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Acct 3300 Test

Exam 2 (chapters 4-5)

QuestionAnswer
Income Statement the report that measures the success of company operations for a given period of time.
An Income Statement is also known as: "statement of income" or "statement of earnings"
Usefulness of the Income Statement evaluate the past performance of the company; provide a basis for predicting future performance; help assess the risk of achieving future cash flows.
The information in the Income Statement is: revenues, expenses, gains and losses.
Limitations of the Income Statement companies omit items from the I/S that they cannot measure reliably; Income members are affected by the acct methods employed; Income measurement involves judgment.
Net income results from revenue, expense, gain and loss transactions.
Transaction Approach focuses on the income-related activities that have occurred during the period. (this is the what we use)
Elements of Financial Statements revenues, expenses, gains and losses.
Elements of Financial Statements: REVENUES INFLOWS of assets of an entity or settlements of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the entity's ongoing central operations.
Elements of Financial Statements: EXPENSES OUTFLOWS of assets or incurrences of liabilities during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing central operations.
Elements of Financial Statements: GAINS INCREASES in equity from peripheral or incidental transactions of an entity except those that result from revenues or investments by owners.
Elements of Financial Statements: LOSSES DECREASES in equity from peripheral or incidental transactions of an entity except those that result from expenses or distributions to owners.
Multi-Step Income Statement Sections operating sections, non-operating section, income tax, discontinued operations, extraordinary items, earnings per share
Income Statement Sections: Operating Section SALES/REVENUES section; COST OF GOODS SOLD section; SELLING EXPENSES; ADMINISTRATIVE or GENERAL EXPENSES.
Income Statement Sections: Non-Operating Section OTHER REVENUES AND GAINS; OTHER EXPENSES OR LOSSES
Income Statement Sections: INCOME TAX federal and state taxes levied on income from continuing operations
Income Statement Sections: DISCONTINUED OPERATIONS material gains/losses resulting from the disposition of a segment of the business.
Income Statement Sections: EXTRAORDINARY ITEMS unusual and infrequent material gains and losses.
Extraordinary Items nonrecurring material items that differ significantly from a company's typical business activities. (unusual nature and infrequent)
Changes in Estimates (I/S) bad debt expenses/allowance for doubtful accounts. Changes in estimate are not considered errors/extraordinary items.
Corrections of Errors Listed on "Statement of Retained Earnings" - prior period adjustments.
Companies close all other irregular gains/losses or nonrecurring items to? Income Summary
The most significant business indicator? Earnings Per Share. (use outstanding shares)
Retained Earning Statements Beginning R.E. + Net Income - Dividends = Ending R.E.
Usefulness of the Balance Sheet use info to asses a company's risk and future cash flows; asses a company's liquidity, solvency, and financial flexibility.
Liquidity the amount of time that is expected to elapse until an asset is realized or otherwise converted into cash or until a liability has to be paid.
Solvency refers to the ability of a company to pay its debts as they mature.
Financial Flexibility measures the ability of an enterprise to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs/opportunities.
Limitations of the Balance Sheet most assets/liabilities are reported at historical cost; companies use judgment/estimates to determine many of the items reported; the b/s omits many items that are of financial value but that a company cannot record objectively.
Elements of the Balance Sheet assets, liabilities and equity.
Current Assets cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer. (presented in order of liquidity)
Short-Term Investments held-to-maturity; TRADING (reported at FAIR VALUE); available-for-sale
Long-Term Investments (investments) investments in securities (bonds, common stock or long-term notes); investments in land held for speculation; investments set aside in special funds (sinking fund, pension fund, or plant expansion fund). INCLUDES the cash surrender value of life ins.
Property, Plant & Equipment tangible long-lived assets used in the regular operations of the business. (land, buildings, machinery, furniture, tools, minerals, etc.)
Intangible Assets (not financial instruments). Includes copyrights, franchises, goodwill, trademarks, trade names, patents and customer lists.
Other Assets Includes items such as long-term prepaid expenses, prepaid pension cost, and non-current receivables.
Current Liabilities the obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities. (Ex-includes: unearned rent revenue & unearned subscription revenue).
Long-Term Liabilities obligations that a compant does not reasonably expect to liquidate within the normal operating cycle. (Ex-includes: issuance of bonds, pension obligations, "long-term" ...)
Owners' Equity - Capital Stock the par/stated value of the shares issued.
Owners' Equity - Add't Paid-In Capital the excess of amounts paid in over the par or stated value.
Owners' Equity - Retained Earnings the corporation's undistributed earnings.
Treasury Stock stocks reacquired.
Statement of Cash Flows detailed summary of cash inflows and outflows.
Content & Format of the Statement of Cash Flows: Operating Activities, Investing Activities, Financing Activities.
Statement of Cash Flows - Operating Activities involve the cash effects of transaction that enter into the determination of net income.
Statement of Cash Flows - Investing Activities including making/collecting loans and aquisition/disposition of investments and property,plant & equipment. (sale/purchase of PP&E, purchase/sale of debt/equity securities).
Statement of Cash Flows - Financing Activities involve liability & owners' equity items. (issuance of bonds/notes; payment of dividens; reaquisition of capital stock).
Content & Format of the Statement of Cash Flows: Operating Activities, Investing Activities, Financing Activities, Significant Non-Cash Activities.
Statement of Cash Flows - Operating Activities involve the cash effects of transaction that enter into the determination of net income.
Statement of Cash Flows - Investing Activities including making/collecting loans and aquisition/disposition of investments and property,plant & equipment. (sale/purchase of PP&E, purchase/sale of debt/equity securities).
Statement of Cash Flows - Financing Activities involve liability & owners' equity items. (issuance of bonds/notes; payment of dividens; reaquisition of capital stock).
Statement of Cash Flows - Significant Non-Cash Activities issuance of common stock to purchase assets; conversion of bonds into common stock; issuance of debt to purchase assets; exchanges of long-loved assets.
Created by: kserrano005
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