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Flashcards in Chapter 2 Deck (30):
1

Current assets

Anything prepaid or assets that a company expects to turn into cash in one year or its operating cycle.

2

Operatin cycle

The average time required to go from assets to cash in producing revenue

3

Long term investments

Investments in stocks and bonds of other corporations that are held for more than a year. OR long-term assets such as land/buildings that a company is not currently using in its operation activities, OR long term notes receivable

4

Property, plant, equipment

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

5

Intangible assets

assets that do not have physical substance and yet often are very valuable.
Ex: trademarks, copy rights

6

Current liabilities

Obligation that the company is to pay within the next year or operating cycle

7

Long- term liabilities

Obligations that a company expects to pay after one year.
Ex: Bonds, mortgages, payables

8

What does profitability radio mean

Measures income or operating success of company

9

current ratio

Measures short-term ability of company to pay its maturing obligations and to meet unexpected need for cash.
current assets/current liabilities= ?:1

10

Percentage of solvency ratio

Measure the ability of company to survive over long period of time. Higher %= Lower solvency

11

Earnings per share (EPS)

measures net income earned on each share of common stock
Net income-perfered dividends/ average of common shares (beginning + end/ 2)

12

Current ratio

Current assets/current liabilities
When CA exceeds CL working capital is positive-more likely to pay back liabilities.
When CL exceeds CA working capital is negative-less likely to pay back liabilities

13

Debt to assets ratio/analysis

one way to measure solvency
total liabilities/ total assets=
The higher the total the riskier the com pay is to paying back debt

14

FASB 2 standards

Relevance-would this make a difference in a business decision?
Faithful representation- info accurately depicts what happened.

15

Enhancing qualities

comparability, consistency, verifiable, timely, understandability

16

Solvency

its ability to pay interest as it comes due and repay the balance of a debt in the long term

17

Working capital

The difference between the amounts of current assets and current liabilities
Current assets- Current liabilities

18

Generally accepted accounting principles (GAAP)

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

19

Monetary Unit

Requires that only those things that can be expressed in money are included in the accounting records

20

Economic entity

States that every economic entity can be separately identified and accounted for

21

Periodicity

States that the life of a business can be divided into artificial time periods

22

Going concern

The business will remain in operation for the foreseeable future

23

Principles in financial reporting

Historical cost (what you bought it for), fair value (what is the value of it now), full disclosure

24

Historical Cost

what you bought the product for

25

Fair value

the price today received to sell an asset or settle a liability)

26

Full disclosure

Requires that companies disclose all circumstances and events that would make a difference to financial statement users

27

examples of current assets

cash, investments, receivables, inventories, prepaid expenses

28

Liquidity

How easily a company can sell short term assets and pay short term debt

29

current ratio= 1.18:1

For every dollar they owe in liabilities they have 1.18 worth of assets

30

debt to assets= 62%

For every dollar of assets there is .62 dollars of debt