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Module_1 Flashcards

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1
Q

Front

A

Back

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2
Q

What are the main elements of the income statement?

A

Revenues, gains, expenses, and losses.

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3
Q

What is the income equation?

A

Net Income = Revenues + Gains - Expenses - Losses

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4
Q

What are revenues?

A

Inflows from delivering goods or services as part of normal operations.

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5
Q

What are gains?

A

Increases in equity from peripheral or incidental transactions.

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6
Q

What are expenses?

A

Outflows or using up of assets from delivering goods or services.

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7
Q

What are losses?

A

Decreases in equity from peripheral or incidental transactions.

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8
Q

What is Cost of Goods Sold (COGS)?

A

The direct cost attributable to the production of goods sold by a company.

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9
Q

What is Gross Profit?

A

Gross Profit = Revenues - Cost of Goods Sold

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10
Q

What are other expenses?

A

Non-operating costs like interest expense, taxes, or loss on sale of assets.

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11
Q

What is the single-step income statement format?

A

All revenues and gains are grouped together, then all expenses and losses are deducted to find net income.

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12
Q

What is the multiple-step income statement format?

A

Separates operating revenues and expenses from non-operating ones and highlights intermediate subtotals.

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13
Q

What are discontinued operations?

A

Components of an entity that have been disposed of or are held for sale.

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14
Q

What is comprehensive income?

A

All changes in equity during a period except those resulting from investments by and distributions to owners.

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15
Q

What is net income or loss?

A

The difference between revenues and expenses including gains and losses.

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16
Q

What is Other Comprehensive Income (OCI)?

A

Items excluded from net income, such as unrealized gains/losses on securities.

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17
Q

What are the two presentation formats for comprehensive income?

A

One continuous statement or two separate but consecutive statements.

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18
Q

What are limitations of the income statement?

A

Subjectivity in estimates, doesn’t reflect all financial performance aspects (e.g., cash flow timing).

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19
Q

What does the statement of changes in equity show?

A

Changes in owners’ equity over a period, including retained earnings and other equity components.

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20
Q

What does the statement of retained earnings show?

A

Changes in retained earnings from net income and dividends.

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21
Q

What are prior period adjustments?

A

Corrections of errors or changes in accounting principles applied retrospectively.

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22
Q

What is a change in accounting principle?

A

Switching from one acceptable accounting method to another.

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23
Q

How is a change in accounting principle applied?

A

Retrospectively, unless impracticable.

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24
Q

What is a change in accounting estimate?

A

A revision of an estimate due to new information, applied prospectively.

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25
What is 'impracticable' in accounting changes?
When retrospective application requires assumptions about management’s intent or significant estimates.
26
What are common shareholders’ rights?
Voting rights, dividends, liquidation rights, and preemptive rights.
27
What is preferred stock?
Stock with preferences over common stock, often regarding dividends and liquidation.
28
What is cumulative preferred stock?
Preferred stock where unpaid dividends accumulate.
29
What is convertible preferred stock?
Preferred stock that can be converted into common stock.
30
What is treasury stock?
Company's own stock that it has repurchased.
31
What are the cost and par value methods for treasury stock?
Cost: recorded at repurchase cost; Par: recorded at par value.
32
What are the dividend dates?
Declaration date, record date, and payment date.
33
What is a property dividend?
A non-cash dividend distributed in the form of assets, remeasured to fair value.
34
What is a small stock dividend?
Stock dividend <20-25%, recorded at fair value.
35
What is a large stock dividend?
Stock dividend >20-25%, recorded at par value.
36
What is a stock split?
An increase in the number of shares with a proportional decrease in par value.
37
What are limitations of the statement of changes in equity?
Does not show value creation or market value changes directly.
38
What is the primary purpose of the statement of cash flows?
To show how changes in balance sheet accounts affect cash and cash equivalents.
39
What are operating activities?
Day-to-day business operations that affect net income.
40
What are typical operating cash inflows?
Cash received from customers, interest, and dividends.
41
What are typical operating cash outflows?
Payments to suppliers, employees, and interest on debt.
42
What are investing activities?
Cash flows from acquiring or disposing of long-term assets and investments.
43
What are financing activities?
Cash flows related to borrowing and repaying debt, and issuing or buying back stock.
44
What are noncash investing and financing activities?
Significant activities that do not involve cash (e.g., exchanging stock for equipment).
45
What is the indirect method for operating cash flows?
Starts with net income and adjusts for noncash items and working capital changes.
46
What are deferrals and accruals in cash flow?
Deferrals delay cash recognition; accruals recognize expenses or revenue before cash flows.
47
What are limitations of the statement of cash flows?
Does not reflect noncash transactions or profitability directly.
48
What are consolidated financial statements?
Statements that present financial information of a parent and its subsidiaries as a single entity.
49
What is a business combination?
An event where one entity gains control over another.
50
What defines control in consolidation?
The power to govern financial and operating policies, usually through >50% voting interest.
51
What is a parent company?
A company that controls another company (subsidiary).
52
What is a subsidiary?
An entity controlled by a parent company.
53
What is the acquisition method?
All assets and liabilities of the acquired company are recorded at acquisition-date fair value.
54
How is goodwill calculated?
Purchase price - fair value of net assets acquired.
55
What is a bargain purchase?
When the purchase price is less than the fair value of net assets, resulting in a gain.
56
What are reciprocal balances?
Intercompany balances that must be eliminated during consolidation.
57
What are intraentity inventory transactions?
Sales between entities in the group, requiring elimination of unrealized profit.
58
How are noncurrent assets handled in consolidation?
Adjust for depreciation and eliminate intercompany gains.
59
What is extinguishment of debt?
Elimination of intercompany debt that is settled or canceled.
60
What are reciprocal dividends?
Dividends between parent and subsidiary that must be eliminated.
61
What is full consolidation?
Combines 100% of subsidiary's financials with parent, with non-controlling interest shown.
62
What is the equity method?
Recognizes investment based on parent’s share of net assets and income.
63
What is proportionate consolidation?
Recognizes proportionate share of assets, liabilities, income, and expenses.
64
What is the purpose of the Statement of Financial Position (Balance Sheet)?
,To show a company's financial position at a specific point in time by reporting its assets, liabilities, and equity.
65
What is the basic accounting equation?
,Assets = Liabilities + Equity
66
What is the Fund Theory in accounting?
,It emphasizes that resources are held for specific purposes or activities and focuses on accountability, especially in government and non-profit entities.
67
What is transaction analysis in accounting?
,The process of evaluating the impact of business transactions on the accounting equation.
68
What are the three main elements of the balance sheet?
,Assets, Liabilities, and Equity
69
What are assets?
,Resources controlled by the entity as a result of past events from which future economic benefits are expected.
70
What are current assets?
,Assets expected to be used, sold, or converted to cash within one year or one operating cycle.
71
What are noncurrent assets?
,Long-term assets not expected to be converted to cash or used within one year.
72
What are examples of investments and funds?,
Long-term investments in securities, sinking funds, and restricted cash.
73
What is included in Property, Plant, and Equipment (PP&E)?
,Tangible long-lived assets used in operations such as land, buildings, and machinery.
74
What are liabilities?
,Present obligations of the entity arising from past events, settlement of which is expected to result in outflows of resources.
75
What are current liabilities?
,Obligations expected to be settled within one year or one operating cycle.
76
What is accounts payable?
,Amounts owed to suppliers for goods or services purchased on credit.
77
What are other payables?
,Accrued expenses such as salaries, interest, or taxes payable.
78
What are unearned revenues?
,Liabilities created when cash is received before delivering goods or services.
79
What are other obligations under current liabilities?
,Short-term loans, current portions of long-term debt, and notes payable.
80
What are noncurrent liabilities?
,Obligations not due within the next year, such as bonds payable, lease obligations, and pension liabilities.
81
What is equity?
,The residual interest in the assets of the entity after deducting liabilities.
82
What are capital contributions by owners?
,Funds invested by shareholders through the purchase of stock.
83
What are retained earnings?
,The accumulated net income that is retained in the business and not distributed as dividends.
84
What is treasury stock?
,A company's own shares that have been repurchased and held in the treasury.
85
What is accumulated other comprehensive income (AOCI)?
,A component of equity that includes unrealized gains/losses on certain investments, foreign currency adjustments, etc.
86
What are limitations of the balance sheet? reported"
,"Does not reflect current market value of assets and liabilities; Omits intangible assets not acquired in transactions; Use of estimates and judgment may reduce comparability; Not all economic resources and obligations are
87
What is the primary objective of general-purpose financial reporting?
,To provide useful financial information to external users for decision-making, particularly investors, lenders, and other creditors.
88
What does GAAP stand for and what is its purpose?
,Generally Accepted Accounting Principles; it provides standardized guidelines for financial accounting and reporting.
89
Who are the primary users of financial statements?
,External users (e.g., investors, creditors, regulators) and internal users (e.g., management).
90
Who are considered external users of financial statements?
,Investors, lenders, creditors, regulators, customers, and suppliers�parties not directly involved in the day-to-day operations.
91
Who are considered internal users of financial statements?
,Company management, executives, and internal decision-makers who use financial information for planning and control.
92
What are the key features of financial statements under GAAP?
,Relevance, faithful representation, comparability, verifiability, timeliness, and understandability.
93
What are the five main elements of financial statements?
,Assets, liabilities, equity, income, and expenses.
94
What are the basic financial statement relationships?
,"Assets = Liabilities + Equity (Balance Sheet); Net Income = Revenues - Expenses (Income Statement); Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends (Statement of Changes in Equity)"
95
What is the accrual basis of accounting?
,A method where revenues and expenses are recognized when they are earned or incurred, not when cash is received or paid.

CMA 1.1 (1 decks)

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