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Accounting

Accounting Ch2

TermDefinition
Accrual-basis acounting Transactions that change a company's financial statements are recorded in the period in the events occur
Classified balance sheet A balance sheet that contains 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 of determining whether the cost that companies will incur to provide the information will out weigh the benefit that financial statement users will gain from having the information available
Current Assists Cash and other resources that companies reasonably to convert to cash or use up within one year or the operating cycle, whichever is longer
Current liabilites Obligations that a company reasonably expect to pay within the next year or operating cycle, whichever is longer
Current ratio A measure used to evaluate a company's liquidity and short-term dept paying ability;computed as current assets divided by current liabilities
Debt to total assets ratio Measures the percentage of total financing provided by creditors; computed as total dept divided by total assets
Earnings per share (EPS) A measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year
Economic entity assumption An 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 of sell a liability)
Faithful representation Information that is complete, natural, and free from errors
Financial Accounting Standards Board (FASB) The primary accounting standards standard-setting body in the United States
Free cash flow Cash remaining from operating activities after adjusting for capital expenditures and 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) A set of rules and practices, having substantial authoritative support, that the the accounting profession recognizes as a general guide for financial reporting purposes
General concern assumption The assumption that the company will continue in operation for the foreseeable future
Intangible asssets Assets that do not have physical substance
International Accounting Standards Board (IASB) An accounting standard-setting body that issues standards adopted by many countries outside of the United States
International Financial Reporting standards (IFRS) Accounting standards, issued ny the the IASB, that have been adopted by many countries outside of the United States
Liquidity The ability of a company to pay obligations that are expected to become due within the next year or operation cycle
Liquidity ratio Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash
Long-term investmants Generally, (1) investments in stock and bonds of other corporations that companies hold for more then one year, and (2) long-term assets, such as land and buildings, not currently being used in the companies operations
Materiality constraint The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor
Monetary unit assumption An assumption that requires that only those things that can be expresses in money are included in the accounting records
Operating Cycle The average time required to go from cash to cash in producing revenue
Periodicity assumption An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business
Property, plant, and equipment Assets with relatively long useful lives that companies use in operating the business
Public Company Accounting Oversight Board (PCAOB) The group charged with determining auditing standards and reviewing them the performance of auditing firms
Ratio An expression of the mathematical relationship between one quantity and another
Ratio analysis A technology for evaluating financial statements that express the relationship among selected items of a financial statement data
Revelance The quality of information that indicates the information makes a difference in decision
Securities and Exchange Commision The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies
Solvency The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity
Solvency ratios Measures of the ability of the company to survive over a long period of time
Statement of stockholders' equity A financial statement that presents the factors that caused stockholders' equity to change 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 Information that is proven to be free from error
Working capital The difference between the amounts of current assets and current liabilities
Created by: NickUD on 2013-02-09



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