Powerpoint 2 Flashcards Preview

accounting > Powerpoint 2 > Flashcards

Flashcards in Powerpoint 2 Deck (58):
1

Basic accounting equation Reversed

Assets - Liabilities = Equity

2

Current Assets

Assets that a company expects to convert to cash or use up within one year or the operating cycle, whichever is first

Listedin the order in which they are expected to be converted to cash

3

Operating cycle

The average time it takes from the purchase of inventory to the collection of cash from consumers

4

Long-term investments

Investments in stocks and bonds of other companies that are held for more than one year

Investments in long-term assets such as land or building not currently being used in operating activities

5

Property, Plant, and Equipment

Long useful lives

Currently used in operations

Depreciation occurs

6

Depreciation

Allocating the cost of assets to a number of years

7

Accumulated depreciation

The total amount of depreciation expensed thus far in the asset's life

8

Intangible assets

Assets that do not have physical substance

ex. trademark, goodwill, patent, copyright

9

Current liablities

Obligations the company is to pay within the coming year

Usually lists notes payable first, followed by accounts payable

Other items follow in order of magnitude

10

Long-term liabilities

Obligations a company expects to pay after one year

11

Stockholder's Equity

Comprised of common stock and retained earnings

12

Common stock

investments of assets into the businesss by the stockholers

13

Retained earnings

income retained for use in business

14

Ration analysis

An analysis of the relationship between elements of financial statement data that helps to better understand the economic condition of the economy

ex. intracompany, industry-average, intercompany

15

Intracompany comparisons

two year comparisons of the same company

 

16

Industry-average comparisons

average ratios for particular industries

17

Intercompany comparisons

Comparison with a competitor in the same industry

18

Profitability ratios

Measure the income or operating success of a company for a given period of time

ex. EPS

19

Liquidity ratios

Measure short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

ex. current ratio, working capital

20

Solvency ratios

Measure the ability of the company to survive over a long period of time

ex. Debt to total assets ratio

21

Income statement use

Reports how successful a company is at generating profit from its sales

reports amount earned (revenue) and the cost incurred (expenses)

22

Net income shows what

What we have earned after sales and paying off expenses

23

Earings Per Share (EPS)

Profitability ratio that measures the net income earne on each share of common stock

*earnings available to common stock holders

Comparrisons can calculate the relative earnings performance from the perspective of a stockholder

Net income - Preferred Stock Dividends

Average Common Shares Outstanding

24

Stockholder's Equity use

retained earnings and common stock

reports all changes in stockholders equity accounts

ex. buyback/issue/sell

25

Liquidity

the company's ability to pay obligations expected to become due within the next year or operating cycle

seen on balance sheet

26

Solvency

the company' ability to pay interest as it comes due and to repay the balance of debt at its maturity

seen on balance sheet

27

Working Capital

WC = Current Assets - Current liabilities

Positive means there is a greater likelihood the company will pay its liabilities

NEgative means a company might not be able to pay its short term debt and might go bankrupt

is a liquidity ratio

28

Current ratio

Current assets

current liabilities

The higher the current ratio, the more capable the company is of paying its obligations

.97:1

for every 1 dollar of current liabilities, it has 97 cents of assets

ex. of a liquidity ratio

29

Debt to total assets ratio

Total liabilities

Total assets

measures the % of financing provided by creditors rather than stockholders

the higher the %, the riskier the company

71% - every dollar of asset was financed by 71 cents of debt

30

Generally Accepted Accounting Principles (GAAP)

A set of standards and rules for reporting financial info set by standard-setting bodies

31

Securities and Exchanges Commision (SEC)

The agency of the U.S government that oversees the financial markets and accounting standard setting bodies

32

Financial Account Standards Board (FASB)

Primary standard setting bodies in the United States

33

International Accounting Standards Board (IASB)

The international equivelant of FASB

34

International Financial Reporting Standard (IFRS)

SEt of standards and rules adopted by most international countries, for reporting financial information by public companies. 

FASB and IASB have been working together to minimize the differences in their standards

convergence is under way

35

Public Company Accounting Oversight Board (PCAOB)

Created as a result of SOX to determine auditing standards and to review the performance of audit firms

36

Accounting principles

set of standards and rules that are recognized as a general guide for financial reporting

 

37

Primary objective of financial reporting

To provide financial info that is useful to investors and creditors for making decisions about providing capital

38

Relevance

Accounting info is considered relevant if it makes a difference in a business decision by:

  1. Helping provide accurate expectations about the future (predictive value)
  2. Confirming and correcting prior expectations (confirmatory value)

39

Faithful representation

Means that info accurately depicts what really happened by:

  1. ensuring that nothing important has been omitted (complete)
  2. making sure that the information is not biased towards one position or another (neutral)

40

5 enhancing qualities

Comparability

Consistency

Verifiability

Timeliness

Understandability

41

Comparability

When different companies use the same accounting principles allowing investors to compare them

42

Consistency

When a company uses the same accounting principles and methods from year to year

43

Verifiability

When financial info users are able to prove that the info is free from error

44

Timeliness

When financial info is available to it's users before it loses capacity to influence their decisions

45

Understandability

When financial info is presented in a clear and concise fashion so that reasonably informed users can interpret and comprehend the meaning of the information provided

46

How does a company choose when to end a fiscal year?

Chooses a down time to end the fiscal year because it requires a lot of resources to provide financial reports

47

Assumptions in Financial Reporting

Monetary unit

Economic entity

Periodicity

Going concern

Accrual-Basis

48

Monetary unit

Requires that only those things that can be expressed in money are included in the accounting records

49

Economic entity

States that every economic entity can be seperately identified and accounted for

ex. keep personal finances off company books

50

Periodicity

States that the life ofa business can be divided into artificial time periods

51

Going Concern

The business will remain in operation for the foreseeable future

52

Accrual-Basis

Transactions are recoreded in the periods in which the events occur

ex. if you work in september and get paid in october, needs to be recorded in september

53

Cost principle

"historical principle"

Dictates that companies record assets at their costs

more faitful representation

54

Fair value principle

Indicates that assets and liabilities should be reported at fair value (predicted current value)

More relevant

55

Full disclosure principle

Requires that companies disclose all circumstances and events that would make a difference to financial statement users

56

Materiality Constraint

An item is material when its size makes it likely to influence the decision of an investor or creditor, required adherence to GAAP. 

Immaterial if it does not make a difference

57

Cost constraint

Accounting standard-setters weigh the cost that companies will incur to provide the information against the benefit that financial statement users will gain from it

58