solvency
the ability of a company to pay its debt as they mature
On a classified balance sheet what should be reported separately
assets and liabilities with different implications for a company's financial flexibility, with different general liquidity characteristics or that differ in expected type or function
difference between account and report form of balance sheets
only the presentation--nothing else will be different
the statement of cash flows provides an answer to what questions
what was the cash used for? what was the change in cash balance? where did the cash come from?
borrowing from creditors and repaying those amounts are what type of activities
financing
the first step in preparing a statement of cash flows is
determine the cash provided or used in operations
the cash debt coverage ratio is used to assess
financial flexibility
what types of information are supplemental to the amounts presented in the balance sheet
contingencies, contractual situations, or accounting policies
A _______________ on a balance sheet reduces either an asset, liability, or owners' equity account.
contra-account
liquidity ratio
current cash debt coverage ratio
both IFRS and GAAP require the presentation of non controlling interests in the
equity section of the balance sheet
the balance sheet is useful for analyzing
liquidity, solvency and financial flexibility
liquidity refers to
the amount of time that is expected to lapse before a liability has to be paid
companies frequently use judgement and estimates when valuing items on the balance sheet
true
classifications in owner's equity
non-controlling interest, retained earnings, capital stock
correct order to present current assets
cash, AR, inventories, prepaid items
Account form of the balance sheet
lists the assets on the left and liabilities and SE on the right
Activities that involve the cash effects of making and collecting loans and acquiring and disposing of property, plant, and equipment are classified as:
investing activities
current cash debt coverage ratio computation
net cash provided by operating activities/ average current liabilities
cash debt coverage ratio
net cash provided by operating activities/average total liabilities
Major disclosure techniques for the balance sheet
parenthetical explanations, notes, supporting schedules (not worksheets)
activity ratios measure
how effectively a company uses it assets
times interest earned is a type of
coverage ratio
A company with a _________________ is better able to survive bad times, to recover from unexpected setbacks, and to take advantage of profitable and unexpected investment opportunities.
high degree of financial flexibility
Major limitations of the balance sheet
most assets and liabilities are stated at historical cost, the use of judgement and estimates to value items and the omitting of items that cannot be measured objectively but are of financial value
net working capital
excess of current assets over current liabilities
other assets include
restricted cash, assets in special funds, property held for sale
Which of the following investments should always be reported as current assets?
trading securities
types of acceptable balance sheets
report and account
he financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the
statement of cash flows
free cash flow
net cash provided by operating activities - capital expenditures - dividends
Companies use a ____________ to show a direct relationship between an asset and a liability on the balance sheet?
cross reference
payout ratio
cash dividends/ net income
rate of return on assets
net income/ average total assets
Any cash restricted from purpose other than current obligations is excluded from current assets
True
The underlying concepts about the balance sheet
The presentation of balance sheet information meets the objective of financial reporting - to provide information about entity resources, claims to resources, and changes in them