The Balance Sheet Flashcards
(20 cards)
Process of analyzing business events and collecting, processing, and summarizing that information in a report / ensures accurate financial reporting
what is the accounting cycle
What does having a lot of quick assets indicate about a company?
Access to a lot of quick assets / financial flexibility
What is Goodwill in accounting?
Amount paid over and above the market value of assets purchased when buying other companies
Goodwill arises when a company acquires another for more than the fair market value of its net identifiable assets.
How is the property and equipment account affected by Depreciation?
Reduced by the amount of the asset that has been written off and charged against income
Depreciation reflects the wear and tear of tangible assets over time.
Why is short-term unearned revenue considered a good liability?
Because they have already received money and will provide a service for the future
This means that the company has cash flow without immediate service delivery obligations.
What is the purpose of the summary of accounting policies?
Procedures used in preparing financial statements
This summary helps users understand the basis of the financial reporting.
What does recognition in financial reporting include?
Including estimates and judgments in the financial statements
Key assumptions and recognitions are described in a note to the financial statements.
What is the difference between recognition and disclosure in financial statements?
Recognition includes estimates and judgments in the statements, while disclosure explains them in the notes
What does FASB stand for?
Financial Accounting Standards Board
FASB establishes accounting standards in the United States.
What does SEC stand for?
Securities and Exchange Commission
What type of financial information does the SEC require from companies?
- Disclosure of quarterly financial information
- Business segment information
This information can be crucial for investors and creditors.
What is a limitation of the balance sheet related to market value?
A balance sheet does not reflect a company’s market value
Assets are reported at historical cost, which is often less than their current market value.
What are some intangible assets not included in the balance sheet?
- Brand reputation
- Patents
- Customer loyalty
- Skilled workforce
Intangible assets are difficult to quantify and often omitted from financial statements.
What is a limitation of the balance sheet regarding the dollar’s purchasing power?
Does not maintain constant purchasing power; historical costs are not adjusted for inflation
This can misrepresent the true value of assets over time.
What issue arises from unequal purchasing power units in a balance sheet?
Some items may be shown in different dollar values from different years
This can lead to confusion in asset valuation and comparison.
Why might companies not report certain entity resources?
Because they are hard to value in dollar terms
Examples include brand strength and customer relationships.
What types of obligations might not be reported on a balance sheet?
- Ongoing legal issues
- Environmental responsibilities
These obligations may be uncertain or difficult to quantify.
What can be done with access to a lot of assets/financial flexibility? (3)
Quick assets can be used for acquisitions, significant investments, or R&D
When is disclosure used?
Disclosure is used when information is too uncertain to be recognized directly in the financial statements.
What does the SEC do?
SEC regulates securities markets and requires certain disclosures from public companies.
