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Chapter 2

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Department
Accounting
Course
ACC 110
Professor
noclue
Semester
Fall

Description
1. The components of the financial statement package include: Balance Sheet, Income Statement and Statement of Comprehensive Income, Statement of changes in Equity or Statement of Retained Earnings, Statement of Cash Flows, Notes to the Financial Statements. 2. General Purpose Financial Statements: intended for no one in particular and for everyone in general. 3. Consolidated Financial Statements: Aggregate the financial statements of more than one corporation into a single set of statements, they are prepared when a corporation controls (owns more than 50 percent of) other corporations and they are intended to give stakeholders information on all the companies in the group. 4. Financial statements: are presented for two years, provide stakeholders with benchmarks. 5. Fiscal Year: the 12-month period about which an entity provides information. 6. Materiality: the significance of financial information to stakeholders. 7. Information is material: if its omission or misstatement affects the judgement of the information’s users. 8. Financial Statements should be: free of material misstatements or errors. 9. All material information should be: reported in the financial statements or notes because its absence may affect decision making. 10. Assets: are economic resources that provide future benefits to an entity. 11. Liabilities: are an entity’s obligations. 12. Owners’ Equity: is the investment the owners have made in the entity. 13. Assets: = Liabilities + Owners’ Equity 14. According to IFRS, an asset must have the following characteristics: Provide a future benefit to the entity, and it must be probable that the entity will enjoy the benefit. Be controlled by the entity that will obtain the benefits. Be the result of a transaction or event that has already occurred. Be measurable. 15. Capital Assets (Property, Plant and Equipment and Intangible Assets), according to IFRS: can be reported at cost or market value 16. Accounts Receivable: is an estimate of how much an entity expects to collect. 17. Inventory: is usually reported at its cost 18. Current Assets: are used up, sold, or converted to cash within one year or operating cycle 19. Operating Cycle: is the time it takes from the initial investment made in goods and services until cash is received from customers 20. Non-Current Assets: aren’t used up, sold, or converted to cash within one year or operating cycle 21. According to IFRS, a liability must: be the results of a past transaction or economic event, require some kind of economic sacrifice to settle 22. Current Liabilities: will be paid or satisfied within one year or operating cycle 23. Non-Current Liabilities: will be paid or satisfied in more than one year or operating cycle 24. Liquidity: the availability of cash or the ability to convert assets to cash to meet obligations 25. Liquidity is important to creditors: who are expecting to be paid and to potential creditors who are considering extending credit 26. Liquidity is important to shareholders: because a company that’s unable to meet its obligations is at significant risk of going out of business 27. Working Capital: = Current Assets – Current Liabilities 28. Working Capital: provides important information about the liquidity of an entity 29. The ratio of current assets to current liabilities is called: the Current Ratio, or Working Current Ratio 30. Current Ratio, or Working Current Ratio: = Current Assets / Current Liabilities 31. Owners’ Equity: is the amount owners have invested in an entity 32. Owners’ Equity represents: the amount of assets financed by the owners 33. Shareholders’ Equity: Owners’ Equity of a corporation 34. Partners’ Equity: Owners’ Equity of a partnership 35. Owners’ or Proprietor’s Equity: Owner’s Equity of a proprietorship 36. Common Shares Account Reflects: the amount of money that shareholders have
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