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Spring 24 > ACCTG 471 Chapter 3 n 4 > Flashcards

ACCTG 471 Chapter 3 n 4 Flashcards

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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
summary of significant accounting policies
part of disclosure notes explains companies accounting method choices defines securities it considers cash equivalent defines timing of recognizing revenues and estimated useful lives
26
subsequent events
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
27
noteworthy events and transactions
important in evaluating company's financial statements possible error, fraud, and illegal act
28
related party
transactions should be disclosed, including dollar amounts involved
29
fraud
intentional misinterpretation of financial statements
30
illegal acts
bribes, kickbacks, illegal campaign contributions
31
MD&A (management discussion and analysis
biased but informative perspective of a company
32
managements responsibilities
executives must certify financial statements
33
proxy statement
disclosure for directors and executives compensation invites shareholders to annual meeting
34
auditors report
examination of internal controls and reporting make opinion to fairness of financial statements
35
unqualified audit opinion
financial statements conform to GAAP
36
unqualified with explanation audit opinion
conforms to GAAP, needs more information for users
37
qualified audit opinion
audit process was limited or doesn't conform to GAAP does not invalidate statement
38
adverse audit opinion
auditor thinks statements are severely misstated
39
disclaimer audit opinion
auditor doesn't have enough info to certify statements are in compliance with GAAP
40
default risk
company can't pay its obligations
41
operational risk
adeptness of a company to withstand events that impact profit earnings
42
comparative financial statements
financial statements accompanied by previous year or twos statements
43
horizontal analysis
items compared to previous years numbers (base year) and turned to a percentage
44
vertical analysis
items compared to an appropriate corresponding total in the same year (base amount) and turned to a percentage
45
ratio analysis
items turned to ratios measure performance
46
current ratio
current assets/current liabilities
47
working capital
difference between current assets and current liabilities
48
acid-test ratio
current assets - inventory - prepaid items divided by current liabilities
49
debt to equity ratio
total liabilities divided by total shareholders equity
50
times interest earned ratio
net income + interest expense + taxes divided by interest
51
financial leverage
going into debt with an investment in hopes to gain a profit on the debt and interest
52
income statement
measures activity over time reports revenues, expenses, gains, losses
53
gains/losses
increases/decreases in equity from transactions not classified as revenue or expenses and do not involve owners do not reflect normal operations
54
income from continuing operations
revenues/expenses/gains/losses from future operations that are likely to continue operating income nonoperating income income tax expense
55
operating income
related to primary revenue generating activities
56
nonoperating income
not related to primary revenue generating activities
57
income tax expense
reported in seperate line in income statement
58
single step income statement
formats revenue/gains and expenses/losses together
59
multistep income statement
subtotals like gross profit, operating income, income before taxes separately lists operating and non operating items
60
IFRS vs GAAP income statement
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
earnings quality
ability of income to predict future earnings
62
restructuring cost
reorganization to get better efficiency recognized in period incurred
63
Non GAAP earnings
exclude certain expenses and sometimes revenue can be misleading, provided voluntarily
64
discontinued operations
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
discontinued operations sold before period end
income/loss of operations from beginning of period to disposal date reported gain or loss on disposal
66
prior period adjustment
adjusting retained earnings due to a period in a prior period
67
earnings per share (EPS)
net income a company generates to the number of shares outstanding
68
basic EPS
net income divided by shares outstanding
69
diluted EPS
incorporates dilutive effect of all potential common shares in EPS
70
transactions with owners
changes in equity through stock exchanges
71
transactions with nonowners
revenues and gains increase equity, expenses and losses decrease equity
72
comprehensive income
total change in shareholders equity due to nonowner transactions net income + other comprehensive income
73
statement of cash flows
summarizes transactions that occurred in a period
74
operating activities
changes in cash flow entering net income
75
direct method
cash effect of each item is reported directly
76
indirect method
starting with reported net income working backwards to convert that amount to a cash basis
77
investing activites
acquisition or sale of long term assets used in business nonoperating investment activities
78
cash outflows for investing
purchase of long term assets or securities of other entities
79
cash inflows for investing
sale of long term assets and securities
80
financing activities
cash flow from transactions with creditors
81
financing inflows
owners have shares sold to them cash is borrowed
82
financing outflows
cash paid to owners through dividends cash paid to owners for reaquisiton of shares sold
83
asset turnover ratio
net sales/average total sales measures efficiency in turning assets to sales
84
receivables turnover ratio
net sales/average accounts receivable quickness of collecting accounts receivable
85
inventory turnover ratio
COGS/average inventory ability to manage efficiency of investments with inventory
86
return on equity
net income/average shareholder equity profit generated from shareholders equity
87
profit margin on sales
net income/net sales amount of net income per dollar of sales
88
return on assets
net income/average total assets profitability compared to resources
89
dupont framework
analysis based on profitability, activity, financial leverage

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