View
- Term
- Definition
- Both Sides
Study
- All (50)
Shortcut Show
Next
Prev
Flip
ACC 221: CHAPTER 2
3 Primary Financial Statements
|
Balance sheet or statement of financial position
.
Income statement or statement of earnings
Statement of cash flows
|
Balance sheet or statement of financial position
|
– reports the company’s assets, liabilities and owners’
equity at a particular date: What is the companies’ financial status?
|
Income statement or statement of earnings
|
reports the amount of net income earned by a company
during a period of time: What are the operating results for the period?
|
Statement of cash flows
|
reports the amount of cash collected and paid out by a company in the following
types of activities: operating, investing, and financing. How did the company obtain and use cash?
|
Assets
|
are economic resources that are owned or controlled by a company
normal balance- is a debit
Common assets – cash, accounts receivable, inventory and buildings or equipment
|
Liabilities
|
are obligations to pay cash, transfer other assets, or provide service to someone else
Common liability accounts – accounts payable, taxes payable, mortgages payable, unearned revenue
|
accounting equation
|
Assets=
Liabilities+Owners’ Equity
|
Double entry accounting
|
a system of recording transactions in a way that maintains the equality of the accounting
equation. The debits and the credits always have to equal for each transaction
|
Classified balance sheet
|
B/S where assets and liabilities are subdivided into current and long-term
|
Current assets
|
cash and other assets that can easily be converted to cash within a year
|
Liquidity |
the ability of the company to pay its debts in the short term
|
Long term assets
|
assets that a company needs in order to operate its business over an extended period of time. (i.e.
buildings)
|
Current liabilities
|
liabilities expected to be paid within a year or the current operating cycle, whichever is longer
|
Long-term liabilities
|
liabilities that are not expected to be satisfied within a year (i.e. mortgage notes)
|
Comparative financial statements
|
F/S in which data for 2 or more years are shown together
|
Limitations of the balance sheet
|
– it does not reflect the current value or worth of a company. The values are reflected
at historical cost.
|
Market value
|
the value of a company as measured by the number of shares of stock outstanding multiplied by the
current market price of the stock: the current value of the business
|
Book value
|
the value of a company as measured by the amount of owner’s equity; assets less liabilities
|
Income Statement
|
report of a company’s performance for a particular period of time
|
Revenues
|
increase in a company’s assets from the sale of goods or services
|
Expenses |
costs incurred in the normal course of business to generate revenues
|
Net income (net loss)
|
an overall measure of the performance of a company; equal to revenues minus expenses for the period
|
Gross profit (gross margin
|
the excess of net sales revenue over the cost of goods sold
Sales – Cost of goods sold = Gross profit (gross margin)
|
Gains |
money made on activities outside the normal operations of a company (sell a building)
|
Losses |
money lost on activities outside the normal operations of a company
|
Earnings (loss) per share (EPS
|
the amount of net income (earnings) related to each share of stock: computed by
dividing net income by the number of shares of stock outstanding during the period
|
Statement of retained earning
|
a report that shows the changes in retained earnings during a period of time
|
Comprehensive income
|
a measure of the overall change in a company’s wealth during a period: consists of net income
plus changes in investment value and exchange rates.
|
Owners equity
|
capital stock + retained earnings
|
Retained earnings
|
the amount of business’s earnings that have been retained in the business ( equals beg retained
earnings plus net income minus dividends = accumulated retained earnings at year end)
|
Statement of Cash Flows
|
report of a company’s cash inflows and outflows categorized into operating, investing, and
financing activities
|
Operating activities
|
those activities that are part of the day-to-day business of the company
|
Investing activities
|
those activities associated with buying and selling long-term assets- primarily the purchase and sale
of land, buildings, and equipment
|
Financing activities
|
those activities whereby cash is obtained from or repaid to owners and creditors. Cash from
owner’s investment, cash from loans etc
|
Articulation
|
the interrelationships among the financial statements
|
Notes to the Financial Statements
|
explanatory information considered an integral part of the financial statements
|
4 general categories of notes
|
1. Summary of significant accounting policy
2. Additional information about the summary totals found in the F/S
3. Disclosure of important information that is not recognized in the F/S
4. Supplementary information required by the Financial Accounting Standards Board (FASB) or the Securities and
Exchange commission (SEC)
|
The External Audit
|
... |
Audit report
|
a report issued by an independent CPA to evaluate whether a company’s financial statements
fairly report its financial position, operating results, and cash flows in accordance with generally accepted
accounting principles (GAAP)
The audit report provides assurance that the financial statements are accurate.
The F/S are the responsibility of management
|
Fundamental Concepts and Assumptions
|
... |
Accounting mode
|
the basic accounting assumptions, concepts, principles, and procedures that determine the
manner of recording, measuring and reporting a company’s transactions
|
Entity
|
an organizational unit (a person, partnership, or corporation) for which accounting records are kept and
about which accounting reports are prepared.
|
Separate entity concept
|
the idea that the activities of an entity are to be separated from those of the
individual owner
|
Transaction
|
exchange of goods or services, between entities as well as other events having an economic
impact on a business
|
Arm’s length transaction
|
business dealings between independent and rational parties who are looking out for
their own interests.
|
Historical cost
|
the dollar amount originally exchanged in an arm’s length transaction: assumed to reflect the
fair market value of an item at the transaction date
|
Cost principle
|
the idea that transactions are recorded at their historical costs or exchange prices at the
transaction date
|
Monetary measurement
|
the idea that money is the accounting unit of measurement and that only economic
activities measurable in monetary terms are included in the accounting model
|
Going concern assumption
|
the idea that an accounting entity will have a continuing existence for the
foreseeable future
|
Assets
|
... |