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Manager Accounting

C202 chapt 2

QuestionAnswer
by increasing information available about a company financial statements make it easier for a company to attract investors, lenders, and other parties interested in the company's financial statements
a potential investor or lender can use a company's financial information to make more informed projections of how the company will perform in the future
the balance sheet reports a company's financial position at a specified point in time and lists the company's resources (assets), obligations (liabilities), and net ownership interest (owners equity)
assets are probable future economic benefits obtained or controlled by a company as a result of past transactions or events
liabilities are probable future sacrifices of economic benefits arising from present obligations of a company to transfer assets or provide services in the future as a result of past transactions or events
owners equity is the residential interest in the assets of a company that remains after deducting its liabilities
the accounting equation is assets= liabilities + owners equity
for a corporation owners equity is called stockholder equity
stock holders can invest in a corporation in two ways by directly investing cash or keeping a portion of the profits as retained earnings
assets are usually listed in the balance sheet in order of liquidity as in cash--to intangible assets
the entity concept states that the financial result of an economic entity should be reported separately from the financial results of other entities
the income statement describes a company's financial performance for a period of time
revenues are the amount of assets generated in the normal course of business
expenses are the amount of assets consumed in doing business
an income statement reports gains and losses that result from activities outside a company's normal business operations
the statement of cash flows details how a company obtained and spent cash during a certain period of time
operating activities are those activities that comprise the day to day operations of a business
the notes to financial statements provide information on the accounting assumptions used in preparing the statements and info not included in the statements themselves
financial statement notes are four general types; summary of accounting policies, additional information about summary totals in the statements, disclosure of important information not in the statements, and supplemental disclosure required by the FASB or SEC
an audit performed by accountants from outside a company increases the reliance that users can place on the information in the company's financial statements
the external audit assures financial statement users that the financial statements fairly reflect the financial status f the company that issued them
a key trade off in the preparation of useful accounting information is between relevance and reliability
relevant means information that is provided on a timely basis and can be used to assess the past and to project the future for decision making
reliable means information actually represents what it is supposed to represent
comparability means making financial statement information more useful because it allows company's financial statements to be analyze in light of the companys own performance
conservatism means the practice of recognizing gains until they are certain
materiality refers to weighing whether a certain dollar amount is large enough to make a difference to anyone
Created by: nashanta