ratio

Back 9

Measured the percentage of total financing provided by creditors; computed as total debt divided by total assets.

Front 10

Earings per share (EPS)

Back 10

A measure of the net income earned on each shared of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year.

Front 11

Economic entity assumption

Back 11

An assumption that every economic entity can be separately identified and accounted for.

Front 12

Financial Accounting Standards Board (FASB)

Back 12

The primary accounting standard-setting body in the United States.

Front 13

Free cash flow

Back 13

Cash remaining from operating activities after adjusting for capital expenditures and dividends paid.

Front 14

Full disclosure principle

Back 14

Accounting principle taht dictates taht companies disclose circumstances and events that make a difference to financial statement users.

Front 15

Generally accepted accounting principles (GAAP)

Back 15

A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes.

Front 16

Going concern assumption

Back 16

The assumption that the company will continue in operation for the foreseeable future.

Front 17

Intangible assets

Back 17

Assets that do not have physical substance.

Front 18

International Accounting Standards Board (IASB)

Back 18

An accounting standard-setting body that issues standards adopted by many countries outside of the United States.

Front 19

Liquidity

Back 19

The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.

Front 20

Liquidity ratios

Back 20

Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

Front 21

Long-term investments

Back 21

Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year, and (2) long-term assets, such as land and buildings, not currently being used in the company's operations.

Front 22

Long-term liabilities

Back 22

(a.k.a. Long-term debt) Obligations that a company expects to pay after one year.

Front 23

Materiality

Back 23

The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor.

Front 24

Monetary unit assumption

Back 24

An assumption that requires that only those things that can be expressed in money are included in the accounting records.

Front 25

Operating cycle

Back 25

The average time required to go from cash to cash in producing revenues.

Front 26

Profitability ratios

Back 26

Measures of the operating success of a company for a given period of time.

Front 27

Property, plant, and equipment

Back 27

Assets with relatively long useful lives that companies use in operating the business and are not intended for resale.

Front 28

Public Company Accounting Oversight Board (PCAOB)

Back 28

The group charged with determining auditing standards and reviewing the performance of auditing firms.

Front 29

Ratio

Back 29

An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate, or a proportion.

Front 30

Ratio analysis

Back 30

A technique for evaluating financial statements that expresses the relationship among selected items of financial statement data.

Front 31

Relevance

Back 31

The quality of information that indicates the information makes a difference in a decision.

Front 32

Reliability

Back 32

The quality of information that gives assurance that it is free of error, is factual, and is neutral.

Front 33

Securities and exchange commission (SEC)

Back 33

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.

Front 34

Solvency

Back 34

The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity.

Front 35

Solvency ratios

Back 35

Measures of the ability of the company to survive over a long period of time.

Front 36

Statement of stockholders' equity

Back 36

A financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change.

Front 37

Time period assumption

Back 37

An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.

Front 38

Working capital

Back 38

The difference between the amounts of current assets and current liabilities.