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Flashcards in Chapter 2 Deck (41):
1

classified balance sheet

a balance sheet that groups together similar assets and similar liabilities using a number of standard classifications and sections

2

Comparability

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

3

Consistency

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

4

Cost Constraint

constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the financial information available

5

Current Assets

Assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer

6

Current Liabilities

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

7

Current ratio

A measure of liquidity computed as current assets divided by current liabilities

8

Debt to Assets Ratio

A measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors

9

Earnings per share(EPS)

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

10

Economic entity assumption

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

11

Fair value principle

Assets and liabilities should be reported at fair value ( the price received to sell an asset or settle a liability)

12

Faithful representation

Information that is complete, neutral, and free from error

13

Financial Accounting Standards Board(FASB)

The primary accounting standard-setting body in the United States

14

Free Cash Flow

Net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid

15

Full disclosure principle

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

16

Generally Accepted Accounting Principles(GAAP)

A set of accounting standards that have substantial authoritative support, that guide accounting professionals

17

Going concern assumption

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

18

Historical Cost Principle

An accounting principle that states that companies should record assets at their costs

19

Intangible Assets

Assets that do not have physical substance

20

International Accounting Standards Board(IASB)

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

21

International Financial Reporting Standards(IFRS)

Accounting standards that have been issued by the IASB, that have been adopted by many countries around the world

22

Liquidity

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

23

Liquidity ratios

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

24

Long Term Investments

-investment in stocks and bonds of other corporations that hold for more than 1 year
-long -term assets such as land
-long-term notes receivable

25

Long-term liabilities

Obligations that a company expects to pay after one year

26

Materiality

Whether an item is large enough too influence the decision of an investor or creditor

27

Monetary Unit Assumption

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

28

Operating cycle

the average time required to purchase inventory,sell it on account, and then collect cash from customers that is go from cash to cash

29

Periodicity Assumption

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

30

Profitability Ratios

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

31

Property,plant, and equipment

assets with relatively long useful lives that are currently used in operating the business

32

Public Company Accounting Oversight Board(PCAOB)

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

33

Relevance

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

34

Securities and Exchange Commission(SEC)

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

35

Solvency

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

36

Solvency ratios

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

37

Statement of Stockholder's Equity

A financial statement that presents the causes of changes to stockholder' equity during the period , including those that caused retained earnings to change

38

Timely

Information that is available to decisions makers before it loses its capacity to influence decisions

39

Understandability

information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

40

Verifiable

the quality of information that occurs when independent observers using the same methods obtain the same results

41

Working capital

The difference between the amount of current assets and current liabilities