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62 Cards in this Set
- Front
- Back
Income Statement
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Revenue - Expenses
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Retained Earning
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Retained Earning + Net Income - Dividends
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Debit
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On the left
For positive asset and positive expenses For negative earning, PIC, and liability |
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Credit
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On the right
For positive equity and liability For negative asset and expenses |
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Trial Balance
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Credit & Debit with balances from all ledgers
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Ledger
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Book that records all tranasaction
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Closing Entries
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Use T Ledger Account!
C1. revenue to income summary C2. Expenses to income summary C3. Income summary to Retained Earnings (Retained Earnings subtract dividends) |
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Net Book Value
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Cost - Accumulated Depreciation = book value
At the end of useful life, book value = residual value (you need to adjust for DDB) |
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Residual Value
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The residual value of equipment after total accumulated depreciation
Salvage value |
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Sales of Equipment
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Other Income
NOT revenue or expenses |
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Impairment
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GAAP:
1) recoverability test future net cash flow + disposal value vs. Current carrying value 2) $ of impairment (Net book value - fair value) IFRS: recoverable $ is higher of.... a) Fair Value -Cost to sell b) Value in use (present value of the expected future net cash flows) |
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Intangible Asset
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TM, (C), Patent
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Tangible Asset
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equipment, parts, inventory
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Good Will
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Pay more than fair value for company
Under noncurrent assets |
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Fair Value of Assets
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Assets - Liabilities
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Working Capital
Net Working Capital Net Current Assets |
= current assets - current liabilities
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Current Ratio
Working Capital Ratio |
Current Assets/ Current Liabilities
Assesses the liquidity |
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Quick Ratio/ Acid Ratio Test
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Quick Ratio = (Current Assets - Inventory) / Current Liabilities
A conservative look at liquidity, since inventory is questionably liquid in a short amount of time (quick!) |
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Multistep vs Singlestep Income Statement
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Multistep:
Gross profit, operating expenses, operating income, other revenue and expenses, income before tax, tax |
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Gross Profit
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Sales- Cost of Goods Sold
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Operating Income
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Gross Profit - Operating Expenses
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Reserves and Treasury Stocks
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You subtract from Equity, since Stockholders don't control them. They are owned by the company
Buying or selling treasury stock never results in recognizing gains or losses on the income statement. Treasury stock transactions are changes in a corporation's capitalization, not part of its profit generation activities. |
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Rights of common shareholder
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Premeptive rights: acquire proportional amount of new issues of capital stock
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Contrast Bonds
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Bonds you earn "interest" rather than dividends
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Preferred Stock
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Rights to dividends
dividend rate * stock's par value preferred claim on assets in liquidation Preferred stock dividends are cumulative. liquidation: all cumulative unpaid dvidends must be paid dividends in arrears must be disclosed |
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Restricted Stock Plans
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?
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Debentures
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Debt/Liability
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Dividends Arrearages (in arrears)
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Cumulative dividends from years dividends were unpaid.
Companies must pay dividends in arrears first before giving out dividends to common stock owners Like a debt to preferred stock owners |
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Stock Splits
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Distribution of additional shares, without changing their amount of shares
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Net Sales
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Gross sales - Sales returns and allowances
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Lower-of-Cost-or-Market
GAAP |
When items become obsolete or prices fall, you adjust using "Lower-of-Cost-or-Market"
in GAAP, you use replacement costs And you cannot write up |
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Lower of Cost or Market
IFRS |
When items become obsolete or prices fall, you adjust using "lower of cost or market"
in IFRS, you use net realizable value (what you expect to receive when you sell the inventory) |
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Revaluation Method Under IFRS
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REVALUATION GAIN:
1) Normal: Other comprehensive Income in SE 2) Reversal: Income Gain REVALUATION LOSS 1) Normal: Income loss 2) Reversal: Other Comprehensive Income in SE Loss |
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Relevance
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capability of info making a difference to decision maker
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deferral
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Deferred, in accrual accounting, is any account where the asset or liability is not realized until a future date
Unearned revenue is a deferral! |
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Annual Report
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Document prepped by management:
financial statement letter report of management and auditors on company's internal controls |
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FOrm 10k
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SEC: regulates
Form 10-K filed annually basic financial statements detailed financial info |
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SOle proprietorship
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one owner
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partnership
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partners liable for obligations of business
(exception: limited liability company) |
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corporations
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limited liability: corporate creditors have claim against corporate asset only
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Auditor
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attests to credibility, but does not provide GUARANTEE
auditor's opinion: describe the scope and results of audit, included with financial report |
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calendar year vs fiscal year
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calendar year is a year
fiscal year is determined by accountants |
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Other Comprehensive Income
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Changes in S.Equity that is not from net income
selling treasury stock gaining money from reevaluation gain (IFRS) |
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Earnings per share
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on financial statement
net income/number of shares outstanding |
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price earnings ratio
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market price per share/earnings per share
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dividend yield ratio
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common dividends per share/ current market price of stock
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dividend payout ratio
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common dividends per share/ earnings per share
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recording process
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1. Transaction documentation (like a receipt)
2. General journal 3. Ledger 4. Trial balance 5. Financial statement |
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Simple and complex journal entry
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complex: transaction affects more than 2 accounts
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Book value
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Balance of account on the books - value of any associated contra accounts
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explicit transaction:
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observable events
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implicit transaction
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events, such as passage of time, that do not generate source documents:
Accrual: not based on explicit transactions, hence no recorded on day-to-day basis Shouldn't affect cash |
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Classified balance sheets
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Assets classiffied by:
current noncurrent liabilities: current non-current (Shows how liquid the company is) |
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Multi-step income statement
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1. Gross Profit
2. Operating Income 3. Non-operating revenues and expenses 4. Income before taxes 5. Net Income |
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participating preferred stock
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Allows holders of shares to participate in the growth of the company because they share in growing dividends
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Callable preferred stock:
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Gives the issuer the right to purchase the stock back from the owner at a fixed price
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Restricted stock:
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Awarded to employees with certain constraints
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Rate of return on equity
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Net income- preferred dividends / average common equity
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FOB Destination
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Seller bears cost
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FOB Shipping PT
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Buyer bears cost
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Inward transportation
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additional cost of goods acquired
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Inventory Valuation Methods GAAP vs. IFRS
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IFRS bans LIFo
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