ACCT 5103 Midterm

  1. Agency theory
    individuals maximize their own utility
  2. Informtion asymmetry
    each side has different information
  3. Moral hazard
    managers know their actions, but shareholders do not
  4. Economic income
    income is the increase in net worth
  5. Capital maintenance
    no income should be recognized until capital has been retained and costs recovered
  6. Stocks
    resources that are measured at a particular time
  7. Physical capital maintenance
    profit earned if productive capacity has increased at the end of the year
  8. Balance sheet approach
    recognize earnings with an increase in net worth or net increase in asset values
  9. Economic income pros
    easier to assess the firm, more predictive value, more relevant, increases comparability, enhances stewardship
  10. Economic income cons
    less reliable, ignores demand for products, costs > benefits, volatility
  11. Comprehensive Income
    includes all changes in equity during a period except those resulting from owners
  12. Accounting Income
    determine income by measuring only the recorded net assets
  13. Income statement approach
    income is the result of certain activities that took place during the period
  14. Transaction approach
    income is the result of dealings with external entities
  15. Flows
    productive services that must be measured over some period of time
  16. Matching
    match associated efforts with accomplishments
  17. Financial Capital Maintenance
    profit earned if the financial amount of net assets are greater at the end of the period than at the beginning
  18. Accounting income pros
    reflects business reality, measured by transactions, less guesswork, matching, more reliable
  19. Accounting income cons
    less relevant, harder to predict
  20. Conservatism
    when in doubt choose the accounting method that will be least likely to overstate assets
  21. Human information processing
    humans have a limited ability to process information, people may not make the optimal decision
  22. Benefits of the CFP
    updates framework, reduces bias, frame of reference, more efficient communication, better standards setting
  23. Efficient Market Hypothesis
    price is determined by a consensus of market participants, price fully reflects all available information and reacts immediately to new information
  24. Sources of financial information
    financial statements, notes to the F/S, supplementary schedules, parenthetical disclosures, auditor's report, interim F/S, MD&A, letter to stockholders, analyst reports
  25. Past/Historic pro
    easy to calculate and reliable
  26. Past/Historic con
    may not be relevant
  27. Current/Replacement pro
    reflects current conditions, relevant
  28. Current/Replacement con
    may be hard to find for all elements, less reliable
  29. Future/Expected pro
    best fits concept of economic income, most relevant value,
  30. Future/Expected Con
    least reliable, hard to predict
  31. Entry Price/Replacement Cost
    oriented to present production, easier to compare
  32. Exit Values/Selling price
    helps measure opportunity cost and to evaluate liquidity
  33. Discounted present value
    Better for valuing assets with no market value, Lots of variables, Better technique for valuation
  34. Fair Value
    price that would be received to sell and asset or paid to transfer a liability in an orderly transaction between market participants
  35. Assets
    results from a past transaction, represents a present right, future benefit
  36. Liabilities
    past transaction, present obligation, future transfer of benefits
  37. Equity
    residual interest
  38. Statement of Cash Flows helps...
    helps users assess future cash flow, provides feedback about actual cash flows, evaluates the availability of cash, helps users evaluate risk
Card Set
ACCT 5103 Midterm