Module 1 Balance Sheet Flashcards
(18 cards)
What is defined as a full set of financial statements under U.S. GAAP?
A full set of financial statements and notes to the financial statements
What are the components of a full set of financial statements?
- Statement of financial position (balance sheet)
- Statement of earnings (income statement)
- Statement of comprehensive income
- Statement of cash flows
- Statement of owners’ equity
The Balance Sheet is the statement of:
Financial Position
(Helps determine risk if we invest in the company)
What is a classified balance sheet?
A balance sheet that distinguishes current and non-current assets and liabilities
What balance sheet presentation is permissible when appropriate?
A balance sheet presentation based on liquidity
What is meant by short-term liquidity?
The ability to meet short-term financial obligations
What is the purpose of a balance sheet?
To provide a snapshot of an entity’s financial position at a specific point in time
This includes detailing assets, liabilities, and owners’ equity.
What does liquidity refer to?
How quickly and easily an asset can be converted to cash without significantly affecting its price
It focuses on short-term asset management.
What is the most liquid asset?
Cash
Cash is considered the most liquid asset because it can be readily used for transactions.
What indicates high liquidity?
An asset can be sold quickly due to high demand and presence of buyers in the market
High liquidity is crucial for effective short-term financial management.
What does solvency mean?
The ability to meet long-term financial obligations
Solvency focuses on long-term financial stability.
What indicates positive owners’ equity (OE)?
The entity has enough assets to cover its liabilities
Positive OE is a sign of solvency.
What is the formula to determine owners’ equity?
A - L = OE
Where A is assets, L is liabilities, and OE is owners’ equity.
If assets are greater than liabilities, what does this indicate?
The entity is solvent
This is represented by the condition A > L.
Fill in the blank: The ________ ratio is a measure of a company’s liquidity, indicating its ability to cover short-term obligations.
current
Which of the following is considered a liquid asset? A) Real estate B) Stocks C) Artwork
B) Stocks
What is the primary reason investors prefer liquid assets?
Investors prefer liquid assets because they can quickly access cash when needed.
Current Ratio =
Current Assets/Current Liabilities
