Acc Chapter 2

Groups

Assets

Current Assets

Convertible in Cash within a year or operating cycle.

1 Cash

2 Short-term investments

3 Accounts receivable

4 Inventories

5 Supplies

6 Prepaid Insurance

Companies list assets in order they are able to convert it to cash

Long-Term Investments

Investments or assets that held for more than a year

1 Stocks and Bonds

2 Long-Term assets

Buildings not being used

Property, Plant, and Equipment

Assets with long useful lives

They spread the total cost to various annual expenses

1 Land

2 Buildings

3 Equipment

- Depretiation

Intangible assets

Not physical substance yet often are very valuable

1 Goodwill

2 Patents, Copyrights, and trademarks

Liabilities

Current liabilities

Obligations to pay in one year or operating cycle

1 Accounts payable

2 Wages Payable

3 Bank loans payable

4 Interest payable

5 Taxes

Long-Term liabilities

Pay after a year

Order of Magnitude

1 Bonds Payable

2 Mortgages Payable

3 Long-Term notes payable

4 Lease liabilities

5 Pension Liabilities

Stockholders' Equity

Common Stock

Investment of Stockholders

Retained Earnings

Income retained by the firm

Definitions

Ratios

Mathematical relationship between one quantity and another

Expresed

Percentage

144%

Rate

1.44

Proportion

1.44:1

Type

Profitability Ratios

Measure income or operating success in a period of time

Liquidity Ratios

Short-Term ability of the company to pay its obligations and meet unexpected needs for cash

Solvency Ratios

Survival over a long period of time

Uses

Intracompany Comparisons

Two years for the same company

Industry-average comparisons

Based on average ratios for particular industries

Intercompany comparisons

Single competitor

Income Statement

Relevant

Decision making

Predicted value

Feedback

Timeliness

Reliable

Verifiable

Neutral

Materiality

Conservatism

Matching Principle

Revenue Recognition

Cost

Full disclosure

Monetary Unit

Time Period

Going Concern

Economic Entity