Flashcards in Chapter 1 - Basic Concepts Deck (70):
Report giving accounting information.
Any organization for which financial statements are prepared
Valuable resources owned by an entity
Types of assets
Cash, equipment, other resources
The entity's obligations to outside parties who have furnished resources
Outside parties who have furnished resources to an entity
Indicates how much credit had been extended to the entity
Indicated how much credit has been extended to the entity
Creditors have a _______ against an entity for the value of a loan given
Claims against _______
The total amount amount supplied by equity investors
Total paid-in capital
Profits generated by the entity
The amount of earnings not paid to investors in the form of dividends
The type of investor who receive common stock for the funds they provide
The type of claim equity investors have
What is a residual claim?
If the entity is dissolved, equity investors get whatever is left after the liabilities have been paid off.
Which is a stronger claim: liabilities or equity?
Assets will always be equal to:
Liabilities + Equity
Any assets not claimed by creditors will be claimed by:
Why is it called a balance statement?
Because assets must always balance (equal) equity
States that assets must always dual equity + liability
Accounting concept # 1
Assets = Liabilities + Equity
Equity is always the difference between...
Assets and liabilities
Convert different facts to monetary amounts to make them uniform.
Money measurement concept stares that accounting reports only measure those facts than can be stated as:
The fact that accounts are kept for entities as distinguished from the persons associated with those entires is called the:
The assumption that an entity will keep on going from one year to the next is called:
A "Concern" is another name for?
States that "accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary"
If the entity is not a going-concern, do special accounting rules apply?
Because of the going-concern concept, accounting [does / does not] report what the assets could be sold for if the entity ceases to exist
The name of what an asset is "worth"
Fair Value or Market Value
If reliable information is available, an asset is measured at it's....
If a fair value isn't able to be known, what asset value is reported?
Cost at time of purchase
In general, can land, buildings, equipment and inventories fair value be reliably measured?
How are land, buildings, equipment and inventory assets values typically reported?
Cost (or a number based on cost)
The Asset-Measurement concept states what about reporting values if different types of assets?
If reliable information is available, the amount of an asset is measured at its Fair Value. Otherwise, the measurement is based on its Cost.
2 reasons why an asset would be measured at cost:
1. Estimating the fair value of the item may be expensive and unreliable
2. The entity may be using the item for the foreseeable future and thus does not need to know the fair value.
When is the decision usually made as to whether an asset will be measured at Fair Value or at Cost?
When the asset is acquired.
Assets that have a claim on a specified amount of money.
Are securities and bonds monetary or non-monetary assets?
Are buildings, land, equipment and inventory monetary or non-monetary assets?
Monetary assets are reported at:
Non-monetary assets are reported at?
Cost (or an amount based on cost)
Balance sheet reports the amounts of what 3 things?
Assets = liability + equity
The three test an item must pass in order to be considered an Asset?
1. Item must be controlled by the entity (usually means "owned"
2. Item must be valuable to entity
3. Item must have been acquired at a measurable cost
Assets and liabilities are each divided into these two categories:
Cash and other assets that are expected to be converted into cash or used up in the near future (within 1 year) are called:
Groceries on a shelf are current or non current assets?
Claims from outside parties
Current assets - $80
Current liabilities - $60
What is current ratio?
1.3 to 1
Equity consists of capital obtained from sources that are not:
Amount of capital supplied by equity investors:
Two types of paid-in capital
1. Common stock
2. Additional paid-in capital
Do transactions between individual shareholders affect the entity?
Amount of equity earned and retained by the entity:
Retained earnings = ___ - dividends
Do retained earnings reflect only the previous year of retained earnings?
No, shows all equity that has accumulated since the entity began
Are retained earning cash!
The right hand side of a balance sheet shows the ______ of capital
Sources of funds used to acquire assets:
Equity consists of the following 2 things:
1. Funds obtained from equity investors
2. Retained earnings resulting from the entity's profitable operation
Who has stronger claim on assets - creditors or equity investors?
Creditors (they can sue)
What kind of claim do equity investors have on creditors?
A residual claim
Is goodwill an asset?
No, not unless it was purchased.
Current assets to current liabilities is called the: