ACG 3173 Chapter 1 & 2

cash flows from investing activities

Cash paid for equipment(deduct)

cash flow

cash receipts or disbursements of an entity

Working capital formula

current assets - current liabilities

revenue expenses are

one time or nonrecurring

Accumulated Depreciation

portion of the cost of the equipment that is estimated to have been used up in the process

Current generally accepted accounting principles and auditing standards require that the financial statements of an entity show the following for the reporting period:

- Financial position at the end of the period. (balance sheet) - Earnings for the period. (income statement) - Cash flows during the period. (statement of cash flows) - Investments by and distributions to owners (i.e., stockholders) during the period. (statement of changes in stockholders equity)

Going Concern Concept

A presumption that the entity will continue in existence for the indefinite future.

cash flows from financing activities

Cash received from issue of long term debt Cash received from sale of common stock Payment of cash dividend on common stock(deduct) Net cash provided by financing activities Net increase in cash for the year

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

Earning per share formula

Earnings per share = (Net income - preferred dividend) / Weighted average of shares outstanding

What does it mean to state that the accounting process should support decisions and informed judgments?

It means that accounting is a service activity that helps many different users of accounting information who use the information in many ways.

cash flows from operating activities

Net Income Add (deduct items not affecting cash): depreciation expense increase in acc receivable (deduct) increase in merchandise inventory (deduct) increase in current liabilities Net cash used by operating activities

return on equity

Net Income / Average Stockholders' Equity

statement of changes in stockholders' equity

Paid in capital + beginning balance + common stock par value + additional paid in capital balance Retained Earning + beginning balance + net income for year - cash dividends of per share balance Total Stockholders Equity

Independent Auditor's Report

a report, prepared by a certified public accountant for the public shareholder, stating an opinion on whether the financial statements present fairly, in conformity with GAAP, the company's financial condition and results of operations and cash flows

materiality

absolute exactness is not necessary in the amounts shown in the financial statements

Objectivity in Accounting

accountants desire to have a given transaction recorded the same way in all situations

uses the accrual concept and results in recognizing revenue at the point of sale and recognizing expenses as they are incurred

accrual accounting

Rate of Return Formula

amount of return/amount of interest

if we know that ____________ and ____________ RE are correct then we know __________ ___________ is correct on the _____________ _______________

beginning, ending, net income, income statement

Users of Accounting Information

business managers, employees and unions, investors and creditors, tax authorities, government regulatory agencies

Acid Test Ratio

cash + acc rec/ current liabilities

subset of managerial accounting that relates to the determination and accumulation of product, process, or service costs.

cost accounting

controller

designates the chief accounting officer

the matching concept _________ mean that __________ and ___________ for a period are ____________

doesnt, revenues, expenses, equal

Accountants frequently use the term _______ instead of organization because it is more inclusive

entity

Accumulated Other Comprehensive Income (AOCI)

how companies should present income thats relevant and reliable

conservatism

making judgements and estimates that lower in profits and asset valuation estimates rather than higher profits

Return on Investment Formula

operating income/average total assets

matching revenue and expenses is necessary if the results of the firms __________ are to reflect accurately its ____________ _____________ during the period

operations, economic activities

financial statements reflect what has happened in the _______ and primarily oriented to the __________ user

past, external

Financial Accounting

preparation and reporting of financial statements for an entity

bookkeeping

procedures are used to accumulate the financial results of many of an entity's activities

retained earnings

profits in the business that have been kept in business since inception net of dividends

accounting equity can be

proprietorship, partnership, corporation, or even group of corporations

gains and losses

result from nonoperating activities that generate revenue and expenses

net assets =

stockholders equity

accounting equity

the organization for which financial data are to be collected

Cost Principle

transactions are recorded at their original cost to the entity as measured in dollars

full disclosure

Financial statements contain all information necessary to understand a business's financial condition