Topic 3 The Balance Sheet

Question 1

Balance Sheet

Answer 1

listing of an organization’s assets and of its liabilities at a certain time.

Question 2

Equity

Answer 2

difference between assets and liabilities

Question 3

Current Assets

Answer 3

current means one year or less.

Most common- cash account receivable, and inventory

Question 4

Cash

Answer 4

coins and currency as well as the balances in company checking and saving accounts

Question 5

Accounts Receivable

Answer 5

amounts owed to a business by its credit customers and usually collected in cash within 10 to 60 days

Question 6

Inventory

Answer 6

name given to goods held for sale in the normal course of business

Question 7

Prepaid Expenses

Answer 7

payments in advance for business expenses

Two common examples are insurance and rent.

Question 8

Investment Securities

Answer 8

composed of publicly traded stocks and bonds

used to earn the highest possible return on this temporarily idle cash

Question 9

Long-term investments

Answer 9

those assets that you expect to still be around next year when preparing the balance sheet again

companies make these investments to earn income and/or to exercise influence on the companies in which they invest

Question 10

Property, plant, and Equipment

Answer 10

land, buildings, machinery, tools. furniture, fixtures, and vehicles used by a company in conducting its business activities

Question 11

Accumulated Depreciation

Answer 11

reflects the wear and tear, or depreciation, of these items since they were originally purchased

Question 12

Intangible assets

Answer 12

assets that have no physical or tangible characteristics

agreements, contracts, or rights that provide economic benefits to a company by permitting the use of a certain production process, trade name, or similar item.

Examples: patents, trademarks, copyrights, franchises, and goodwill.

Question 13

Other assets

Answer 13

Long-term assets that are not suitable for reporting under any of the previous classifications

Question 14

Current Liabilities

Answer 14

those obligations expected to be paid within one year. the most common being accounts payable.

Question 15

Accounts Payable

Answer 15

the flip side of accounts receivable- when one company sells on credit, creating for itself an account receivable, the company on the other side of the transaction is buying on credit, creating an account payable

Question 16

Short-term loans payable

Answer 16

formal, interest-bearing loans that are expected to be paid back within one year.

Question 17

Current portion of long-term debt

Answer 17

some liabilities, such as mortgages, are payable in equal monthly installments over a specified number of years. The portion of these liabilities that is payable within 12 months from the balance sheet date.

Question 18

Unearned revenue

Answer 18

not a revenue at all but a liability to be reported in the balance sheet

Question 19

Long-term debt

Answer 19

long-term notes, bonds, mortgages, and similar obligations on the balance sheet.

Question 20

Capital Lease obligations

Answer 20

long-term liability in the balance sheet
-some leases of property, plant, and equipment are financially structured so that they are economically the same a debt-financed purchases.

Question 21

Deferred Income Tax Liability

Answer 21

the income tax expected to be paid in future years on income that has already been reported in the income statement but which because of tax law, has not yet been taxed

Question 22

Stockholders’ Equity

Answer 22

difference between assets and liabilities (in a corporation)

- the residual amount of assets that would remain if all liabilities were satisfied.

Question 23

Common Stock

Answer 23

stockholders’ equity investment

Question 24

Par Value

Answer 24

the market value of shares at issuance

Question 25

Additional Paid-in capital

Answer 25

Invested by stockholders that exceed the par value of issued shared

Question 26

Preferred Stock

Answer 26

stockholders’ equity investment

Question 27

Retained Earnings

Answer 27

the cumulative amount of a corporation’s profits that have been reinvested on behalf of the stockholders

Question 28

Treasury Stock

Answer 28

the repurchased shares when a company buys back its own shares

Question 29

Accumulated other comprehensive income

Answer 29

the grouped together changes which companies experience increased and decreased in equity each year because of the movement of market prices or exchange rates

Question 30

Foreign Currency Translation Adjustment

Answer 30

arises from the change in equity of foreign subsidiaries that occurs as a result in foreign currency exchange rates.

Question 31

Derivative

Answer 31

a financial instrument, such as an option or a future, that derives its value from the movement of a price, an exchange rate, or an interest rate associated with some other item.

Question 32

Working Capital

Answer 32

non-US balance sheets

list current assets and current liabilities together and label the difference between the two as net current assets.

Question 33

Current Assets listed on balance sheet

Answer 33

in decreasing order of liquidity

Question 34

Asset

Answer 34

probable future economic benefit obtained or controlled by a particular entity as a result of past transactions or events

Question 35

Liability

Answer 35

probable future scrafice of economic benefit arising from a pressent obligation of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events

Question 36

Equity

Answer 36

Residual interest in the assets of an entity that remains after deducting its liabilities

Question 37

Recognition

Answer 37

Boil down all the estimates and judgments into one number and report that one number in formal financial statements

Process of formally recording an item in the accounting records so that it will be reflected in the financial statements

Preferred method of financial reporting

Question 38

Valuation

Answer 38

Once it has been determined that an item should be recognized in financial statements. the question then arises about what dollar amount to assign to the item

Question 39

Historical Cost

Answer 39

has long been used in accounting because it is reliable

Question 40

Disclosure

Answer 40

sometimes down in place of recognition when the effects of an event cannot be quantified with any degree of certainty

Question 41

Transaction Analysis

Answer 41

the process of determining how an economic event impacts the financial statements

Question 42

Asset Mix

Answer 42

proportion of total assets in each asset category, is determined to alrge degree by the industry in wich the company operates

determined by dividing each asset item on the balance sheet by total assets

Banks have a lot of loans receivable
Retailers have lots of inventory
Manufacturers have lots of property, plant, and equipment

Question 43

Financing Mix

Answer 43

percentage of total financing (liabilties plus equity) in each individual category.’ equity

measyre of the degree to which a company finances assets using liabilties or owners