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ACCT 2301 Ch 2 Terms
ACCT 2301 Chapter 2 Terms
Question | Answer |
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Classified Balance Sheet | A 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 withing the next year or operating cycle, whichever is longer. |
Current Ratio | A measure of liquidity computed as current assets divided by current liabilities. |
Debt to Assets Ratio | A measure of solvency calculated as total liabilities divided by total assets. It measures the percentage of total financing provided by creditors. |
Earnings per share (EPS) | A measure of the net income earned on each share of common stock; computer as net income minus preferred 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 or settle a liability.) |
Faithful Representation | Information that is complete, neutral, and free from error. |
Financial Accounting Standards Board (FASB) | The primary accounting standard-setting body in the United States. |
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) | A set of accounting standards that have substantial authoritative support, that guide accounting professionals. |
Going Concern Assumption | The assumption that the company will continue in operation for the foreseeable future. |
Historical Cost Principl | An accounting principle that states that companies should record assets at their cost. |
Intangible Assets | 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 by 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 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 stocks 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. |
Monetary Unit Assumption | An assumption that requires that only those things that can be expressed in money are included in the accounting records. |
Operating Cycle | The 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 | 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. |
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) | The group charged with determining auditing standards and reviewing the performance of auditing firms. |
Ratio | An expression of the mathematical relationship between one quantity and another. |
Ratio Analysis | A technique that expressed the relationship among selected items of financial statement data. |
Relevance | The quality of information that indicates the information makes a difference in decision. |
Securities and Exchange Commission (SEC) | 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 due at its maturity. |
Solvency Rations | Measures of the ability of the company to survive over a long period of time. |
Statement of Stockholder's Equity | A financial statement that presents the causes of changes to 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 | The quality of information that occurs when independent observers, using the same methods, obtain similar results. |
Working Capital | The difference between the amounts of current assets and current liabilities. |