financial resources chapter one
GAAP
The basic objectives of __________ are to present information that is useful to present and potential investors and creditors in making rational investment and lending decisions; to help in improving the performance of the business; and assist in the maintenance of records
balance sheet
The beginning and ending shareholders' equity figures shown in the statement of shareholders' equity should match the amounts shown on the _____________
finances
The downside is that public companies have to disclose a wide range of financial and other business information so that everyone from employees to customers to competitors can examine the firm's _________ as well as other aspects of its business. Moreover, meeting public reporting requirements is not cheap. The direct and indirect costs of being a public company can easily add up to millions of dollars each year.
15000
Out of the more than 5.8 million corporations in the United States, only about ________ are considered to be public companies according to data from Bloomberg LP. Worldwide, there are about 63,000 public corporations.
liability
The funds you have in a bank account is treated by the bank as a ________—yes, you're lending your bank money whenever you make a deposit—and deposits, in fact, are by far a bank's single largest ________ (same word)
corporation
the type of organization with the least amount but made the most money by far
fiscal period
transactions are recorded throughout the ________ (quarter or year)
true
true or false, sources must always equal uses?
false
true or false, the amounts shown on the income statement represent actual cash flows
false
true or false? once a company goes public they cannot go private
temporary
type of account closed to retained earnings at year end
permanent
type of account that carries forward to the next fiscal period; it represents the accounting equation
accrual accounting
type of accounting that recognizes revenues and expenses when they are incurred, not when cash actually changes hands
The Exchange Act of 1934
what act created the Securities and Exchange Commission and gave it broad regulatory authority over public companies and financial markets?
operating, investing, financing
what are the three areas of activity broken down in the statement of cash flows
New York Stock Exchange and Nasdaq stock market
what are the two major stock exchanges in the US
private and public
what are the two types of corporations
generally accepted accounting procedures
what does GAAP stand for
statement of cash flows
what financial statement attempts to reconcile balance sheet and income statement entries to actual cash flows
statement of cash flows
what financial statement is due to the use of accrual accounting
balance sheet
what report does the accounting equation represent
assets
what the firm owns
The Securities Act of 1933 and the Exchange Act of 1934
what two acts form the basis of public reporting requirements for US companies
residual claimants
whats another name for owners who get whatever is left over after creditors have been paid (equity= assets - liabilities)
owners death
when do proprietorships and partnerships dissolve?
debit
when you use your debit card, the transaction is recorded by the bank as a ________(decrease) to deposits
limited liability
where a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership. If a company with limited liability is sued, then the plaintiffs are suing the company, not its owners or investors. A shareholder in a limited company is not personally liable for any of the debts of the company, other than for the value of their investment in that company.
balance sheet
which of the four financial reports is permanent?
corporate revenues
while most corporations are relatively small, the vast majority of corporate revenues are generated by a handful of large companies
proprietorship
while the "typical" business is a ____________, larger businesses are almost always corporations
business transaction
Internal or external event that causes a change in a company's assets, liabilities, or stockholders' equity
annual report
10K
quarterly report
10Q
report of material events
8K
accrual accounting
Adjusting entries are required only if the business uses __________ which is used by the vast majority of businesses, including all public corporations. They are also recorded in the general ledger.
general ledger
Adjusting entries are required only if the business uses accrual accounting, which as we've discussed, is used by the vast majority of businesses, including all public corporations. They are also recorded in the ___________
permanent
Assets, liabilities, and equity are classified as _________ accounts, meaning that the balances are carried over from one fiscal period to the next.
income statement and balance sheet
Directly from the general ledger, accountants can prepare what two financial statements
statement of cash flows and statement of equity
From an analysis of the general ledger accounts, what two financial reports can you prepare
balance sheet
financial statement that represents what a firm owns (assets) and owes (liabilities) at the end of a fiscal period
cost of goods sold
for retailers, what is always the single largest expense?
temporary
Revenues and expenses, by contrast, are classified as __________ accounts. The difference between revenues and expenses is transferred to equity at the end of each fiscal period.
private
The Exchange Act gave the SEC the authority to draw up accounting rules for public companies: -early on, the SEC decided that rule making was a task best left up to the accounting profession -the Financial Accounting Standards Board (FASB) sets, reviews, and modifies GAAP under overall SEC supervision -most _________ corporations and not for profits also follow GAAP
Financial Accounting Standards Board (FASB)
The Exchange Act gave the SEC the authority to draw up accounting rules for public companies: -early on, the SEC decided that rule making was a task best left up to the accounting profession -the _______________ sets, reviews, and modifies GAAP under overall SEC supervision -most private corporations and not for profits also follow GAAP
SEC
The Exchange Act gave the ______ the authority to draw up accounting rules for public companies: -early on, the SEC decided that rule making was a task best left up to the accounting profession -the Financial Accounting Standards Board (FASB) sets, reviews, and modifies GAAP under overall SEC supervision -most private corporations and not for profits also follow GAAP
Exchange Act
The ___________ gave the SEC the authority to draw up accounting rules for public companies: -early on, the SEC decided that rule making was a task best left up to the accounting profession -the Financial Accounting Standards Board (FASB) sets, reviews, and modifies GAAP under overall SEC supervision -most private corporations and not for profits also follow GAAP
liquidity
how fast an asset can be turned to cash
increase
if the left side of the balance sheet increases, then the right side must ___________ by the exact same amount
initial public offering
When a private corporation becomes a public corporation, or "goes public" to use a popular term, that means that it sells stock for the first time publicly (this event is formally called an _______________) and it begins sharing on the public stock exchange
debit
_________ increases an asset or reduces a liability
adjusting entries
___________ are made at the end of the fiscal period recognizing 1. revenues earned but not yet received in cash 2. expenses incurred but not yet paid in cash
credit
___________ reduces an asset or increases a liability
adjusting entries
____________ are prepared at the end of each fiscal quarter and fiscal year and recognize revenues that have been earned, but not yet collected in cash, and expenses that have been incurred but not yet paid in cash.
positive
a _______ number on the statement of cash flows indicates a source of cash
negative
a ________ number on the statement of cash flows indicates a use of cash
public
a _________ corporation is one where anyone can become an owner by purchasing shares of stock, which trade on the stock markets—such as the New York Stock Exchange or the Nasdaq Stock Market
private
a ____________ corporation is the opposite, shares are only available to a select group and, consequently, do not trade on the stock exchanges. They could be bought and sold in private transactions, but again only by a select group.
matching princple
a basic of GAAP; expenses are to be matched, whenever possible, with revenues; expenses are to be recognized when they actually make a contribution to revene (another tenant of accrual accounting)
objectivity principle
a basic of GAAP; financial reports and statements should be based on objective evidence
historical cost principle
a basic of GAAP; most accounts are value at historical acquisition costs
revenue recognition principle
a basic of GAAP; revenue is recorded when it is realized (or realizable) and earned, not necessarily when cash is received; therefore, firms are to use accrual accounting rather than cash accounting
accounting entity assumption
a basic of GAAP; the business is separate from the owners or other businesses; business revenues and expenses should be kept separate from personal ones
going concern assumption
a basic of GAAP; the business operation will continue indefinitely
consistency principle
a basic of GAAP; the company should use the same accounting principles and methods from period to period; changes in accounting principles and methods should be reported and past results adjusted
materiality principle
a basic of GAAP; the significance of an item should be considered when it is reported
conservatism principle
a basic of GAAP; when choosing between allowable methods, the one that has the least favorable impact on net income and financial position should be selected
public company
a company whose ownership claims (shares of common stock) are publicly brought and sold on one of the stock exchanges
International Financial Reporting Standards
a process in place that may eventually replace (or merge) GAAP with __________________
capital
in order for a business to grow, they have to grow _________
footnotes
a series of ________ accompany financial statements which: -list the various accounting methods used by the firm as well as any changes in accounting methods used in the current fiscal period as compared to prior fiscal periods -explain how various numbers shown on the financial statements are calculated -provide additional details about specific accounts
accounting methods
a series of footnotes accompany financial statements which: -list the various __________ used by the firm as well as any changes in accounting methods used in the current fiscal period as compared to prior fiscal periods -explain how various numbers shown on the financial statements are calculated -provide additional details about specific accounts
calculated
a series of footnotes accompany financial statements which: -list the various accounting methods used by the firm as well as any changes in accounting methods used in the current fiscal period as compared to prior fiscal periods -explain how various numbers shown on the financial statements are _____________ -provide additional details about specific accounts
revenues
adjusting entries are made at the end of the fiscal period recognizing 1. ___________ earned but not yet received in cash 2. expenses incurred but not yet paid in cash
expenses
adjusting entries are made at the end of the fiscal period recognizing 1. revenues earned but not yet received in cash 2. ________ incurred but not yet paid in cash
balance sheet
assets are listed on the left side and claims to assets (liabilities and equity) are listed on the right side of what financial statement
permanent
assets, liabilities and equity are examples of what kind of accounts
market values
balance sheet values generally represent book or historical amounts, not necessarily current ____________
journal
business transactions are recorded in a ________ and posted to general ledger accounts
general ledger
business transactions are recorded in a journal and posted to __________ accounts
liabilities
claims against assets by creditors
equity
claims against assets by owners
reduce
do cash dividends reduce or increase shareholders' equity?
double entry bookkeeping
every transaction creates two entries, a debit and a credit. debits and credits must eventually equal on the balance sheet
statement of shareholders' equity
financial statement that details the change in shareholders' equity from the end of one fiscal period to the end of the next
income statement
financial statement that lists income and expenses over a fiscal period (quarter or year)
state
is incorporation on the state or federal level?
temporary
is the income statement temporary or permanent
temporary
is the statement of cash flows temporary or permanent?
revenues
on an income statement, are revenues or expenses listed first?
liquidity
on the balance sheet assets are listed in order of _________
due
on the balance sheet, claims are listed in order _____
decreases
on the statement of shareholders' equity: cash dividends ______ equity
increases
on the statement of shareholders' equity: net income _______ equity
sole proprietoriship
organization with one owner
partnership
organization with two plus owners
corporation
organization with varying numbers of owners called shareholders
public documents
public companies are required to report a wide range of financial and other information on a regular basis and these reports are __________, accessible to anyone
GAAP
public companies are required to use established accounting rules and standards when preparing financial reports that come from ________
SEC and individual company
reports today are filed electronically and are available on the __________________ company websites
investors
required reports by public companies are designed to ensure that _________ have sufficient information to make decisions regarding a firm's securities
proxy statement
required when soliciting votes from shareholders. at a minimum a firm will distribute one of these each year prior to the annual shareholder meeting
retained earnings
revenues, expenses, net income and dividends are closed to what account at the end of the year
temporary
revenues, expenses, net income, and dividends are examples of what kind of accounts
incorporating
some advantages of a partnership or proprietorship ______________: -owners have limited liability -corporations are "perpetual" in theory because ownership can be transferred more easily -can raise capital in their own names and thus have access to greater financial resources and can grow larger
limited liability
some advantages of a partnership or proprietorship incorporating: -owners have ________________ -corporations are "perpetual" in theory because ownership can be transferred more easily -can raise capital in their own names and thus have access to greater financial resources and can grow larger
ownership
some advantages of a partnership or proprietorship incorporating: -owners have limited liability -corporations are "perpetual" in theory because _______________ can be transferred more easily -can raise capital in their own names and thus have access to greater financial resources and can grow larger
capital
some advantages of a partnership or proprietorship incorporating: -owners have limited liability -corporations are "perpetual" in theory because ownership can be transferred more easily -can raise _____________ in their own names and thus have access to greater financial resources and can grow larger
financial resources
some advantages of a partnership or proprietorship incorporating: -owners have limited liability -corporations are "perpetual" in theory because ownership can be transferred more easily -can raise capital in their own names and thus have access to greater ___________________ and can grow larger
perpetual
some advantages of a partnership or proprietorship incorporating: -owners have limited liability -corporations are _____________ in theory because ownership can be transferred more easily -can raise capital in their own names and thus have access to greater financial resources and can grow larger
report of material events (8K)
some examples of required reports: 1. _____________________: a report detailing any material event affecting the company. examples include bankruptcy, completion of an acquisition, legal proceedings, and results of stockholder meetings 2. annual report (10K): contains detailed financial and operating results for the year 3. reports of ownership of securities (3): all company officers and directors must report on the number of shares in the company they own 4. proxy statement: required when soliciting votes from shareholders. at a minimum a firm will distribute one proxy statement each year prior to the annual shareholder meeting 5. quarterly report (10Q): financial and operating results for the quarter
annual report (10K)
some examples of required reports: 1. report of material events (8K): a report detailing any material event affecting the company. examples include bankruptcy, completion of an acquisition, legal proceedings, and results of stockholder meetings 2. ______________: contains detailed financial and operating results for the year 3. reports of ownership of securities (3): all company officers and directors must report on the number of shares in the company they own 4. proxy statement: required when soliciting votes from shareholders. at a minimum a firm will distribute one proxy statement each year prior to the annual shareholder meeting 5. quarterly report (10Q): financial and operating results for the quarter
reports of ownership of securities (3)
some examples of required reports: 1. report of material events (8K): a report detailing any material event affecting the company. examples include bankruptcy, completion of an acquisition, legal proceedings, and results of stockholder meetings 2. annual report (10K): contains detailed financial and operating results for the year 3. ______________: all company officers and directors must report on the number of shares in the company they own 4. proxy statement: required when soliciting votes from shareholders. at a minimum a firm will distribute one proxy statement each year prior to the annual shareholder meeting 5. quarterly report (10Q): financial and operating results for the quarter
proxy statement
some examples of required reports: 1. report of material events (8K): a report detailing any material event affecting the company. examples include bankruptcy, completion of an acquisition, legal proceedings, and results of stockholder meetings 2. annual report (10K): contains detailed financial and operating results for the year 3. reports of ownership of securities (3): all company officers and directors must report on the number of shares in the company they own 4. ________________: required when soliciting votes from shareholders. at a minimum a firm will distribute one proxy statement each year prior to the annual shareholder meeting 5. quarterly report (10Q): financial and operating results for the quarter
quarterly report (10Q)
some examples of required reports: 1. report of material events (8K): a report detailing any material event affecting the company. examples include bankruptcy, completion of an acquisition, legal proceedings, and results of stockholder meetings 2. annual report (10K): contains detailed financial and operating results for the year 3. reports of ownership of securities (3): all company officers and directors must report on the number of shares in the company they own 4. proxy statement: required when soliciting votes from shareholders. at a minimum a firm will distribute one proxy statement each year prior to the annual shareholder meeting 5. _______________: financial and operating results for the quarter
annual report (10K)
some of what's required in the _____________ -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
risk factors
some of what's required in the annual report (10K) -description of business including __________, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
legal proceedings
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, ______________ involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
common stock
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's _____________ -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
independent auditor
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's _________________ -information on directors and executive officers, including compensation
compensation
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including ________________
2 fiscal years
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last 5 fiscal years -management discussion and analysis of company's financial condition and its operations over the last _____________ -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
5 fiscal years
some of what's required in the annual report (10K) -description of business including risk factors, properties owned and used, legal proceedings involving the company -market for company's common stock -selected financial data for the last ___________ -management discussion and analysis of company's financial condition and its operations over the last 2 fiscal years -audited financial statements and supplementary data including a statement from the company's independent auditor -information on directors and executive officers, including compensation
right
the _______ side of the balance sheet represents claims against the assets of a business or source of funds
left
the _______ side of the balance sheet represents what the firm owns (assets) or use of funds
accounting cycle
the ___________ consists of three steps: 1. recording transactions 2. recording adjusting entries 3. preparing financial statements
transactions
the accounting cycle consists of three steps: 1. recording _____________ 2. recording adjusting entries 3. preparing financial statements
adjusting entries
the accounting cycle consists of three steps: 1. recording transactions 2. recording ______________ 3. preparing financial statements
financial statements
the accounting cycle consists of three steps: 1. recording transactions 2. recording adjusting entries 3. preparing _________________
assets=liabilities + owners equity
the accounting equation (identity)
true
the balance sheet always has to balance, no matter what. true or false
change in cash
the cash flows from operating, investing, and financing activities are added up to equal the _________ from the end of one fiscal period to the end of the next