Chapter 4

current liabilities

accounts payable, taxes payable, deferred revenue, salaries payable, interest payable, estimated liabilities for warranties, short-term debt and the current portion of long-term debt

For related-party transactions, a company must disclose:

-A description of the transactions. -The dollar amount of the transactions. -Any amounts due to or from the related parties on the balance sheet date.

What are the two most common components of shareholders' equity?

Contributed capital and earned capital.

Investments by owners and distributions to owners are reported

In the statement of shareholders' equity

The Noncontrolling Interests account

Is the amount of equity capital attributable to minority investors.

Liability

Probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide services in the future to other entities as a result of past transactions or events.

Accumulated other comprehensive income

cumulative amount of other comprehensive income (or loss) items

Deferred revenue

current liability

intangible assets

Patents, Copyrights, Franchises, Licenses, Computer software , Trademarks, and Goodwill

To accrue a loss contingency it must be:

Probable and reasonably estimated.

Asset

Probable future economic benefits obtained or controlled by a company as a result of past transactions or events.

Treasury stock

capital stock of a corporation that has been issued but reacquired by the corporation

Examples of resources that are not assets

employees & unfilled purchase orders

Land reported in the property, plant, and equipment section of a manufacturing company's balance sheet is reported at:

historical cost

Which of the following best describes the term "Recognition"?"

Recognition is the process of formally recording and reporting an element in the financial statements.

How to recognize an asset?

1. Identify the elements 2. Measure (value) the elements 3. Report (classify) the elements

Three characteristics of an asset

1. Probable future economic benefit 2. Control 3. Acquisition

In order to be considered a liability,

1. The company must be bound by a legal, equitable, or constructive responsibility to transfer assets or provide services. 2. The transaction, event, or arrangement obligating the company must have occurred. 3. It must involve a responsibility that will be settled by a sacrifice (such as involving the transfer of assets).

How does the balance sheet at the end of an accounting period relate to the other three financial statements?

1. The elements of the income statement—revenues, expenses, gains and losses, and net income—are measured in terms of changes in assets and liabilities. 2. The statement of cash flows explains changes in financial position in terms of cash inflows and outflows during the period. 3.The statement of shareholders' equity reports owners' claims on the company and how those claims changed during the period.

Three characteristics of a liability

1. Transfer 2. Obligation 3. Incurred

balance sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

When is a company required to disclose in its annual report a description of all its significant accounting policies?

Always

The major sections of a company's balance sheet are:

Assets, liabilities, and shareholders' equity.

Assets may be measured or valued at

Current replacement cost. Net realizable value. Adjusted historical cost. Adjusted present value.

What kinds of subsequent events are disclosed by an adjustment to the company's financial statements?

Those significant business events and transactions which provide additional evidence about conditions that existed on the balance sheet date and significantly affect the estimates the company used in its financial statements.

Accumulated other comprehensive income

a shareholders' equity item

Long-term liabilities

pensions, leases, and deferred taxes

Common stock

shares of stock that a corporation is authorized to issue as evidence of ownership in that corporation

Natural resources

tangible assets

Additional paid-in capital

the amount paid to the corporation by shareholders in excess of the par value of the stock issued

recognition

the process of formally recording and reporting an element in the financial statements

The owners of a company have a claim on

the residual interest in the assets of a company after deducting its liabilities.

The purpose of a company's balance sheet is to report

the resources of a firm (assets) and the claims on the firm (liabilities and shareholders' equity) as of a specific date, usually the last day of the fiscal quarter or the fiscal year.

Retained earnings

the total amount of corporate net income that has not been distributed to shareholders as dividends