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Int. Acct. I

Chapter 4: BS and St. of CF

balance sheet (referred as the statement of financial position) reports the assets, liabilities, and stockholders’ equity at a specific date
statement of cash flows reports cash flow from (1) operations, (2) investing transactions, and (3) financing transactions, thereby explaining the net increase or decrease in cash during the period
classified balance sheet grouping assets and liabilities as either current or long-term according to whether the assets or the liabilities will be received or paid within the next year; important relationships are shown
liquidity time it takes to convert a non-cash asset into cash
solvency ability to meet debt obligations as they come due.
financial flexibility Relates to the debt/equity mix in the capital structure
assets probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events
liabilities probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
equity residual interest in the assets of an entity that remains after deducting its liabilities; the ownership interest
right of use (ROU) asset a lessee's right to use an asset over the duration of the lease
current assets cash and other resources that are expected to be turned into cash, sold, or consumed within a year or the operating cycle, whichever is longer. Items included in the current asset section are presented in order of liquidity
operating cycle the average time between when a company acquires materials and supplies and when it receives cash for sales of the product (for which it acquired the materials and supplies); from cash through inventory, production, receivables, and back to cash
cash currency and demand deposits at a financial institution. Examples of demand deposits are checking, savings, and money market accounts.
cash equivalents short-term, highly liquid investments that will mature within three months or less. One such example is a certificate of deposit (CD)
cash equivalents if a company invests funds into a three-month CD, those funds would be included in the cash and cash equivalents line item on the balance sheet.
equity securities investments in preferred and common stock of other companies. a company can buy the stock and sell it quickly if the stock price increases, or it can hold the stock for many years.
equity securities if the entity intends to sell the stock in a short period of time, say less than a year, it is classified as a short-term investment; generally recorded at fair value
debt securities investments in bonds or notes of other companies or governmental entities; separated into three portfolios : held to maturity, trading, available-for-sale
held-to-maturity debt securities that a company intends to hold until maturity. these are reported as current or noncurrent assets depending on the time left until maturity; held-to-maturity debt investments are reported on the balance sheet at “amortized cost”
trading debt securities bought and held primarily for sale soon to generate a return. These are reported as current assets at their fair value
available-for-sale debt securities not classified as held-to-maturity or trading securities. These are reported at fair value as current or noncurrent assets depending on the length of time management intends to hold the investment
non-current assets those assets not meeting the definition of current assets; being held longer than a year or the operating cycle whichever is longer
long-term investments intent is to hold these investments for an extended period
property, plant, and equipment physical property such as land, buildings, machinery, furniture, tools, right-of-use assets (leased assets), and "wasting resources" (timberland, minerals) used in operations.
intangible assets resources that lack physical substance but provide economic rights and advantages
other assets a special classification for unusual items that cannot be included in one of the other asset categories.
current liabilities obligations that are reasonably expected to be liquidated using current assets or the creation of other current liabilities within one year or operating cycle, whichever is longer
working capital a measure of a firm’s ability to meet its currently maturing obligations (liquidity).
working capital (formula) current assets - current liabilities
current ratio expresses working capital in a manner that is comparable company to company; current assets/current liabilities
long-term liabilities obligations that are reasonably expected to be liquidated at a date beyond one year or one operating cycle, whichever is longer
contributed capital Capital stock + Additional paid-in capital
capital stock total par or stated value of the shares issued; companies must disclose the par value per share and the authorized, issued, and outstanding share amounts for common and preferred stock
additional paid-in capital the excess of amounts paid over the par or stated value
retained earnings the corporation’s accumulated, undistributed earnings
unappropriated retained earnings the amount usually available for dividend distribution
restricted retained earnings the amount restricted by bond indentures or other loan agreements
accumulated other comprehensive income the aggregate amount of the other comprehensive income items, such as unrealized gains and losses on certain investments
treasury stock generally, the cost of shares repurchased by the company. This amount is a reduction of stockholders’ equity.
report form the most common form of the balance sheet, which lists the balance sheet sections one above the other, on the same page
operating activities involve the cash effects of transactions that enter into the determination of net income
investing activities include making and collecting loans and acquiring and disposing of investments (both debt and equity) and property, plant, and equipment
internal investing in itself
external investments in others
financing involve liability and owners' or stockholders equity items.
significant noncash activities all significant financing and investing activities must be disclosed in the statement or notes, even though cash is not affected.
free cash flow defined as operating cash flow less dividends and capital expenditures. Free cash flow determines whether the company can repay creditors or pay dividends or interest to investors
current cash debt coverage indicates whether the company can pay off its current liabilities from its operations each year to assess liquidity; net cash provided by operating activities/average current liabilities
cash debt coverage provides information on financial flexibility. It indicates a company’s ability to repay its liabilities from net cash provided by operating activities, without having to liquidate the assets employed in its operations
cash debt coverage (formula) net cash provided by operating activities/average total liabilities
free cash flow the amount of discretionary cash flow a company has: Net cash provided by operating activities – capital expenditures – cash dividends
Created by: ryanriggs18
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