chapter 2

Réussis tes devoirs et examens dès maintenant avec Quizwiz!

liquidity refers to the ease of changing ________

assets to cash

which will be found in the liabilities section of a firm's balance sheet

- long-term bonds issued by the firm - notes payable

the short run for a firm is the period of time during which

- output can vary - some costs are fixed

the use of financial leverage can

- Increase the chance of financial distress and business failure - Greatly magnify both gains and losses - Increase the potential reward for investors

which are true concerning product costs

- Product costs are reported as costs of goods sold. - Product costs contain both fixed and variable costs.

the cash flow identity reflects the fact that:

- a firm generates cash through its various activities - cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm - cash flow from the firm's assets equals the total of cash flow to creditors and stockholders

residual value is the amount left over after paying

- accounts payable - preferred stockholders - other debt holders - bondholders

long term liabilities represent obligations of the firm lasting over

1 year

rank the ease (from easiest to hardest) of turning the following assets into cash

1. cash equivalents 2. accounts receivable 3. inventory 4. plant and equipment

net working capital plus current liabilities equal

current assets

examples of non-cash items on an income statement

depreciation

accounting profit ________ cash flow

differs from

depreciation is the accountant's estimate of the cost of _________ used up in the production process

equipment

t/f: operating cash flow includes capital spending and working capital requirements

false

assets are listed on a balance sheet in which order

in order of decreasing liquidity

fixed costs are costs that will not change ____________

in the short run

Increasing its non-cash liquid assets will enable a firm to do which of the following?

increase its ability to avoid financial distress increase its ability to meet short-term obligations

_______ income is money earned after interest and taxes

net

Non-cash items are expenses that directly affect ______ but do not directly affect _____.

net income; cash flow

book value of assets is generally

not what the assets are actually worth

an income statement reflects activity that occurs _______ while a balance sheet reflects values ________

over a period of time; as of a specific date

examples of fixed assets

patents, land, plant

which is a variable cost in the short run

raw materials used in production

on which side of the balance sheet do liabilities appear

right side

the last residual claimants to be paid by a firm are

stockholders

the most important item that can be extracted from financial statements

the firm's actual cash flows

according to GAAP, when is income reported

when it is earned or accrued

the cash flow identity reflects the fact that

- cash flow from the firm's assets equals the total of cash flow to creditors and cash flow to stockholders - cash is either used to produce the product or service, pay creditors or pay out to the owners of the firm - a firm generates cash through its various activities

which are generally considered to be short-run fixed costs

- property taxes - management salaries - rent payments for a warehouse

assets can be described as items that

- provide market value to the firm. - generate revenue. - a firm owns.

examples of period costs

- selling costs - general expenses - administrative expenses

what does stockholder's equity represent

a residual claim against the book value of the firm's assets

a customer has yet to pay the bill for products purchased on credit. the seller records this debt in which balance sheet account?

accounts receivable

current assets examples

accounts receivable inventory

which one of these is a correct version of the balance sheet equation

assets = liabilities + stockholders' equity

what does GAAP stand for

Generally Accepted Accounting Principles


Ensembles d'études connexes

Pearson Revel // Chapter 4: Social Interaction (PART 2: BUILDING BLOCKS OF SOCIETIES)

View Set

Exam 2: Got Lactase? The Co-evolution of Genes and Culture

View Set

Network+ Module 5 - Cabling Review Questions

View Set

Tutorial 1: Getting Started with Excel

View Set