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Flashcards in Chapter 2 Deck (38):
1

Accrual-basis accounting

Transactions that change a company's financial statements are recorded in the periods in which the events occur

2

Classified balance sheet

A balance sheet that contains anumber of standard classifications and sections

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Comparability

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

4

Consistency

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

5

Cost constraint

Constraint of determining whether the cost that companies will incur to provide the information will outweigh the benefit that financial statement users will gain from having the information avilable

6

Cost principle

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

7

Current assets

Cash and other resources that companies reasonably expect to convert to cash or use within one year or the operating cycle, whichever is longer

8

Current liabilities

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

9

Current ratio

a measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities

10

Debt to total assets ratio

Measures the percentage of total financing provided by creditors; computed as total debt divded by total assets

11

Earings per share

A measure of the net income earned on each share of common stock

12

Economic entity assumption

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

13

Fair value principle

Assets and liabilities should be reported at fair value 

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Faithful representation

 Information that is complete, neutral, and free from error

15

Financial Accounting Standards Board (FASB)

The primary accounting standard-setting body in the United States

16

Free cash flow

Cash remaining from operating activities after adjusting for capital expenditures and dividends paid

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Full disclosure principle

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

18

Generally accepted accounting principles (GAAP)

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

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Going concern assumption

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

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Intangible assets

Assets that do not have physical substance

21

International Accounting Standards Board (IASB)

An accounting standard-setting body that issues standards adopted by many countries outside of the U.S.

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IFRS

Accounting standards, issued by the IASB, that have been adopted by international countries

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Timely

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

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Understandability

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

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Verifiable

Information that is proven to be free from error

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Alternative term for Property, plant, and equpment

Fixed assets or plant assets

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China international note

China adopted IFRS in 2007

-under these, many items are reported at current fair values

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Other term for intangible assets

"Other assets"

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Alternative terminology for long-term investments

"investments"

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Alternative terminology for common stock

"capital stock"

31

Debt to equity ratio

Total liabilities

Stockholder's equity

The higher this ratio is, the lower a company's solvency

32

International note: IFRS

Over 100 countries use international standards. 

All companies in the European Union follow international standards

33

Ethics note: Adelphia

Senior company employees entered into transactions that blurred the line between the employees' financial interests and those of the company

Ex. Adelphia guranteed over 2 billion of loans to the founding family

34

Alternative terminology for Stockholders

Shareholders

35

Ethincs Note: Circus

Circus-founder, Barnum is alleged to have said, "Trust everyone, but cut the deck."

The Sarbanes-Oxley provides measures that help ensure that fraud will not occur

36

PP&E is sometimes called what?

fixed assets

37

International Note: IFRS and GAAP

Generally accepted accounting principles are the same

Neither has specific rformat requirements

However, sometimes format differences do exist in presentations commonly employed by IFRS

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