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