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