Term
| What does the "Earnings Statement" report? |
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Definition
| The revenues and expenses for a specific period |
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Term
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Definition
| Money collected or to be collected from customers for services/goods that have been provided |
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Term
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Definition
| Money paid or to be paid to vendors for resources that go into production and marketing of goods/services |
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Term
| What is the Earning's equation? |
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Definition
Earnings = Revenue - Expenses |
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Term
| What makes a Corporation public? |
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Definition
- Trading shares on a public stock exchange (market) - An investor can earn profit when a share's value increases on the market |
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Term
| What can an Analyst impact? |
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Definition
| Their recommendation can influence investors decision, and in turn, stock prices can be affected |
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Term
| What are two ways to generate capital? |
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Definition
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Term
| What are "Financing Activities"? |
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Definition
| Directed at raising funds (capital) for the firm |
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Term
| What are "Investing Activities"? |
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Definition
They consist of the purchase of property & equipment to enable the firm to conduct business |
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Term
| What are "Operating Activities"? |
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Definition
| They include anything a firm has to do to make and sell it's goods/services |
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Term
| What is another word for Transactions? |
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Definition
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Term
| Who are regulators of financial reporting? |
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Definition
Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB) Congress |
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Term
| What are three reports that public firms musts submit? |
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Definition
| An annual report (10k), a quarterly report (10Q), and announce significant events (10k) |
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Term
| What are four parts of the conceptual framework of reporting? |
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Definition
| Relevance, Reliability, Materiality, and Conservatism |
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Term
Why are audits necessary? |
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Definition
Managers have an incentive to use flexible accounting methods to manip the statements |
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Term
| What are the three forms of business? |
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Definition
Sole Proprietorships- single owner Partnership- multiple owners Corporations |
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Term
| What are the PROs of a proprietorship? |
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Definition
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Term
| What are the CONS of a proprietorship? |
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Definition
Unlimited Liability Ownership transfer difficult No sharing of risk Limited access to add. ownership funds |
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Term
| What are the PROs of a Partnership? |
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Definition
Income taxed once Some sharing of risk Some access to add. ownership funds |
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Term
| What are the CONs of a Partnership? |
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Definition
Unlimited liability Ownership transfer difficult |
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Term
| What are the PROs of a Corporation? |
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Definition
Limited Liability Ease of transfer of ownership Relatively easy access to add. ownership funds |
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Term
| What are the CONs of a corporation? |
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Definition
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Term
| What are the 4 main Financial Reports? |
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Definition
Statement of Financial Position (Balance Sheet) Statement of Earnings (Income Statement) Statement of Cash Flows Statement of Changes in Stockholder's Equity |
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Term
| What is the Accounting Equation? |
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Definition
| Assets = Liabilities + Stockholder's Equity |
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Term
| When is the balance sheet required by the SEC? |
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Definition
the end of the fiscal year |
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Term
| Can all a company's assets be placed on the balance sheet? |
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Definition
No, not all assets are tangible (Slogans, Brand names) |
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Term
| What does the Statement of Earnings (Income Statement) show? |
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Definition
| Revenues - Expenses = Net Income/Loss |
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Term
What is the breakdown of Expenses? |
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Definition
| Cost of Goods Sold, Operating Expenses, Financing Expenses |
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Term
| What does the Accrual concept state? |
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Definition
| Revenues are recorded as earned, not when cash is received & Expenses are recorded as incurred, not when cash is paid |
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Term
| What does the Statement of Cash Flows describe? |
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Definition
| Changes in the cash account based on Operating activities, Investing activities, and Financing activities |
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Term
| What is the Direct Method for the Cash Flows statement? |
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Definition
Shows operating section from a cash in and cash out perspective |
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Term
| What is the Indirect Method for Cash Flows statement? |
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Definition
Reconciles net income (from the accrual concept perspective) to cash flow |
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Term
What is the order that the financial statements should be prepared in? |
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Definition
1. Earnings Statement (Income Statement) 2. The Statement of Changes in Stockholder's Equity 3. The Balance Sheet 4. The Statement of Cash Flows |
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Term
| What is another word for Balance Sheet accounts? |
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Definition
| Permanent accounts, the cycle never ends. |
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Term
What system is used to keep the accounting equation balanced? |
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Definition
| The double entry system; for every debit there must be at least one credit |
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Term
| Pubicly traded companies are required by GAAP to use _______ accounting to report earnings. |
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Definition
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Term
| When does Accrual accounting recognize economic events? |
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Definition
| In the period in which they occur |
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Term
| When does cash basis accounting recognize economic events? |
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Definition
| When cash has been exchanged |
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Term
| What is Revenue Recognition? |
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Definition
| Explains when revenue should be reported on the income statement |
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Term
| When does GAAP require revenue to be recognized? |
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Definition
| when revenue is realized (exchanged of goods or services has taken place, seller has right to receive cash) and revenue is earned (goods or services have been delivered, and obligations are complete) |
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Term
| What are the 5 points of revenue recognition? |
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Definition
1. Point of Delivery 2. Service is provided 3. Based on contractual agreements 4. At time of production 5. As cash is collected |
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Term
| What is the installment menthod in revenue recognition? |
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Definition
| Recognizes gross profits in proportion to cash payments received |
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Term
| What is the Cost Recovery Method in revenue recognition? |
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Definition
| Defers gross profit recognition until enough cash is collected to recover the costs; used when there is more uncertainty |
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Term
| What is the Matching Concept in Expense recognition? |
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Definition
| Expenses must be recognized in the same period as their corresponding revenues |
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Term
| What are Deferred Expenses? |
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Definition
| Costs that are capitalized (put on the balance sheet as an asset instead of an expense |
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Term
| What is the Direct Method for Cash Flows? |
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Definition
reports Cash from revenue producing activities Less: Cash payments for expenses |
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Term
| What is the Indirect Method for Cash Flows? |
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Definition
| derives the operating cash by taking net income and making reversal adjustments |
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Term
| Are both Direct/Indirect Methods allowed in reporting Cash Flows? |
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Definition
| Yes, but if a firm uses the direct method, they must also show the indirect approach |
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Term
| What method of Cash Flows is used more frequently? |
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Definition
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Term
| What do Cash Flow from Investing Activities do? |
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Definition
| They show how a company uses cash to generate future earnings |
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Term
| What does Cash Flow from Financing Activities do? |
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Definition
| It shows the cash interchanges between owners and creditors |
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Term
| What does Inter-temporal analysis do? |
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Definition
| Identifies trends and highlights areas for concern |
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Term
| What does Cross-sectional analysis involve? |
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Definition
| comparing the subject to its competitors |
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Term
| What are the problems with cross-sectional analysis? |
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Definition
| Sizes of companies may vary, Accounting policies may vary from company to company |
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Term
| What are financial ratios used for? |
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Definition
To evaluate past performance Adjusts the size differences between companies |
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Term
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Definition
ROE = Net Income Average Stockholder's Equity |
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Term
Ratio Rate of Return on Assets |
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Definition
ROA = Net Income x Sales Sales Average Assets |
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Term
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Definition
ROC = NI + Interest Expense X (1-tax rate) Average debt + Average Equity |
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Term
| What is the purpose of Turnover Ratios? |
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Definition
| Shows the company's ability to use assets to generate sales and collect cash from sales |
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Term
Ratio Receivables Turnover |
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Definition
RT = Sales Average Receivables |
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Term
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Definition
IT = Cost of Goods Sold Average Inventories |
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Term
| What is the purpose of Days Turnover Ratios? |
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Definition
| To see the number of days a firm holds the asset |
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Term
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Definition
DR = 365 Receivables Turnover |
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Term
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Definition
DI = 365 Inventory Turnover |
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Term
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Definition
PT = COGS Average Payables |
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Term
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Definition
DP = 365 Payables Turnover |
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Term
Ratio Working Capital Turnover |
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Definition
WCT = Sales Average Current Assets |
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Term
Ratio Capital Assets Turnover |
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Definition
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Term
|
Definition
CR = Current Assets Current Liabilities |
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Term
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Definition
QR = Cash, Marketable Securities, and Receivables Current Liabilities |
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Term
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Definition
CR = Cash and Cash Equivalents Current Liabilities |
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Term
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Definition
DER = ST Debt + LT Debt Stockholder's Equity |
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Term
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Definition
| the value of a dollar today vs. the value of a dollar in the future |
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Term
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Definition
Future Value = C x FVnr n = years, r = discount rate |
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Term
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Definition
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Term
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Definition
the amount the firm expects to collect of its receivables |
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Term
What do Uncollectible accounts, Doubtful accounts, and Bad debts all have in common? |
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Definition
Firm expects it will not collect because customers can not pay |
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Term
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Definition
| the amounts a firm will not collect because of returned goods |
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Term
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Definition
| discounts given to customers which reduce receivables collected |
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Term
| What are the two methods to recognize that receivables will not be collected? |
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Definition
Direct Write-Off Method Allowance Method |
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Term
| What is the Direct Write-Off Method? |
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Definition
Not allowed by GAAP Used to tax purposes |
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Term
| What is the Allowance Method? |
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Definition
Required by GAAP Use of contra-asset account |
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Term
| What two methods are used to estimate the amount for dodubtful accounts? |
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Definition
| The percentage of sales method and the aging of receivables method |
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Term
| What does the Percentage of Sales Method do? |
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Definition
| It looks at past trends in collection and estimates a percentage based on credit sales |
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Term
| What is the Aging of Receivables Method? |
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Definition
It classifies accounts into how long the balance has been outstanding andd then estimates a percentage how much will be collected |
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Term
| What financial statement are Inventories on? |
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Definition
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Term
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Definition
| Goods that firms make or buy to sell to customers |
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Term
| What are the two methods for recording inventory? |
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Definition
| Periodic method & Perpetual method |
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Term
| What is the periodic method of recording inventory? |
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Definition
| When inventory levels are checked "periodically" to determine what was sold and what remains |
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Term
What is the perpetual method of recording inventory? |
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Definition
| Everytime an item is purchased or sold, the accounting records are updated |
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Term
What are the four methods for Cost Flow? |
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Definition
1. First-In, First-Out 2. Last-In, Last-Out 3. Weighted Average 4. Specific Identification |
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Term
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Definition
| The first products purchased/manufactured are the first products sold |
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Term
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Definition
| The inventory purchased last is the first items sold |
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Term
| What are Capital Expenditures? |
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Definition
| Outlays for long-lived assets that are placed on the balance sheet |
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Term
| What is depreciation/amortization? |
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Definition
| an estimate for the use of the capital asset in a period |
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Term
What are the two most common Depreciation Methods? |
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Definition
Straight-Line Double Declining Balance |
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Term
| Straight Line Method of Depreciation |
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Definition
| Allocates expense evenly over the life of the asset |
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Term
| Double Declining Balance Method of Depreciation |
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Definition
| Takes more depreciation expense in the early years of the asset (2 times SL) |
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Term
| Which method of depreciation do firms reporting for financial purposes use and why? |
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Definition
| Straight Line, because it is consistent and has less of an effect on income |
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Term
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Definition
| Liabilities are due within a year |
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Term
|
Definition
| Long term dedbts and obligations due in more than one year |
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Term
| How are revenues first recorded as "cash up front" |
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Definition
| 1st it is recorded as a liability because we now owe the person what we promised to give. |
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Term
| What is the purpose of a debt covenant? |
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Definition
It's an agreement between a firm and a bank, which basically limits the investments and funding that they can do, so that they don't spend money as opportunistically. |
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Term
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Definition
| Current Assets - Current Liabilities |
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Term
| Describe the statement of cash flows |
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Definition
| A statement that describes the inflows of cash from sales of goods and services to cutsomers, and outflows of cash from expenses related to the sales of goods and services to customers such as COGS and selling and administrative expenses during a specified period of time. They come from operating, financing, and investing activities of an entity. |
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Term
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Definition
|
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Term
| Decrease in a Liability... |
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Definition
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Term
|
Definition
|
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Term
|
Definition
|
|
Term
| Increase in a liability... |
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Definition
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Term
|
Definition
|
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Term
|
Definition
|
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Term
|
Definition
| A set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. It serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. After major bankruptcies and problems such as Enron, Sarbanes-Oxley Act of 2002 was put into place to aid in this. |
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Term
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Definition
|
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Term
|
Definition
|
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Term
|
Definition
| When the risks and rewardsd of ownership remain with the lessor, the asset is not sold, and the property remains on the lessor's books. |
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Term
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Definition
| When the risks and rewards of ownership are transferred from the lessor to the lessee, the lessor will account for the lease as either a direct financing of sales type lease, and the lessee will account for the lease as a capital lease. |
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Term
| Leases are on what financial statement? |
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Definition
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Term
| What are the two main ways to open a business? |
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Definition
Selling stock to investors, buying into the company (Equity) or going to the bank and getting a loan (Debt) |
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Term
| In what ways can company's use excess cash? |
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Definition
1. Pay down debt 2. Invest in new projects 3. Acquire another company 4. Pay dividends to shareholders 5. Buy back shares (treasury stock) 6. Leave money in the bank |
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