Chapter 2 Flashcards
(36 cards)
Assets with relatively long useful lives that companies use in operating the business.
Accrue basis accounting
A balance sheet that contains a number of standard classifications and sections.
Classified balance sheet
Ability to compare the accounting information of different companies because they use the same accounting principles.
Comparability
Use of the same accounting principles and methods from year to year within a company.
Consistency
An accounting principle that states that companies should record assets at their cost.
Cost principal
Cash and other resources that companies reasonably expect to convert to cash or use up within one year or the operating cycle, whichever is longer.
Current assets
Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer.
Current liabilities
A measure used to evaluate a company’s liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities.
Current ratio
Measures the percentage of total financing provided by creditors; computed as total debt divided by total assets.
Debt to total assets ratio
A measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year.
Earnings per share (EPS)
Assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).
Fair value principal
The primary accounting standard-setting body in the United States.
Financial Accounting Standards Board
Cash remaining from operating activities after adjusting for capital expenditures and dividends paid.
Free cash flow
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
Full disclosure principal
A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes.
Generally Accepted Accounting Principals (GAAP)
Assets that do not have physical substance.
Intangible Assets
An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
International Accounting Standards Board (IASB)
Accounting standards, issued by the IASB, that have been adopted by many countries outside of the United States.
International Financial Reporting Standards (IFRS)
The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.
Liquidity
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
Liquidity ratios
Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year, and (2) long-term assets, such as land and buildings, not currently being used in the company’s operations.
Long-term investments
Obligations that a company expects to pay after one year.
Long-term liability (Long term debt)
The average time required to go from cash to cash in producing revenue.
Operating cycle
Measures of the operating success of a company for a given period of time.
Profitability Ratios
