Chapter 2 - GAAP Financial Statements Flashcards Preview

CPCU 540 > Chapter 2 - GAAP Financial Statements > Flashcards

Flashcards in Chapter 2 - GAAP Financial Statements Deck (35)
Loading flashcards...
1
Q

A document that quantitatively represents an organization’s financial activities or status

A

Financial Statement

2
Q

The classification, analysis, and determination of the appropriate method of reporting the effects of the bookkeeping records in an organization’s financial statements

A

Accounting

3
Q

What are the four primary financial statements?

A

Balance sheet, income statement, statement of changes in the shareholder’s equity, and statement of cash flows

4
Q

The financial statement that reports the assets, liabilities, and owners’ equity of an organization as of a specific date. Indicates the financial position (strength) of an organization.

A

Balance Sheet

5
Q

The difference between assets and liabilities in a for-profit business

A

Shareholder’s equity (a.k.a. Owners’ equity, net worth, or book value)

6
Q

A balance sheet asset classification that includes cash and other assets that are expected to be sold, converted into cash, or exchanged within the business’s normal operating cycle (usually one year)

A

Current assets

7
Q

The difference between the price paid for an acquired organization and the book value if the acquiring organization pays more than the book value for the acquired organization

A

Goodwill

8
Q

A balance sheet liability classification that includes obligations whose payments are reasonably expected to require the use of cash or the creation of other current liabilities within one year

A

Current liabilities

9
Q

The cumulative net income that an organization has retained, after payment of dividends, for reinvestment in the organization’s operations

A

Retained earnings

10
Q

Provides stakeholders with information regarding the profitability of an organization over a given period of time.

A

Income statement

11
Q

The inflow of assets, usually cash or accounts receivable, resulting from the sale of products or the rendering of services

A

Revenue

12
Q

Measured by the assets relinquished or consumed in the process of delivering goods or rendering services to customers

A

Expenses

13
Q

Sales minus the cost of goods sold on the income statement.

A

Gross Profit

14
Q

Gross profit expressed as a percentage of gross sales (gross profit divided by gross sales)

A

Gross Margin (or Gross Profit Margin)

15
Q

An income statement value that reflects income that results from the normal operations of the business during the period covered by the statement; calculated as the gross profit less selling, general, and administrative expenses.

A

Operating income

16
Q

Revenue minus expenses plus gains minus losses minus taxes

A

Net Income

17
Q

A measure of income that goes beyond that reported on the income statement by including items such as unrealized gains and losses

A

Comprehensive income

18
Q

The financial statement that explains any changes that have occurred in the organization’s capital accounts during a specific period

A

Statement of changes in shareholder’s equity

19
Q

What are the four major components of shareholders’ equity?

A

Paid-in capital, retained earnings, accumulated other comprehensive income, and treasury stock

20
Q

The total amount invested in an organization by the owners. Calculated as the par value of the stock issued plus any additional over the par value.

A

Paid-In Capital

21
Q

A corporate stock issued as fully paid to a stockholder and subsequently reacquired by the corporation to use for business purposes.

A

Treasury stock

22
Q

The financial statement that summarizes the cash effects of an organization’s operating, investing, and financing activities during a specific period

A

Statement of cash flows

23
Q

What are the three sections of the statement of cash flows?

A

Operating activities, Investing activities, and Financing activities

24
Q

An accounting method that spreads out the expense of a purchase over the life expectancy of the item

A

Depreciation expense

25
Q

Contain additional details that are disclosed to explain or amplify the information presented in the financial statements.

A

Notes to the Financial Statements

26
Q

An existing condition, situation or set of circumstances involving uncertainty as to a gain or a loss to a company.

A

Contingency

27
Q

Form required to be filed annually with the SEC by publicly traded companies. Similar to their annual report except that it contains more-detailed information about the company’s business, finances, and management. Also includes info such as company bylaws and other legal documents.

A

Form 10-K

28
Q

An abbreviated version of the 10-K report that publicly traded companies must file quarterly. Includes unaudited financial statements, Management Discussion & Analysis for the quarter, and a list of material events that have occurred within the company for the past 3 months

A

Form 10-Q

29
Q

The “current report” that publicly traded companies must file within four days of a major event to announce it to shareholders.

A

Form 8-K

30
Q

A formal report on the company’s performance for the stated year

A

Annual report

31
Q

A report to the users of the financial statements signed by the chairman of the board and the chief financial officer in which the company’s management acknowledges its responsibility for the quality and integrity of the company’s financial statements.

A

Report of Management

32
Q

Report used to explain the company’s operating results and condition. It should also provide insight into the opportunities, challenges, and risks faced by the company as well as the actions being taken to address them.

A

Management Discussion & Analysis of Results (MD&A)

33
Q

The provision of sufficient detail regarding transactions to enable a prudent investor to understand the economic effect of those transactions on the company’s financial statements.

A

Transparency

34
Q

What are two significant limitations of financial statements?

A
  • They do not measure the economic value of qualitative assets
  • They do not give the current fair (market) value of all the organization’s assets and liabilities
35
Q

Intangible items an organization develops such as its marketplace reputation, brand recognition, management team strength, or productive workforce. Not currently measured by financial statements.

A

Qualitative assets