Term
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Definition
| Presentation in a classified balance sheet that lists assets by sections on the left side and liabilities and stockholders equity by sections on the right side. (p. 225). |
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Term
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Definition
| An account that increases either an asset, liability, or owners equity account. An example is Premium on Bonds Payable, which, when added to the Bonds Payable account, describes the total bond liability of the company. (p. 241). |
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Term
| available-for-sale investments |
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Definition
| Debt or equity securities not classified as held-to-maturity or trading securities. Companies report available-for-sale securities at fair value, but do not report changes in fair value as part of net income until after they sell the security. Interest on available-for-sale securities is recorded when earned. Unrealized holding gains and losses on available-for-sale securities are recognized as other comprehensive income and as a separate component of stockholders equity. (p. 218). |
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Term
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Definition
| Financial statement that shows the financial condition of a company at the end of a period by reporting its assets, liabilities, and stockholders equity (p. 214). |
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Term
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Definition
| Measure of solvency that indicates a companys ability to repay its liabilities from cash generated from operations (without having to liquidate productive assets). Computed as the ratio of cash provided by operating activities to total debt, as represented by average total liabilities. (p. 234). |
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Term
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Definition
| Material events with an uncertain future. The uncertainty can involve a possible gain (gain contingency) or possible loss (loss contingency) that will ultimately be resolved when one or more future events occur or fail to occur. Typical gain contingencies are tax operating loss carryforwards or company litigation against another party. Typical loss contingencies relate to litigation, environmental issues, possible tax assessments, or government investigations. (p. 236). |
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Term
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Definition
| An account that reduces either an asset, liability, or owners equity account. Examples include Accumulated DepreciationEquipment and Discount on Bonds Payable. Use of contra accounts enables readers of financial statements to see the original cost of the asset, liability, or owners equity account as well as the changes in the account to date. (p. 241). |
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Term
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Definition
| Cash and other assets a company expects to convert into cash, sell, or consume either in one year or in the operating cycle, whichever is longer. Companies present current assets in the balance sheet in order of liquidity. (p. 217). |
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Term
| current cash debt coverage ratio |
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Definition
| Measure of liquidity that indicates a companys ability to pay its short-term debts. Computed as cash provided by operating activities divided by average current liabilities. (p. 233). |
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Term
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Definition
| The obligations that a company reasonably expects to liquidate either through the use of current assets or the creation of other current liabilities. This concept includes payables resulting from the acquisition of goods and services; (2) collections received in advance for the delivery of goods or performance of services; and (3) other liabilities whose liquidation will take place within the operating cycle. (p. 222). |
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Term
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Definition
| The ability of a company to take effective actions to alter the amounts and timing of cash flows so it can respond to unexpected needs and opportunities. A companys liquidity and solvency affect its financial flexibility. (p. 215). |
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Term
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Definition
| Assets consisting of cash, accounts receivable, an ownership interest, or a contractual right to receive or obligation to deliver cash or another financial instrument. (p. 238). |
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Term
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Definition
| Cash flow activities that include (1) obtaining cash from issuing debt and repaying the amounts borrowed, and (2) obtaining cash from stockholders and paying them dividends. (p. 229). |
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Term
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Definition
| Measure of the cash remaining from operating activities after adjusting for capital expenditures and dividends paid. Some analysts prefer free cash flow to the measure of cash provided by operating activities because free cash flow takes into account the outflows needed to maintain current operations. (p. 234). |
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Term
| held-to-maturity investments |
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Definition
| Debt securities that a company has the positive intent and ability to hold to maturity. (p. 218). |
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Term
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Definition
| Assets that lack physical substance and that are not financial instruments. Intangible assets derive their value from the rights and privileges granted to the company using them. They are normally classified as long-term assets. Companies write off (amortize) limited-life intangible assets over their useful lives, and they periodically assess indefinite-life intangibles (including goodwill) for impairment. (p. 222). |
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Term
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Definition
| Cash flow activities that include (1) purchasing and disposing of investments and productive long-lived assets using cash, and (2) lending money and collecting the loans. (p. 229). |
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Term
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Definition
| The amount of time that is expected for an asset to be realized or otherwise converted into cash or until a liability has to be paid. In general, the greater a companys liquidity, the lower its risk of failure. (p. 214). |
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Term
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Definition
| Investments that companies expect to hold for many years. Examples are: (1) investments in securities, such as bonds or common stock; (2) investments in tangible fixed assets not currently used in operations, such as land held for speculation; (3) investments set aside in special funds, such as a pension fund; and (4) investments in nonconsolidated subsidiaries. Companies usually present long-term investments on the balance sheet just below current assets. (p. 220). |
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Term
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Definition
| Obligations that a company expects to pay at some date beyond the normal operating cycle. Examples are bonds payable, notes payable, some deferred income tax amounts, lease obligations, and pension obligations. Also referred to as long-term debt. Companies provide a great deal of supplementary disclosure for long-term liabilities because they often are subject to covenants and restrictions for the protection of lenders. (p. 224). |
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Term
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Definition
| Cash flow activities include the cash effects of transactions that create revenues and expenses, and thus enter into the determination of net income. (p. 228). |
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Term
| owners (stockholders) equity |
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Definition
| The ownership claim on a companys total assets. The owners equity section of the corporate balance sheet consists of capital stock, additional paid-in capital, and retained earnings. The ownership accounts (stockholders equity) in a corporation differ considerably from ownership accounts in a partnership or proprietorship. Partners show separately their permanent capital accounts and the balance in their temporary accounts (drawing accounts). Proprietors ordinarily use a single capital account that handles all of the owners equity transactions. (p. 225). |
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Term
| property, plant, and equipment |
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Definition
| Assets of a durable nature used in the regular operations of the business. These assets consist of physical property (such as land, buildings, machinery) and wasting resources (timberland, minerals). With the exception of land, a company either depreciates (e.g., buildings) or depletes (e.g., oil reserves) these assets. (p. 221). |
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Term
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Definition
| Presentation in a classified balance sheet that lists liabilities and stockholders equity directly below assets on the same page. (p. 226). |
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Term
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Definition
| An appropriation of retained earnings. Also called appropriated earnings. (p. 242). |
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Term
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Definition
| The ability of a company to pay its debts as they mature. A company with a high level of long-term debt relative to assets has lower solvency than a similar company with a low level of long-term debt. (p. 215). |
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Term
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Definition
| A basic financial statement that provides information about cash receipts, cash payments, and the net change in cash resulting from the operating, investing, and financing activities of a company during the period, in a format that reconciles the beginning and ending cash balances. (p. 227). |
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Term
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Definition
| Debt and equity securities bought and held primarily for sale in the near term to generate income on short-term price differences. (p. 218). |
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Term
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Definition
| The excess of total current assets over total current liabilities; represents the net amount of a companys relatively liquid resources. Also called net working capital. (p. 223). |
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