Chapter 2

  1. Current Liabilities
    Obligations that a company resonably expects to pay within the next year or operating cycle, whichever is longer.
  2. Free cash flow
    Cash remaining from operating activities after adjusting for capital expenditures and dividends paid.
  3. Profitability ratios
    Measures of the operating success of a company for a given period of time.
  4. Securities and Exchange Commission (SEC)
    The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies.
  5. Monetary unit assumption
    An assumption that requires that only those things that can be expressed in money are included in the accounting records.
  6. Classified balance sheet
    A balance sheet that contains a number of standard classifications and sections.
  7. Full disclosure principle
    Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
  8. Relevance
    The quality of information that indicates the information makes a difference in a decision.
  9. Cost principle
    An accounting principle that states that companies should record assets at their cost.
  10. Ratio
    An expression of the mathematical relationship betweenn one quantity and another, may be expressed as a percentage, a rate, or a proportion.
  11. Time period assumption
    An assumption that the life of a business can be divided into artificial time periods and that useful reports covering those periods can be prepared for the business.
  12. Earnings per share (EPS)
    A measure of the net income earned on each share of common stock; computed as net income minus preeferred stock dividends divided by the average number of common shares outstanding during the year.
  13. Solvency
    The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity.
  14. Statement of stockholders' equity
    A financial statement that presents the factors that caused stockholders' equity to change during the period, including those that caused retained earnings to change.
  15. Current assets
    Cash and other resources that companies reasonably expect to convert to cash or use up within one year or the operating cycle, whichever is longer.
  16. Conservatism
    The approach of choosing an accounting method, when alternatives exist, that will least likely overstate assets and net income.
  17. Liquidity
    The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.
  18. Ratio analysis
    A technique for evaluating financial statements that expresses the relationship among selected financial statement data.
  19. Debt to total assets ratio
    Measures the percentage of total financing provided by creditors; computed as total debt divided by total assets.
  20. Going concern assumption
    The assumption that the company will continue in operation for the foreseeable future.
  21. Long-term investments
    Generally, (1) investments in stocks and bonds of other corporations that companies hold for more than one year, and (2) long-term assets, such as land and buildings, not currently being used in the company's operations
  22. Generally accepted accounting principles (GAAP)
    A set of rules and practives, having substantial authoritative support, that the accounting profession recognizes as a general guide for financial reporting purposes.
  23. Current ratio
    A measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities.
  24. Materiality
    The constraint of determining whether an item is large enough to likely influence the decision of an investor or creditor.
  25. Public Company Accounting Oversight Board (PCAOB)
    The group charged with determining auditing standards and reviewing the performance of auditing firms.
  26. Consistency
    Use of the same accounting principles and methods from year to year within a company.
  27. Working capital
    The difference between the amounts of current assets and current liabilities.
  28. Liquidity ratios
    Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
  29. Comparability
    Ability to compare the accounting information of different companies because they use the same accounting principles.
  30. Financial Accounting Board (FASB)
    The primary accounting standard-setting body in the United States.
  31. Operating cycle
    The average time required to go from cash to cash in producing revenues.
  32. Property, plant, and equipment
    Assets with relatively long useful lives that companies use in operating the business and are not intended for resale.
  33. Economic entity assumption
    An assumption that every economic entity can be separately identified and accounted for.
  34. International Accounting Standards Board (IASB)
    An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
  35. Intangible assets
    Assets that do not have physical substance.
  36. Solvency ratios
    Measures of the ability of the company to survive over a long period of time.
  37. Long-term liabilities (Long-term debt)
    Obligations that a company expects to pay after one year.
  38. Reliability
    The quality of information that gives assurance that is free of error, is factual, and is neutral.
Card Set
Chapter 2
A Further Look at Financial Statements