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1

what are the qualitative characteristics of useful information?

understandability
relevance
comparability
consistency
faithful representation
materiality
conservatism

"u r close. can faith move circles?"

2

understandability

information should be compressible to those who are willing to spend the time to understand it

3

relevance

information makes a difference in decision making

4

faithful representation

complete, neutral, free from error

5

comparability

BETWEEN COMPANIES similar methods have been applied (ex: GAAP)

6

consistency

BETWEEN PERIODS within the same company

7

materiality

the size of the transaction makes a difference in how it gets recorded

8

conservatism

never want to overstate assets/revenues or understate liabilities/expenses

9

objectives and qualitative characteristics of financial reporting are now ____ _____ for IASB and FASB.

the same

10

classified balance sheet

what obligations will be due and what resources will be available to meet those obligations

11

current assets

could be converted into cash, sold, or used up during a current period (12 months)

12

what is the order that current assets should be reported?

1. cash
2. marketable securities
3. accounts receivables
4. inventory
5. prepaid expenses
ORDER OF LIQUIDITY

"cash means an income proved"

13

long term investments

investments in stocks and bonds of other companies to be held for more than one year

14

plant, property and equipment (fixed assets)

acquired for use in business rather than resale to customers

15

what are some PPE accounts?

1. land
2. buildings
3. equipment, vehicles, furniture
4. (-)accumulated depreciation

16

intangible assets

1. patent (sell)
2. copyright (artistic)
3. trademark/tradename
4. franchise/license (area)
5. goodwill

17

goodwill

when a company pays more than fair value of the assets of another company to purchase it

18

what is the order of assets recorded in a classified balance sheet?

1. current assets
2. long term investments
3. fixed assets
4. intangible assets

19

current liabilities

requires the use of current assets to settle within the next 12 months

20

what order to you record current liabilities?

1. accounts payable
2. accrued expenses
3. unearned revenue
4. short term note payable
ORDER OF MATURITY

"accountants are usually short"

21

long term liabilities

notes payable, bond payable, mortgage payable

22

stockholder's equity

claimed of owners against the net assets of the firm
(common stock and retained earnings)

23

what is one of the uses of the balance sheet?

to measure/analyze liquidity

24

working capital

helps to measure liquidity
CURRENT ASSETS-CURRENT LIABILITIES

25

current ratio

useful to compare liquidity among companies
CURRENT ASSETS/CURRENT LIABILITIES

26

what are the limitations of the balance sheet?

historical cost vs fair market value
(only a number is recorded)

27

what is the order of a multi-step income statement?

revenues
- cost of goods sold
=gross profit
- operating expenses
=income from operations
+ gains/interest revenue
- losses/interest expense
=net income

28

gross profit

revenues-cost of goods sold

29

income from operations

gross profit-operating expenses

30

net income

income from operations+gains-losses+interest revenue-interest expense