Accounting I - Chapter 2
Neutral
accounting information that is not biased toward one position or another
Generally accepted accounting principles
are accounting rules that are recognized as a general guide for financial reporting.
Confirmatory value
confirms or corrects prior decisions
In a classified balance sheet, assets are usually classified as
current assets; long-term investments; property, plant, and equipment; and intangible assets.
Liabilities are generally classified on a balance sheet as
current liabilities and long-term liabilities.
Earnings per Share =
(net income - preferred dividends) / average common shares outstanding
On a classified balance sheet, short-term investments are classified as
A current asset
Full Disclosure Principle
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
Property, plant, and equipment
Accumulated depreciation-equipment
The convention of consistency refers to consistent use of accounting principles
Among accounting periods
Monetary Unit Assumption
Assumes that the dollar is the "measuring stick" used to report on financial performance.
Current Ratio =
Current Assets ÷ Current Liabilities
Which of the following would not be classified as a long-term liability?
Current maturities of long-term debt
Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?
Faithful representation
Which accounting assumption assumes that an enterprise will continue in operation long enough to carry out its existing objectives and commitments?
Going concern assumption
Economic Entity Assumption
Indicates that personal and business record keeping should be separately maintained.
Current assets
Inventory Prepaid insurance
Investments
Land (held for investment)
Historical Cost Principle
Measurement basis used when a reliable estimate of fair value is not available.
The assumption that requires only those things that can be expressed in money are included in the accounting records is the
Monetary unit assumption
Long-term liabilities
Mortgage payable
Going Concern Assumption
Rationale why plant assets are not reported at liquidation value. (do not use historical cost principle):
Stockholders' equity
Retained earnings
Current liabilities
Salaries and wages payable
Periodicity Assumption
Separates financial information into time periods for reporting purposes.
Information presented in a clear and concise fashion so that users can comprehend its meaning is an application of
Understandability
Classify each of the following financial statement items taken from Ming Corporation's balance sheet.
a) Accounts payable - current liabilities (b) Accounts receivable - current assets (c) Accumulated depreciation—equipment -property, plant, equipment (d) Buildings - property, plant, equipment (e) Cash - current assets (f) Interest payable - current liabilities (g) Goodwill - intangible assets (h) Income taxes payable - current laibilities (i) Inventory - current assets (j) Stock investments (to be sold in 7 months) - current assets (k) Land (in use) - property, plant, equipment (l) Mortgage payable - long term liabilities (m) Supplies - current assets (n) Equipment - property, plant, equipment (o) Prepaid rent - current assets
Verifiable
independent observers obtain similar results
Free Cash Flow =
net cash through operations - capital expenditures - cash dividends
Interest expense
not on balance sheet
Intangible assets
patents
Equipment is classified on the balance sheet as
property, plant, and equipment
Faithful representation
provide information before it loses its capacity to influence decisions
Relevant
providing information that would make a difference in a business decision
Debt to Assets Ratio =
total liabilities/total assets