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University of Wisconsin - Platteville
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Financial Accounting Tools for Business Decision Making
Classified Balance Sheet
a balance sheet that contains a number of standard classifications and sections
Ability to compare the accounting information of different companies because they use the same accounting principles
The approach of choosing an accounting method, when alternatives exist, that will least likely overstate assets and net income.
Use of the same accounting principles and methods from year to year within a company
An accounting principle that states the companies should record assets at their cost.
Cash and other resources that companies reasonably expect to convert to cash or use up within one year or the operation cycle, whichever is longer.
Obligations that a company reasonably expects to pay within the next year or operating cycle, whichever is longer.
A measure used to evaluate a company's liquidity and short-term debt-paying ability; computed as current assets divided by current liabilities
Debt to Total Assets Ratio
Measure the percentage of total financing provided by creditors; computed as total debt divided by total assets.
Earnings Per Share (EPS)
A measure of the net income earned on each share of common stock; computed as net income minus preferred stock dividends divided by the average number of common shares outstanding during the year.
Economic Entity Assumptions
An assumption that every economic entity can be separately identified and accounted for.
Financial Accounting Standards Board (FASB)
The primary accounting standard-setting body in the United States.
Free Cash Flow
Cash remaining from operating activities after adjusting for capital expenditures and dividends paid.
Full Disclosure Principle
Accounting principle that dictates that companies disclose circumstances and events that make a difference to financial statement users.
Generally Accepted Accounting Principles (GAAP)
A set of rules and practices, having substantial authoritative support, that the accounting profession recognizes as a general guide.
Going Concern Assumption
The assumption that the company will continue in operation for the foreseeable future.
Assets that do not have physical substance
International Accounting Standards Board (IASB)
An accounting standard-setting body that issues standards adopted by many countries outside of the United States.
The ability of a company to pay obligations that are expected to become due within the next year or operating cycle.
Measures of the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.
1) Investments in stocks and bonds of other corporations that companies hold for more than one year
2) Long-term assets, such as land and buildings, not currently being used in the company's operations.
Long-Term Liabilities (Debt)
Obligations that a company expects to pay after one year
The constraint of determining whether an item is large enough to likely influence the decisions of an investor or creditor.
Monetary Unit Assumption
An assumption that requires that only those things that can be expressed in money are included in the accounting records.
The average time required to go from cash in producing revenues.
Measures of the operating success of a company for a given period of time.
Property, Plant, and Equipment
Assets with relatively long useful lives that companies use in operating the business and are not intended for resale.
Public Company Accounting Oversight Board (PCAOB)
The group charged with determining auditing standards and reviewing the performance of auditing firms.
An expression of the mathematical relationship between one quantity and another; may be expressed as a percentage, a rate, or a proportion.
A technique for evaluating financial statements that express the relationship among selected items of financial statement data.
The quality of information that indicates the information makes a difference in a decision
The quality of information that gives assurance that it is free of error, is factual, and is neutral.
Securities and Exchange Commission (SEC)
The agency of the U.S. Government that oversees U.S. financial markets and accounting standard-setting bodies.
The ability of a company to pay interest as it comes due and to repay the balance of debt at its maturity.
Measures of the ability of the company to survive over a long period of time.
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.
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.
The difference between the amounts of current assets and current liabilities.
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