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chapter 2 - Flashcards

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Class:ACC 1011 - Financial Accounting
Subject:Accounting
University:Saint Joseph's University
Term:Intersession 2011
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financial reporting has one overall objective and set of related objectives all of them concerned with how the information may be useful to readers
primary objective of financial reporting to provide economic information to permit users of the information to make informed decisions. to help others reach their decisions in an informed manner.
understandability for anything to be useful it must be understandable. the quality of accounting information that makes it comprehensible to those to spend the necessary time.
relevance 3 basic characteristic that make accounting dependable in representing events that it proposes to represent: 1. Verifiability information that is verifiable is free from error 2. representational faithfulness when it corresponds to an actual event. purchase of land corresponds to a transaction in the company's records 3. neutrality. when it is not slanted to portray a company's positioned in a better or worse light than the actual circumstances would dictate such as when the probable losses of a major lawsuit are disclosed accurately in the notes to the financial statements.
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Comparability and Consistency comparability allows comparisons to be made between or amoung companies. the quality that allows comparisons to be made between or among companies. the quality that allows a user to analyze two or more companies and looks for similarities and differences.
depreciation the process of allocating the cost of a long term tangible asset over it's usefulness of life
consistency means that financial statements can be compared within a single company from one accounting principle to the next.
materiality closely related to relevance and deals with the size of an error in accounting information. the magnitude of an accounting information omission or misstatement that will affect the judgement of someone relying on the information.
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conservatism the practice of using the least optimistic estimate when two estimates of amounts are equally likely
operating cycle be able to sketch this as well the period of time between the purchase of inventory and the collection of any receivable from the sale of inventory.
current assets (cash, Marketable securities, accounts receivable, merchandise inventory, prepaid insurance, store supplies.) an asset that is expected to be realized in cash or sold or consumbed during the operating cycle or within one year of purchase, if the cyle is shorter than one year.
non current assets long term investments; property plant and equipment intangibles ex franchises.
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investments securities not expected to be sold in the next year
property plant and equipment tangible productive assets used in the operation of a business. land, buildings and equipment, machinery, furniture and fixtures, tucks and tools are all ecamples of assets held for use in the operation of a business rather than for sale.
current liabilities an obligation that will be satisfied with in the next operating cycle or within the next operating cycle or within one year if the cycles are shorter than one year.
common stock a single class capital stock most basic form of ownership is business creditors and preferred stockholders take priority
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liquidity the ability for a company to pay off debt as it becomes due
working capital current assets minus current liabilities
current ration current assets/ current liabilities
single step income statement an income statement in which all expenses are added together and subtracted from all revenues.
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multi step income statement an income statement that shows classifications of revenues and expenses as well as important subtotals
profit margin return on sales net income/net sales
statement of retained earnings reports the net income and any dividends declared during the period. it is an important link between the income statement and the balance sheet.
statement of cashflows summarizes a company's operating, investing and financing activities throughout a period
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operating activities purchase and sale of products
investing activities involve the acquisition and sale of long term assets or non current assets such as property plant and equipment and intangible assets
financing activities result from the issuance and repayment or retirement of long term liabilities and capital stock and payment of dividends.
auditor's report (report of independent accountants) the opinion reduced by a public accounting firm concerning the fairnss of the presentation of the financial statement.
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 financial reportinghas one overall objective and set of related objectives all of them concerned with how the information may be useful to readers
 primary objective of financial reportingto provide economic information to permit users of the information to make informed decisions. to help others reach their decisions in an informed manner.
 understandabilityfor anything to be useful it must be understandable. the quality of accounting information that makes it comprehensible to those to spend the necessary time.
 relevance3 basic characteristic that make accounting dependable in representing events that it proposes to represent:
1. Verifiability information that is verifiable is free from error
2. representational faithfulness when it corresponds to an actual event. purchase of land corresponds to a transaction in the company's records
3. neutrality. when it is not slanted to portray a company's positioned in a better or worse light than the actual circumstances would dictate such as when the probable losses of a major lawsuit are disclosed accurately in the notes to the financial statements.
 Comparability and Consistencycomparability allows comparisons to be made between or amoung companies. the quality that allows comparisons to be made between or among companies. the quality that allows a user to analyze two or more companies and looks for similarities and differences.
 depreciation the process of allocating the cost of a long term tangible asset over it's usefulness of life
 consistencymeans that financial statements can be compared within a single company from one accounting principle to the next.
 materialityclosely related to relevance and deals with the size of an error in accounting information. the magnitude of an accounting information omission or misstatement that will affect the judgement of someone relying on the information.
 conservatism the practice of using the least optimistic estimate when two estimates of amounts are equally likely
 operating cyclebe able to sketch this as well
the period of time between the purchase of inventory and the collection of any receivable from the sale of inventory.
 current assets(cash, Marketable securities, accounts receivable, merchandise inventory, prepaid insurance, store supplies.) an asset that is expected to be realized in cash or sold or consumbed during the operating cycle or within one year of purchase, if the cyle is shorter than one year.
 non current assetslong term investments; property plant and equipment intangibles ex franchises.
 investmentssecurities not expected to be sold in the next year
 property plant and equipmenttangible productive assets used in the operation of a business. land, buildings and equipment, machinery, furniture and fixtures, tucks and tools are all ecamples of assets held for use in the operation of a business rather than for sale.
 current liabilitiesan obligation that will be satisfied with in the next operating cycle or within the next operating cycle or within one year if the cycles are shorter than one year.
 common stocka single class capital stock most basic form of ownership is business creditors and preferred stockholders take priority
 liquiditythe ability for a company to pay off debt as it becomes due
 working capitalcurrent assets minus current liabilities
 current rationcurrent assets/ current liabilities
 single step income statementan income statement in which all expenses are added together and subtracted from all revenues.
 multi step income statementan income statement that shows classifications of revenues and expenses as well as important subtotals
 profit marginreturn on sales net income/net sales
 statement of retained earningsreports the net income and any dividends declared during the period. it is an important link between the income statement and the balance sheet.
 statement of cashflowssummarizes a company's operating, investing and financing activities throughout a period
 operating activitiespurchase and sale of products
 investing activitiesinvolve the acquisition and sale of long term assets or non current assets such as property plant and equipment and intangible assets
 financing activitiesresult from the issuance and repayment or retirement of long term liabilities and capital stock and payment of dividends.
 auditor's report(report of independent accountants) the opinion reduced by a public accounting firm concerning the fairnss of the presentation of the financial statement.
  Definition
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