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Financial Accounting
chapter 11-13
33
Accounting
Undergraduate 2
12/12/2011

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Term
Corporation
Definition
is an entity created by law that is separate from its owners.
Term
Partnership
Definition
unincorporated association of two or more persons to pursue a business for profit as co-owners (no legal & unlimited liability).
Term
Sole Proprietorship
Definition
businesses owned by one person that is not organized as a corporation (not separate legal for debt).
Term
Common Stockholders usually have the general rights to
Definition
Vote at stockholder’s meetings, sell or otherwise dispose of their stock,Purchase their proportional share of any common stock later issued by the corporation,Receive the same dividend, if any, on each common share of the corporation, Share in any assets remaining after creditors and preferred stockholders are paid when, and if, the corporation is liquidated
Term
Authorized stock
Definition
is the number of shares that a corporation’s charter allows it to sell
Term
Issued (selling) stock
Definition
a corporation can sell stock directly or indirectly.
Term
Direct method of issuing (selling) stock
Definition
it advertises its stock issuance to potential buyers
Term
Indirect method of issuing (selling) stock
Definition
a corporation pays a brokerage house to issue its stock
Term
Outstanding stock
Definition
refers to issued stock held by stockholders
Term
Advantages of a Corporation
Definition
Separate legal entity,Limited liability of stockholders,Transferrable ownership rights, Continuous life,Lack of mutual agency, Ease of capital accumulation
Term
Disadvantages of a Corporation
Definition
Government regulations, Double Taxation
Term
Prior Period Adjustments
Definition
are corrections of material errors in prior period financial statements and are reported in Retained Earnings.
Term
Errors include in prior period adjustments
Definition
arithmetic mistakes, unacceptable accounting, and missed facts
Term
What do prior period adjustments do to financial statements?
Definition
Result in changing the beginning balance of Retained Earnings for events occurring prior to the earliest period reported in the current set of financial statements.
Term
Retained Earnings
Definition
generally consists of a company’s cumulative net income any net losses and dividends declared since its inception.
Term
The main purpose of the statement of cash flows
Definition
is to report cash receipts (inflows) and cash payments (outflows) during a period. Identifying the cash flows related to operating, investing, and financing activities. Detailed disclosure of individual cash flows that makes this statement useful to users.
Term
Direct method of Cash Flows
Definition
separately lists each major item of operating cash receipts and each major item of operating cash payments.
Term
Indirect Method of Cash Flows
Definition
reports net income and then adjusts it for items necessary to obtain net cash provided or used by operating activities.
Term
The purpose of a financial analysis for INTERNAL USERS
Definition
is to provide strategic information to improve company efficiency and effectiveness in providing products and services
Term
The purpose of a financial analysis for EXTERNAL USERS
Definition
to make better and more informed decisions in pursing their own goals.
Term
Main purpose of a financial analysis
Definition
evaluate a company’s performance and financial condition.
Term
Liquidity and efficiency
Definition
ability to meet short term obligations and to efficiently generate revenues.
Term
Solvency
Definition
ability to generate future revenues and meet using long term obligations.
Term
Profitability
Definition
ability to provide financial rewards sufficient to attract and retain financing.
Term
Market Prospects
Definition
ability to generate positive market expectations
Term
Horizontal Analysis
Definition
Comparison of a company’s financial condition and performance across time.
Term
Vertical Analysis
Definition
Comparison of a company’s financial condition and performance to a base amount.
Term
Ration Analysis
Definition
Measurement of key relations between financial statement items.
Term
Difference between HA and VA
Definition
Horizontal Analysis is across time whereas vertical analysis is to evaluate items or a group of items in terms of a specific base amount.
Term
Trend Analysis
Definition
a form of horizontal analysis that can reveal patterns in data across successive periods (analysis period amount / base period amount) X 100 * year is base amount
Term
investing outflows
Definition
make loans to others, purchase long term productive assets, purchase in securites
Term
financing inflows
Definition
from contributions by owners, issuing notes and bonds, issuing its own equity stock, issuing short and long term debt
Term
financing outflows
Definition
repay cash loans, pay withdrawals by owners, pay dividends to shareholders, purchase treasury stock
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