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Spring 24 > ACCTG 471 Chapter 3 n 4 > Flashcards

ACCTG 471 Chapter 3 n 4 Flashcards

1
Q

balance sheet

A

assets, liabilities, equity at a point in time (snapshot) of a company’s financial position at the end of the day

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2
Q

how does balance sheet work?

A

lists assets and liabilities that are classified according to common characteristics

provides information about liquidity and long-term solvency

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3
Q

liquidity

A

company’s ability to convert assets into cash to pay current liabilities

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4
Q

long-term solvency

A

assesses whether a company can pay ALL it’s liabilities

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5
Q

financial flexibility

A

ability to alter cash flows in order to take advantage of unexpected investment opportunity

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6
Q

book value

A

reported assets minus liabilities in balance sheet

does not directly measure value of company

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7
Q

market value

A

represented by companys share price

multiply share price by outstanding shares

long term assets are measured at historical cost, not price that they could be sold at

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8
Q

why market value is a better measure of a company’s value

A

long term assets are measured at historical cost, not price that they could be sold at

resources like people are represented by share price

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9
Q

current assets

A

assets that could readily be converted to cash within one year or one operating cycle

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10
Q

cash and cash equivalents

A

cash listed first

includes cash and bank items that are readily convertible (bank draft’s, cashier’s check, money orders)

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11
Q

cash equivalents

A

short-term investments, maturity date is no longer than 3 months from date of purchase

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12
Q

all current assets

A

cash and cash equivalents

short term investments (sell within a year)

accounts receivable (usually due within 30-60 days)

inventory

prepaid expenses (incurs cost in one period, wont be expensed until future period)

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13
Q

long-term assets

A

converted/consumed in more than one year

investments

PPE

intangible assets

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14
Q

investments

A

not directly used in operations

investments in debt and equity in securities

land for speculation

long term receivables

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15
Q

intangible assets

A

assets that lack physical substance

patents

copyrights

franchises

goodwill

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16
Q

current liabilities

A

expected to be satisfied within one year or one operating cycle if longer

payables

deferred revenues

accrued liabilities

current maturities of long-term debt

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17
Q

long term liabilities

A

liabilities that are due to be settled or have a contractual right by the borrowing company

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18
Q

shareholder’s equity

A

paid in capital

retained earnings

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19
Q

retained earnings

A

cumulative net income minus dividend distributed

accumulated lifetime profits that have not been distributed to shareholders

called accumulated deficit account if profit is negative

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20
Q

retained earnings usage

A

profits not paid to shareholders can be used to develop product, buy inventory, pay liabilities

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21
Q

balance sheet presentation: GAAP

A

no minimum requirement for items presented

current assets/liabilities before noncurrent

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22
Q

balance sheet presentation: IFRS

A

minimum list of items presented

noncurrent assets/liabilities before current

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23
Q

disclosures

A

public companies required to give shareholders a report, includes financial statements

provide info to help investors understand company’s performance or financial health

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24
Q

disclosure notes

A

explain allowance for uncollectible accounts and common stock

include summary of accounting practices, description of subsequent events, and third party transactions

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25
Q

summary of significant accounting policies

A

part of disclosure notes

explains companies accounting method choices

defines securities it considers cash equivalent

defines timing of recognizing revenues and estimated useful lives

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26
Q

subsequent events

A

part of disclosure notes

significant event that happens after a company’s fiscal year-end but before financial statements issued

events that have material affect on operations

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27
Q

noteworthy events and transactions

A

important in evaluating company’s financial statements

possible error, fraud, and illegal act

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28
Q

related party

A

transactions should be disclosed, including dollar amounts involved

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29
Q

fraud

A

intentional misinterpretation of financial statements

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30
Q

illegal acts

A

bribes, kickbacks, illegal campaign contributions

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31
Q

MD&A (management discussion and analysis

A

biased but informative perspective of a company

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32
Q

managements responsibilities

A

executives must certify financial statements

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33
Q

proxy statement

A

disclosure for directors and executives compensation

invites shareholders to annual meeting

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34
Q

auditors report

A

examination of internal controls and reporting

make opinion to fairness of financial statements

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35
Q

unqualified audit opinion

A

financial statements conform to GAAP

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36
Q

unqualified with explanation audit opinion

A

conforms to GAAP, needs more information for users

37
Q

qualified audit opinion

A

audit process was limited or doesn’t conform to GAAP

does not invalidate statement

38
Q

adverse audit opinion

A

auditor thinks statements are severely misstated

39
Q

disclaimer audit opinion

A

auditor doesn’t have enough info to certify statements are in compliance with GAAP

40
Q

default risk

A

company can’t pay its obligations

41
Q

operational risk

A

adeptness of a company to withstand events that impact profit earnings

42
Q

comparative financial statements

A

financial statements accompanied by previous year or twos statements

43
Q

horizontal analysis

A

items compared to previous years numbers (base year) and turned to a percentage

44
Q

vertical analysis

A

items compared to an appropriate corresponding total in the same year (base amount) and turned to a percentage

45
Q

ratio analysis

A

items turned to ratios measure performance

46
Q

current ratio

A

current assets/current liabilities

47
Q

working capital

A

difference between current assets and current liabilities

48
Q

acid-test ratio

A

current assets - inventory - prepaid items divided by current liabilities

49
Q

debt to equity ratio

A

total liabilities divided by total shareholders equity

50
Q

times interest earned ratio

A

net income + interest expense + taxes divided by interest

51
Q

financial leverage

A

going into debt with an investment in hopes to gain a profit on the debt and interest

52
Q

income statement

A

measures activity over time

reports revenues, expenses, gains, losses

53
Q

gains/losses

A

increases/decreases in equity from transactions not classified as revenue or expenses and do not involve owners

do not reflect normal operations

54
Q

income from continuing operations

A

revenues/expenses/gains/losses from future operations that are likely to continue

operating income

nonoperating income

income tax expense

55
Q

operating income

A

related to primary revenue generating activities

56
Q

nonoperating income

A

not related to primary revenue generating activities

57
Q

income tax expense

A

reported in seperate line in income statement

58
Q

single step income statement

A

formats revenue/gains and expenses/losses together

59
Q

multistep income statement

A

subtotals like gross profit, operating income, income before taxes

separately lists operating and non operating items

60
Q

IFRS vs GAAP income statement

A

IFRS requires minimum info listed, expenses listed by function or natural description, bottom line is profit/loss

GAAP has no minimum info requirement, expenses listed by function, bottom line is net income/loss

61
Q

earnings quality

A

ability of income to predict future earnings

62
Q

restructuring cost

A

reorganization to get better efficiency

recognized in period incurred

63
Q

Non GAAP earnings

A

exclude certain expenses and sometimes revenue

can be misleading, provided voluntarily

64
Q

discontinued operations

A

companies get rid of component of business

reported separately in income statement

formatted differently to help users understand which parts of net income will continue

65
Q

discontinued operations sold before period end

A

income/loss of operations from beginning of period to disposal date reported

gain or loss on disposal

66
Q

prior period adjustment

A

adjusting retained earnings due to a period in a prior period

67
Q

earnings per share (EPS)

A

net income a company generates to the number of shares outstanding

68
Q

basic EPS

A

net income divided by shares outstanding

69
Q

diluted EPS

A

incorporates dilutive effect of all potential common shares in EPS

70
Q

transactions with owners

A

changes in equity through stock exchanges

71
Q

transactions with nonowners

A

revenues and gains increase equity, expenses and losses decrease equity

72
Q

comprehensive income

A

total change in shareholders equity due to nonowner transactions

net income + other comprehensive income

73
Q

statement of cash flows

A

summarizes transactions that occurred in a period

74
Q

operating activities

A

changes in cash flow entering net income

75
Q

direct method

A

cash effect of each item is reported directly

76
Q

indirect method

A

starting with reported net income working backwards to convert that amount to a cash basis

77
Q

investing activites

A

acquisition or sale of

long term assets used in business

nonoperating investment activities

78
Q

cash outflows for investing

A

purchase of long term assets or securities of other entities

79
Q

cash inflows for investing

A

sale of long term assets and securities

80
Q

financing activities

A

cash flow from transactions with creditors

81
Q

financing inflows

A

owners have shares sold to them

cash is borrowed

82
Q

financing outflows

A

cash paid to owners through dividends

cash paid to owners for reaquisiton of shares sold

83
Q

asset turnover ratio

A

net sales/average total sales

measures efficiency in turning assets to sales

84
Q

receivables turnover ratio

A

net sales/average accounts receivable

quickness of collecting accounts receivable

85
Q

inventory turnover ratio

A

COGS/average inventory

ability to manage efficiency of investments with inventory

86
Q

return on equity

A

net income/average shareholder equity

profit generated from shareholders equity

87
Q

profit margin on sales

A

net income/net sales

amount of net income per dollar of sales

88
Q

return on assets

A

net income/average total assets

profitability compared to resources

89
Q

dupont framework

A

analysis based on profitability, activity, financial leverage

Spring 24 (14 decks)

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