Flashcards in chapter two notes Deck (42)
what are the qualitative characteristics of useful information?
"u r close. can faith move circles?"
information should be compressible to those who are willing to spend the time to understand it
information makes a difference in decision making
complete, neutral, free from error
BETWEEN COMPANIES similar methods have been applied (ex: GAAP)
BETWEEN PERIODS within the same company
the size of the transaction makes a difference in how it gets recorded
never want to overstate assets/revenues or understate liabilities/expenses
objectives and qualitative characteristics of financial reporting are now ____ _____ for IASB and FASB.
classified balance sheet
what obligations will be due and what resources will be available to meet those obligations
could be converted into cash, sold, or used up during a current period (12 months)
what is the order that current assets should be reported?
2. marketable securities
3. accounts receivables
5. prepaid expenses
ORDER OF LIQUIDITY
"cash means an income proved"
long term investments
investments in stocks and bonds of other companies to be held for more than one year
plant, property and equipment (fixed assets)
acquired for use in business rather than resale to customers
what are some PPE accounts?
3. equipment, vehicles, furniture
4. (-)accumulated depreciation
1. patent (sell)
2. copyright (artistic)
4. franchise/license (area)
when a company pays more than fair value of the assets of another company to purchase it
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
requires the use of current assets to settle within the next 12 months
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"
long term liabilities
notes payable, bond payable, mortgage payable
claimed of owners against the net assets of the firm
(common stock and retained earnings)
what is one of the uses of the balance sheet?
to measure/analyze liquidity
helps to measure liquidity
CURRENT ASSETS-CURRENT LIABILITIES
useful to compare liquidity among companies
CURRENT ASSETS/CURRENT LIABILITIES
what are the limitations of the balance sheet?
historical cost vs fair market value
(only a number is recorded)
what is the order of a multi-step income statement?
- cost of goods sold
- operating expenses
=income from operations
+ gains/interest revenue
- losses/interest expense
revenues-cost of goods sold
income from operations
gross profit-operating expenses