ACC 201 UKY Pearson - Exam 1

earnings per share equation

Net Income - Preferred Dividends / weighted-avg. common shares outstanding

understandability

presented in a clear and concise fashion

Statements of cash flows

provides financial information about the cash receipts and cash payments of a business for a specific period of time

Income Statement

reports a company's revenues and expenses and resulting net income or loss for a period of time

Balance Sheet

reports assets and claims to assets at a specific point in time

full disclosure principle

requires that companies disclose all circumstances and events that would make a difference to financial statement users

monetary unit assumption

requires that only those things that can be expressed in money are included in the accounting records

Assests

resources owned by a business

Credit

right side of an account

generally accepted accounting principles (GAAP)

set of rules and practices as a guide for financial reporting

Retained Earnings Statement

shows the amounts and causes of changes in retained earnings for a specific time period

Benefits of Sole Proprietorship

simple to establish owner controlled tax advantages

Benefits to a Partnership

simple to establish shared control tax advantages broader skills and resources

Economic Entity Assumption

states that every economic entity can be separately identified and accounted for

Going Concern Assumption

states that the business will remain in operation for the foreseeable future

Periodicity Assumption

states that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

accounting information system

system of collecting and processing transaction data and communicating financial information to decision-makers

Securities and Exchange Commission (SEC)

the agency of the U.S. government that oversees U.S. financial markets and accounting standard setting bodies

Expenses

the cost of assets consumed or services used in the process of generating revenues

Revenue

the increase in assets or decrease in liabilities from the sale of goods or the performance of services

Financial Accounting Standards Board (FASB)

the primary accounting standard-setting body in the United States

analyzing transactions

the process of identifying the specific effects of economic events on the accounting equation

Relevance

will it make a difference in the business decision, predictive, confirmatory

working capital equation

working capital = current assets - current liabilities

Examples of current liabilities

accounts payable, salaries and wages payables, notes payable, interest payable, and income taxes payable

Liabilities

amounts owed to creditors (in form of debt or other obligations)

Current Assets

assets that a company expects to convert to cash or use up within one year or its operating cycle, whichever is longer

Property, plant and equipment

assets with relatively long useful lives that are currently used in operating the business

Assets in a Classified Balance sheet

current assets, long-term investments, ppe, intangible assets

Liabilities in a classified balance sheet

current liabilities, long-term liabilities and stockholder's equity

current ratio equation

current ratio = current assets / current liabilities

debt to assets ratio equation

debt to assets ratio = total liabilities / total assets

Common Stock

describes the total amount paid in by stockholder's for the shares they purchase

Historical Cost principle

dictates that companies record assets as their cost (land, buildings)

Intangible Assets

do not have physical substances and yet are very valuable. Patents, copyrights and trademarks

Benefits to a Corporation

easier to transfer ownership easier to raise funds no personal liability

accounting transactions

economic events that require recording in the financial statements

Current Liabilities

obligations that the company is to pay within the next year or operating cycle, whichever is longer

verfiable

if independent observers, using the same methods, obtain similar results

Fair Value principle

indicates that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability)

Faithful Representation

information accurately depicts what really happened

IFRS

international financial reporting standards

Long-term investments and their order of liquidity

investments in stocks and bonds, long term assets such as land or buildings, long term notes receivable

cost constraint

it weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

PPE and their order of liquidity

land, buildings, equipment, delivery vehicles and furniture

Debit

left side of an account

Long-Term Liabilities

obligations that a company expects to pay after one year

Sole Proprietorship

A business owned by one person

Corporation

A business owned by stockholders

Partnership

A business owned by two or more persons

Basic Accounting Equation

Assets = Liabilities + Stockholder's Equity

How do you calculate retained earnings?

Beginning Retained Earnings Add: Net Income Less: Dividends Total: Retained earnings at end of period

IASB

International Accounting Standards Board

External Users

Investors (people who buy, sell and share stock) and Creditors (banks)

What is the order of what will go on a statement of cash flows

Operating Activities, Investing Activities, financing activities

PPE formula

PPE - Accumulated Depreciation

How do you get the Net Income/ Loss

Revenues - Expenses

consistency

a company uses the same accounting principles and methods from year to year

examples of long term liabilities

bonds payable, mortgages payable, long-term notes payable, lease liabilities, pension liabilities

Dividends

cash payments to stockholders

Assets of a balance sheet

cash, accounts receivable, supplies, prepaid insurance, equipment

What are current assets and their order of liquidity

cash, investments, receivables, inventories and prepaid expenses

Stockholder's Equity of a balance sheet

common stock, retained earnings

Enhancing Quality

comparability, verifiability, timeliness, understandability, consistency

Stock Holder's Equity on a Classified Balance sheet

consists of common stock and retained earnings

Ratio Analysis

expresses the relationship among selected items of financial statement data

statement of cash flows

free cash flow = net cash provided by operating activities - capital expenditures - cash dividends

Classifies Balance Sheet

groups together similar assets and similar liabilities, using a number of standard classifications and sections

Internal Users

managers, finance directors, company officers (HR), marketing managers

Liquidity ratio

measure short term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

Solvency Ratios

measure the ability of the company to survive over a long period of time

Profitability Ratios

measure the income or operating success of a company for a given period of time

earnings per share

measures the net income earned on each share of common stock

timely

must be available to decision makers before it loses its capacity to influence decisions

Retained Earnings

net income retained in the corporation

Liabilities of a balance sheet

notes payables, accounts payable, unearned service revenue, salaries and wages payable, interest payable

comparability

when different companies use the same accounting principles