Understanding of a business increases as one associates the individual asset, liability, and equity accounts with the underlying business activities that
... [Show More] give rise to them. T/F
True
Assets and liabilities are generally classified as _______________ or _________ __________.
current or long term.
Current Asset
one that is expected to be used within one year of the balance sheet date.
Long term assets include
property, plant and equipment, investments in other companies, and bonds or notes receivable
Current Liabilities
liabilities due within a short time, usually within a year
long-term debt
a liability that falls due beyond one year from the date of the financial statements
Companies can issue what two kinds of stock?
common and preferred
Common stockholders are the true owners of a business. T/F
True
Preferred stockholders give up some of the rights of ownership enjoyed by common stockholders in exchange for some of the safety promised to creditors. T/F
True
Companies usually provide balance sheets for at least __________ years, with the statements shown in comparative, side-by-side format.
Two
The first item in a U.S. balance sheet is usually __________.
Cash
The first item in a NON-U.S. countries balance sheet is usually ________________________.
Long term assets
The order of presentation in a standard balance sheet is?
current assets, long-term assets, current liabilities, long-term liabilities, and stockholders' equity
What is the difference between current assets and liabilities called?
Working capital
Recognition
the process of condensing all estimates and judgments into one number and reporting that one number in the formal financial statements.
Disclosure
describing details in a narrative note.
____________________ is the preferred method of reporting financial information.
Recognition
Individual transactions impacting balance sheets can be analyzed by remembering that the accounting equation (_________=__________ + ___________) is always maintained.
Assets = Liabilities + Owners' Equity
Transaction analysis
the process of determining how an economic event impacts financial statements.
The discipline imposed by the mathematical necessity of maintaining the accounting equation helps to ensure that all dimensions of the impact of an event on financial statements have been considered. T/F
True
Transaction analysis is NOT a useful exercise in critically and systematically analyzing the impact of business events on a company's reported financial performance and position. T/F
False. Transaction is very useful
Asset Mix
The proportion of total assets in each asset category, is determined to a large degree by the industry in which the company operates.
Net Income
The amount by which revenues exceed expenses.
The primary categories of income statement items are
revenues, expenses, gains, and losses.
Income statement items that do not relate to a company's continuing operations are
income from discontinued operations and extraordinary items.
Individual transactions impacting income can be analyzed using the expanded accounting equation, which is:
Assets = Liabilities + Paid-in Capital + (Revenues - Expenses - Dividends)
An important use of an income statement is to
forecast income in future periods.
Good forecasting requires an understanding of
what underlying factors determine the level of a revenue or an expense.
Accrual accounting
the process that accountants use in adjusting raw transaction data into refined measures of a firm's economic performance.
One of the important economic contributions made by accountants is the collection of accrual accounting rules which, when applied to a company's raw cash flow data, _________________________________________________________.
result in a superior measure of that company's economic performance
What is income?
the increase in an individual's or a company's wealth during a period, or simply money earned
Gross Profit Equation
Net Sales - COGS = Gross Profit
Net Profit Equation
Gross Profit - Expenses = Net Profit
Gross Profit Margin
Gross profit/sales revenue x 100
Net income
the difference between the selling price of the product and the cost of the product.
Operating Income
measures the performance of the fundamental business operations conducted by a company and is computed as gross profit minus operating expenses.
A general rule of thumb is that all expenses are operating expenses except __________ ___________ and __________ _______ _____________.
interest expense and income tax expense.
Another name for operating income is?
EBIT (earnings before interest and taxes)
Operating Income Equation
Operating Income = Gross Profit - Operating Expenses
Profit generated by fundamental business operations is eaten up by? (also known as the "pie" available to be split among)
Lenders (interest)
Government (income taxes)
Owners (net income)
Income from continuing operations Equation
Income from Continuing Operations = Operating Income (EBIT) - Interest Expense +/- miscellaneous revenues, expenses, gains, and losses - Income Tax Expense
Income from continuing operations is
The economic profit generated by the part of the business that will continue in operation NEXT YEAR.
income from discontinued operations
a company elects to dispose of a major business segment, the results of the discontinued segment are reported separately, along with any gain or loss associated with the disposing of the segment.
extraordinary gains and losses
Also called extraordinary items, these gains and losses are both unusual for the company and infrequent.
Extraordinary Items
extraordinary items are defined as events or transactions that are unusual in nature and infrequent in occurrence
Income from continuing operations Equation
Net Income = =/- Income (loss) from Discontinued Operations + / - Extraordinary Gains (Losses)
What is the "bottom line"?
The economic profit generated by business operations this year.
Net Income
the accountant's attempt to summarize in one number the overall economic performance of a company for a given period.
Which of the following would be classified as a current asset?
Capital stock
Accounts receivable
Accounts payable
Land
Accounts receivable
Comprehensive Income
the number used to reflect an overall measure of the change in a company's wealth during the period.
Comprehensive income includes items that, in general, arise from changes in market conditions unrelated to the business operations of a company. The most common of these items are:
* Changes from translating financial statements of non-U.S. subsidiaries into U.S. dollars, caused by changes in foreign currency exchange rates
* Changes in the value of investment securities that are not held for active trading purposes
* Changes in the value of certain derivative instruments
The requirement to report comprehensive income was issued by the FASB in _______________________.
June 1997
Distributions by a corporation to its stockholders are called
Dividends
Which of the following types of accounts show evidence of acquired resources?
Owners' equity
Liabilities
Assets
Both liabilities and owners' equity
Both liabilities and owners' equity [Show Less]