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A comprehensive overview of fundamental accounting concepts, including financial statements, analysis techniques, and accounting principles. It covers key topics such as the balance sheet, income statement, statement of cash flows, and accounting equations. The document also explores various financial ratios used for analyzing liquidity, profitability, and solvency. It is a valuable resource for students seeking to understand the basics of accounting and its applications in business.
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4 financial statements - ANSWER balance sheet, income statement, retained earningsstatement and statement of cash flow
Balance sheet - ANSWER presents a snapshot of the reporting entity's financial positionat a point in time, shows the organizations liabilities, assets and equity
Income statement - ANSWER presents the economic activities conducted by thereporting entity over a period of time
Profit occurs - ANSWER when revenue exceeds cost loss occurs when - ANSWER revenue is less than cost statement of shareholders equity - ANSWER statement of shareholders equity presentsa reconciliation of the owners interest in the organization -- shows increase or decrease in owners equity and how that change occurred statement of cashflows - ANSWER presents the sources of an organizations cash flows,where and how cash came from and how the cash was expended
companies activities can be classified as - ANSWER operating, investing or financing building blocks in accounting - ANSWER professional standardsregulatory requirements
corporate governance professional standards - ANSWER ethics in accountinggenerally accepted accounting principles (GAAP)
regulatory requirements - ANSWER securities and exchange commission (SEC) Sarbanes Oxley Act Sarbanes Oxley act - ANSWER effective financial reporting depends on sound ethicalbehavior (2002)
Corportate Governance - ANSWER board of directors audit committee cost principle (historical) - ANSWER dictates that companies record assets at their cost historical principle issues - ANSWER reported at cost when purchased and also over thetime the asset is held, cost easily verified whereas market value is subjective matching principle - ANSWER revenue is matched with resources spent to generate thatrevenue
monetary unity assumption - ANSWER include in the accounting records onlytransaction data that can be expressed in terms of money economic entity assumption - ANSWER requires that activities of entity be kept separateand distinct from the activities of its owner and all other economic entities tools of analysis - ANSWER horizontal, vertical, ratio
liquidity - ANSWER measure the short-term ability of the company to pay its maturingobligations and to meet unexpected needs for cash
current ratio - ANSWER measures organizations' working capital availability as it cangenerate cash in order to meet current obligations
current assets/ current liabilities = current ratio acid test ratio - ANSWER measures immediate liquidity cash+short term investments +receivables (net)/current liabilities =acid test receivables turnover - ANSWER measures the number of times, on average, thecompany collects receivables net credit sales/ average net receivables = receivables turnover inventory turnover - ANSWER measures number of times on average the inventory issold during the period costs of good sold/ average inventory = inventory turnover days in inventory- ANSWER 365/ ___times = _____ days profitability- ANSWER measure the income or operating success of a company for agiven period of time
profit margin- ANSWER measures the percentage of each dollar of sales that results innet income net income/ net sales = profit margin asset turn over- ANSWER measures how efficiently a company uses its assets togenerate sales
net sales/ average assets = asset turn over return on assets - ANSWER an overall measure of profitabilitynet income/average assets = return on assets
return on common stockholders' equity - ANSWER shows how many dollars of netincome a company earned for each dollar of common stockholders' equity
net income- preferred dividends/ average common stockholders' equity earnings per share - ANSWER measures the net income earned per share of commonstock net income / weighted average common shares outstanding price earnings ratio - ANSWER reflects investors' assessments of a companys futureearnings market price per share of stock/ earnings per share dividends payout ratio - ANSWER measures the percentage of earnings distributed inthe form of cash dividends
debt to total asset - ANSWER debt/asset times interest earned - ANSWER income before income taxes and interest expense/interest expense
T account - ANSWER used to reflect increases and decreases to individuals accounts BASE - ANSWER beginning balance of account
Return on equity (ROE)-ANSWER most common analysis metric used by managers andinvestors-relates net income to average total stockholders' equity ROE= net income/ average stockholders eqiuty Does accounting mattter? - ANSWER yes! reports provide information to the marketwhen accounting released the sentiment in those reports are then correlated with changes in the stock price basic accounting theory - ANSWER a basic set of concepts and related principles thatexplain and guide the accountants actions in - identifying, measuring and communicating economic income should accounting income = economic income - ANSWER no- economic income takesinto account human capital and accounting income takes into account the past
business entity - ANSWER be reported separately going concern - ANSWER expect the business will continue operation into theforeseeable future
monetary value - ANSWER measure value and provide someway thats consistent forvaluing what company does
periodicity - ANSWER operations can be divided into periods to assist in themeasurement of a business's performance
substance over form - ANSWER record substance rather than legal or technical form consistency - ANSWER use the same accounting techniques each year historical cost - ANSWER report activities at historical cash value at the time the eventtook place
fair market value - ANSWER report the value of a transaction or asset / liability at thevalue that one would receive in the market
recognition - ANSWER recording transaction based on accounting rules - accrual basis realization - ANSWER actual paying of cash revenue recognition - ANSWER report revenue when earned and right to pay expense recognition - ANSWER report expense obligations when obligated to pay conservatism - ANSWER when faced with decision of equally likely outcomes, chooseone to minimize profit
full and fair disclosure - ANSWER disclose anything that would affect an informedinvestor in making decision
3 forms of business org - ANSWER 1. sole propietorship
5 types of accounts - ANSWER 1. Assets- resources2. Liabilities- obligations
other long term liabilities contributed capital - ANSWER common stock, additional paid in capital, preferredstock, treasury stock, retained earnings, accumulated other comprehensive income or loss stock holders equity is the - ANSWER value of the company determined by generallyaccepted accounting principles (GAAP) and is commonly reffered to as the company's book value market value - ANSWER computed by multiplying the number of outstanding commonshares by the company's stock price
income statement - ANSWER reports revenues earned during a period and the expensesincurred to produce those revenues, and the resulting net income or loss
structure of income statement - ANSWER revenues- Costs of goods sold -----------------------gross profit
operating profit- non-operating expenses (+ non operating revenues)
income from continuing operations -/+discontinued operations, net of tax =net income
operating expenses - ANSWER the usual and customary costs a company incurs tosupport its operating activities
non operating expenses - ANSWER related to the company's financing and investingactivities
revenue recognition - ANSWER recognize revenue for goods and services provided tocustomers at an amount expected to be received
expense recognition - ANSWER recognize expenses when incurred -companies recognize expense when it is incurred even if no cash is paid discontinued operations - ANSWER 1. the net income (loss) from the segments businessacitivites prior to sale and2. any gain or loss on the actual sale of business gross profit margin - ANSWER influenced by both the selling price of company'sproducts and the cost to make or buy those products