ACCT207 Chapter 2

classified balance sheet

balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections

comparability

ability to compare the accounting information of different companies because they use the same accounting principles

consistency

use of the same accounting principles and methods from year to year within a company

cost constraint

constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

current assets

assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer

current liabilities

obligations that a company expects to pay within the next year or operating cycle, whichever is longer

current ratio

measure of liquidity computed as current assets divided by current liabilities

debt to assets ratio

measure of solvency calculated as total liab. divided by total assets. It measures the percentage of total financing provided by creditors

earnings per share (EPS)

measure of the net income earned on each share of common stock; computed as net income minus preferred dividends divided by the avg. number of common shares outstanding during the year

economic entity assumption

assumption that every economic entity can be separately identified and accounted for

fair value principle

assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liab.)

faithful representation

information that is complete, neutral, and free from error

Financial Accounting Standards Board (FASB)

primary accounting standard-setting body in the US

free cash flow

net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid

full disclosure principle

accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users

generally accepted accounting principles (GAAP)

set fo accounting standards that have substantial authoritative support, that guide accounting professionals

going concern assumption

assumption that the company will continue in operation for the foreseeable future

historical cost principle

accounting principle that states that companies should record assets at their cost

intangible assets

assets that do not have physical substance

International Financial Reporting Standards (IFRS)

accounting standards, issued by the IASB, that have been adopted by many countries outside of the US

liquidity

ability of a company to pay obligations that are expected to become due within the next year or operating cycle

liquidity ratios

measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

long-term investments

generally (1) investments in stock and bonds of other corporations that companies hold for more than one year; (2) long-term assets, such as land and buildings; not currently being used in the company's operations; and (3) long-term notes receivable

long-term liabilities(long-term debt)

obligations that a company expects to pay after one year

materiality

whether an item is large enough to likely influence the decision of an investor or creditor

operating cycle

average time required to purchase inventory, sell it on account, and then collect cash from customers - that is, go from cash to cash

periodicity assumption

assumption that the life of business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

monetary unit assumption

assumption that requires that only those things that can be expressed in money are included in the accounting records

profitability ratios

measures of the operating success of a company for a given period of time

property, plant, and equipment

assets with relatively long useful lives that are currently used in operating the business

Public Company Accounting Oversight Board (PCAOB)

group charged with determining auditing standards and reviewing the performance of auditing firms

ratio

expression of the mathematical relationship between one quantity and another

ratio analysis

technique that expresses the relationship among selected items of financial statement data

relevance

quality of information that indicates the information makes a difference in a decision

Securities and Exchange Commission (SEC)

agency of the US gov. that oversees US financial markets and accounting standard-setting bodies

solvency

ability of a company to pay interest as it comes due due and repay the balance of debt due at its maturity

solvency ratios

measures of the ability of the company to survive over a long period of time

statement of stockholder's equity

financial statement that presents the causes of changes of stockholder's equity during the period, including those that caused retained earnings to change

timely

information that is available to decision-makers before it loses its capacity to influence decisions

understandability

information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

verifiable

quality of information that occurs when independent observers, using the same methods, obtain similar results

working capital

difference between the amounts of current assets and current liabilities

International Accounting Standards Board (IASB)

accounting standards-setting body that issues standards adopted by many countries outside of the US

classified balance sheet

balance sheet that groups together similar assets and similar liabilities, using a number of standard classifications and sections

comparability

ability to compare the accounting information of different companies because they use the same accounting principles

consistency

use of the same accounting principles and methods from year to year within a company

cost constraint

constraint that weighs the cost that companies will incur to provide the information against the benefit that financial statement users will gain from having the information available

current assets

assets that companies expect to convert to cash or use up within one year or the operating cycle, whichever is longer

current liabilities

obligations that a company expects to pay within the next year or operating cycle, whichever is longer

current ratio

measure of liquidity computed as current assets divided by current liabilities

debt to assets ratio

measure of solvency calculated as total liab. divided by total assets. It measures the percentage of total financing provided by creditors

earnings per share (EPS)

measure of the net income earned on each share of common stock; computed as net income minus preferred dividends divided by the avg. number of common shares outstanding during the year

economic entity assumption

assumption that every economic entity can be separately identified and accounted for

fair value principle

assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liab.)

faithful representation

information that is complete, neutral, and free from error

Financial Accounting Standards Board (FASB)

primary accounting standard-setting body in the US

free cash flow

net cash provided by operating activities after adjusting for capital expenditures and cash dividends paid

full disclosure principle

accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users

generally accepted accounting principles (GAAP)

set fo accounting standards that have substantial authoritative support, that guide accounting professionals

going concern assumption

assumption that the company will continue in operation for the foreseeable future

historical cost principle

accounting principle that states that companies should record assets at their cost

intangible assets

assets that do not have physical substance

International Financial Reporting Standards (IFRS)

accounting standards, issued by the IASB, that have been adopted by many countries outside of the US

liquidity

ability of a company to pay obligations that are expected to become due within the next year or operating cycle

liquidity ratios

measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash

long-term investments

generally (1) investments in stock and bonds of other corporations that companies hold for more than one year; (2) long-term assets, such as land and buildings; not currently being used in the company's operations; and (3) long-term notes receivable

long-term liabilities(long-term debt)

obligations that a company expects to pay after one year

materiality

whether an item is large enough to likely influence the decision of an investor or creditor

operating cycle

average time required to purchase inventory, sell it on account, and then collect cash from customers - that is, go from cash to cash

periodicity assumption

assumption that the life of business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business

monetary unit assumption

assumption that requires that only those things that can be expressed in money are included in the accounting records

profitability ratios

measures of the operating success of a company for a given period of time

property, plant, and equipment

assets with relatively long useful lives that are currently used in operating the business

Public Company Accounting Oversight Board (PCAOB)

group charged with determining auditing standards and reviewing the performance of auditing firms

ratio

expression of the mathematical relationship between one quantity and another

ratio analysis

technique that expresses the relationship among selected items of financial statement data

relevance

quality of information that indicates the information makes a difference in a decision

Securities and Exchange Commission (SEC)

agency of the US gov. that oversees US financial markets and accounting standard-setting bodies

solvency

ability of a company to pay interest as it comes due due and repay the balance of debt due at its maturity

solvency ratios

measures of the ability of the company to survive over a long period of time

statement of stockholder's equity

financial statement that presents the causes of changes of stockholder's equity during the period, including those that caused retained earnings to change

timely

information that is available to decision-makers before it loses its capacity to influence decisions

understandability

information presented in a clear and concise fashion so that users can interpret it and comprehend its meaning

verifiable

quality of information that occurs when independent observers, using the same methods, obtain similar results

working capital

difference between the amounts of current assets and current liabilities

International Accounting Standards Board (IASB)

accounting standards-setting body that issues standards adopted by many countries outside of the US