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ACFM 321 Chapter 4
| Term | Definition |
|---|---|
| Income Statement | Statement of operations or statement of earnings that is used to summarize profit-generating activities that occurred during a particular reporting period |
| Comprehensive Income | Represents total nonowner changes in shareholders' equity for a period; equal to net income + other comprehensive income |
| Other Comprehensive Income | Changes in shareholders' equity other than transactions with owners and other than items that affect net income |
| Statement of Cash Flows | Statement summarizing transactions that caused cash to change during the period |
| Income from Continuing Operations, Discontinued Operations, and Earnings Per Share | What are the 3 major sections of the income statement? |
| Income from Continuing Operations | Revenues, expenses (including income taxes), gains, losses, excluding those related to discontinued operations |
| Operating Income | Includes revenues, expenses, gains, and losses directly related to primary revenue-generating activities of the company |
| Nonoperating Income | Includes revenues, expenses, gains, and losses not related to primary activities of the company |
| Intraperiod Tax Allocation | Separately reporting income tax expense |
| Single-Step Income Statement | Groups all revenues and gains together and all expenses and losses together |
| Multi-Step Income Statement | Includes a number of intermediate subtotals before arriving at income from continuing operations (gross profit, operating income) |
| Earnings Quality | Refers to the ability of reported earnings (income) to predict company's future earnings |
| Income Smoothing | Refers to managers' use of accounting estimates to effectively smooth pattern in reported income over time, portraying a steadier income stream to investors, creditors, and financial statement users |
| Classification Shifting | Involves managers' intentional misclassification of operating expenses as nonoperating expenses |
| Restructuring Costs | Costs associated with shutdown or relocation of facilities or downsizing of operations |
| Non-GAAP Earnings | Actual GAAP earnings reduced by any expenses reporting company feels are unusual and should be excluded |
| Discontinued Operations | Discontinuance of component of entity whose operations and cash flows can be clearly distinguished from rest of entity, profits will not continue |
| Change in Accounting Principle | Refers to a change from one acceptable accounting method to another |
| Change in Accounting Principle, Change in Estimate, and Change in Reporting Entity | What are the three categories of accounting changes? |
| Retrospective Approach | New standard applied to all periods presented in financial statements |
| Modified Retrospective Approach | New standard applied to adoption period only |
| Prospective Approach | Change is simply implemented in current period and all future periods |
| Current-Year Errors | Original erroneous journal entry is reversed and appropriate entry is recorded |
| Previous-Year Errors | Prior period adjustment in current year is needed |
| Prior Period Adjustment | Addition to or reduction in beginning retained earnings balance in statement of shareholders' equity due to correction of error in prior period |
| Restatement | Process of correcting errors in previous years' financial statements, retrospectively restated |
| Disclosure | Communicates impact of error on prior periods' net income |
| Earnings Per Share | Amount of income earned by a company expressed on a per share basis |
| Basic EPS | Equals total net income (less any dividends to preferred shareholders) divided by weighted-average number of common shares outstanding |
| Diluted EPS | Incorporates dilutive (reducing) effect of all potential common shares in calculation of EPS |
| Transactions with Owners | Include events such as increasing equity by issuing stock to shareholders or decreasing equity by buying back stock from shareholders or paying dividends to shareholders |
| Transactions with Nonowners | Include events reported as revenues, expenses, gains, and losses |
| Statement of Cash Flows | Statement summarizing transactions that caused cash to change during period |
| Cash | Refers to total of cash, cash equivalents, and restricted cash |
| Operating Cash Inflows | Include cash received from customers for sale of inventory and services, and from collection of interest, tax refunds, lawsuit settlements, and dividends. Interest and dividends received on investments |
| Operating Cash Outflows | Include cash paid for inventory, operating expenses, interest on debt, income taxes, and lawsuit settlements. Interest paid on bonds and notes payable |
| Direct Method | Cash effect of each operating activity is reported directly on statement of cash flows |
| Indirect Method | Net cash increase or decrease from operating activities is derived indirectly by starting with reported net income and working backwards to convert that amount to a cash basis |
| Investing Cash Outflows | Include cash paid for purchases of investments, PPE, and intangible assets; and lending with notes receivable |
| Investing Cash Inflows | Include later selling those investments, PPE, and intangible assets; and collecting those notes receivable |
| Financing Cash Inflows | Include receiving cash from issuance of bonds and notes payable (to creditors) and issuance of stock (to owners) |
| Financing Cash Outflows | Include paying back those bonds and notes payable, buying back issued stock, and paying dividends |
| Activity Ratios | Measure company's efficiency in managing its assets |
| Asset Turnover Ratio | Measure of company's efficiency in using assets to generate revenue |
| Net Sales / Average Total Assets | What is the calculation for Asset Turnover Ratio? |
| Receivables Turnover Ratio | Indicates how quickly company is able to collect its accounts receivable |
| Net Sales / Average Accounts Receivable | What is the calculation for Receivables Turnover Ratio? |
| Average Collection Period | Indication of number of days average accounts receivable balance is outstanding |
| 365 / Receivables Turnover Ratio | What is the calculation for Average Collection Period? |
| Inventory Turnover Ratio | Shows number of times average inventory balance is sold during reporting period |
| COGS / Average Inventory | What is the calculation for Inventory Turnover Ratio? |
| Average Days In Inventory | Indicates average number of days it normally takes to sell inventory |
| 365 / Inventory Turnover Ratio | What is the calculation for Average Days in Inventory? |
| Profit Margin On Sales | Measures amount of net income achieved per sales dollar |
| Net Income / Net Sales | What is the calculation for Profit Margin On Sales? |
| Return On Assets | Measures return to suppliers of equity capital, shareholders |
| Net Income / Average Total Assets | What is the calculation for Return On Assets? |
| Return On Shareholders' Equity | Amount of profit management can generate from shareholders' equity |
| Net Income / Average Shareholders' Equity | What is the calculation for Return On Shareholders' Equity? |
| DuPont Framework | Depicts return on shareholders' equity as determined by profit margin (profitability), asset turnover (efficiency), and equity multiplier (representing leverage) |
Created by:
MOWGaming04
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