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ACCT 311 Financial reporting Exam 1 study set 5
Terms in this set (44)
What is the balance sheet equation?
Assets = liabilities + shareholders equity
Probable future economic benefits obtained or
controlled by a particular entity as a result of past
transactions or events.
Probable future sacrifices of economic
benefits arising from present obligations of a particular
entity to transfer assets or provide services to other entities
as a result of past transactions or events.
The residual interest in the assets
of an entity that remains after deducting liabilities.
What are the 5 major subdivisions of assets on the balance sheet?
1. Current Assets
2. Long-term Investments
3. Property, plant, and equipment
4. Intangible assets
5. Other assets
What are the 2 major subdivisions of Liabilities on the balance sheet?
1. Current Liabilities
2. Long term debt
What are the 3 major subdivisions of Owners' equity on the balance sheet?
1. Capital Stock
2. Additional paid in capital
3. Retained Earnings
Short-term highly liquid investments that mature within three months or less
Is restricted cash a current asset?
What is the correct order to present current assets?
Cash, accounts receivables, inventories, prepaid items
How are inventories valued?
Should inventories include merchandise on consignment?
list 4 long-term investments
1. Securities (bonds, common stock, or long term notes)
2. Tangible fixed assets not currently used in operations
3. Special funds (sinking fund, pension fund)
4. Non-consolidated subsidiaries
used in operations of the business but have no physical substance
Obligations expected to be satisfied through current assets or creation of other current liabilities within one year or the operating cycle, whichever is longer.
list the 5 current liabilities accounts
1. Accounts payable
2. Notes payable
3. Accrued Liabilities
4. Unearned revenues
5. Current Maturities of long term debt
Obligations that will not be satisfied within one year or operating cycle whichever is longer
List the 5 long term liabilities
1. Long-term Notes
3. Long-term bonds
4. Pension Obligations
5. Lease obligations
What 3 accounts does shareholders equity consist of?
1. Capital stock
2. Retained earning
3. Accumulated other Comprehensive income
What are the 2 forms of classified balance sheet formats?
Account form and report form
What makes a balance sheet useful?
describes resources the company has for generating future cash flows, provides liquidity information useful in assessing a company's ability to pay it's current liabilities, provides long term solvency information relating to the riskiness of a company with regard to the amount of liabilities in it's capital structure
What are limitations of a balanced sheet?
Does not portray the market value of the entity, contains many estimates, certain assets and liabilities are not shown on the balance sheet
current ratio formula
current ratio = current assets / current liabilities
measures a company's ability to satisfy its short-term liabilities
Acid-test ratio formula
acid-test ratio = quick assets / current liabilities
provides a more stringent indication of a company's ability to pay its current liabilities
debt to equity ratio formula
Debt to equity ratio = Total liabilities / Shareholders equity
indicates the extent of reliance on creditors, rather than owners, in providing resources
debt to asset ratio
Times interest earned ratio formula
times interest earned ratio = (Net income+Interest expense+ taxes) / Interest expense
Indicates the margin of safety provided to creditors
times interest earned ratio
Conveys valuable information about the company's choices from among various alternative accounting methods.
Summary of Significant Accounting Policies
A significant development that takes place after the company's fiscal year-end but before the financial statements are issued.
Transactions or events that are potentially important to evaluating a company's financial statements, e.g., related parties, errors and irregularities, and illegal acts.
Noteworthy Events and Transactions
Provides a biased but informed perspective of a company's operations, liquidity, and capital resources.
Management Discussion and Analysis
What are manager's responsibilities?
Preparing the financial statements and other information in the annual report, and Maintaining and assessing company's internal control procedures
Expresses the auditors' opinion as to the fairness of presentation of the financial statements in conformity with generally accepted accounting principles.
list the 4 types of auditor's opinions
Issued when the financial statements present fairly the financial position, results of operations, and cash flows are in conformity with GAAP
Issued when there is an exception that is not of sufficient seriousness to invalidate the financial statements as a whole.
Issued when the exceptions are so serious that a qualified opinion is not justified.
Issued when insufficient information has been gathered to express an opinion.
Reporting accounts receivable at net realizable
value is a departure from the accounting principle of...
Which of the following accounts is a contra
Accumulated depreciation, Equipment.
Depreciation expense, Office equipment.
Accumulated depreciation, Equipment
In analyzing an entity's annual financial report,
which financial statement would an analyst primarily
use to assess the entity's liquidity?
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