Accounting for Decision Makers Topic 4 (Balance Sheet)
assets
Assets are the firm's economic resources, formally defined as "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
what is usually considered to be an owners' equity account?
Capital stock Retained earnings
is notes payable generally considered to be a liability
yes
liquidity
A company's ability to pay its debts in the short run and the ease with which the item can be turned into cash
historical cost convention
An accounting technique that values an asset for balance sheet purposes at the price paid for the asset at the time of its acquisition
current asset
Cash, accounts receivable, and inventory.
Current assets usually are listed on a balance sheet in
Decreasing order of liquidity
A company's asset mix is determined by
Dividing each asset item on the balance sheet by total assets
When a company buys a warehouse by using a mortgage with a local bank, the effect on the accounting equation for the company will be to
Increase Buildings and increase Mortgage Payable
When a company borrows money from a bank to be repaid in over time, the effect on the accounting equation for the company will be to
Increase Cash and increase Bank Loan Payable
When an investor pays cash into a business to become a part owner, the effect on the accounting equation for the business will be to
Increase Cash and increase Paid-in Capital
When a company rents a warehouse by paying for the first six month's rent in advance, the effect on the accounting equation on the day of payment would be to
Increase Prepaid Rent and decrease Cash
In non-U.S. Balance sheets, you will often see:
Property, plant, and equipment will be listed first Current assets and current liabilities will be netted together
A company's asset mix is strongly influence by
The company's industry
retained earnings
The cumulative amount of a corporation's profits that have been reinvested on behalf of the stockholders
Financing mix is a measure of
The degree to which a company finances assets using liabilities or owners' equity
Accumulated Other Comprehensive Income (AOCI)
The grouped together and reported changes which companies experience increases and decreases in equity each year because of the movement of market prices or exchange rates
treasuri stock
The repurchased shares when a company buys back its own shares
paid-in capital
The value of the assets given in exchange for shares of stock.
current liability
Those obligations expected to be paid within one year, the most common being accounts payable.
proprietorship
a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business.
examples of current assets
accounts Receivable Cash Inventory
going concern assumption
allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments.
corporation
an independent legal entity owned by shareholders.
accounting equation
assets = liabilities + owner equity
The total amount invested to acquire an ownership interest in a corporation is called
common stock and preferred stock
Reporting the details of a transaction in the notes to the financial statements is called...
disclosure
This is sometimes done in place of recognition when the effects of an event cannot be quantified with any degree of certainty.
disclosure
long term liability
expected to be paid in longer than 12 months
long term asset
expected to have longer than 12 months
When a company purchases equipment on credit, the effect on the accounting equation will be to
increase Equipment and increase a liability
economic substance
is a doctrine in the tax law of the United States under which a transaction must have an economic purpose aside from reduction of tax liability in order to be considered valid.
classified balance sheet
is one that arranges the balance sheet accounts into a format that is useful for the readers
what is an example of a long term asset
land
owners equity
portion of the assets that the owners of the organization can really call their own
The process of formally recording an item in the accounting records so that it will be reflected in the financial statements is called
recognition
The process of valuation involves computing numbers that are both
relevant and reliable
Historical cost has long been used in accounting because it is
reliable
Owners of a corporation are referred to as
stock holders
liabilities
the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events