acct 3309 exam 2

uta

What is the primary purpose of any business?

Maximize value

Who are the Big 4 audit firms?

• PriceWaterhouseCoopers

• Deloitte

• Ernst & Young

• KPMG

GAAP requires that businesses use which type of accounting system?

Accrual basis system

What is the current ratio (working capital ratio)?

current assets/current liabilities

What is gross profit margin?

Sales - COGS

In a common size analysis, all of the items on the balance sheet should be expressed as a percentage of:

total assets

Which of the following are risks to being in business?

• investing in assets

• how the business is financed

• hiring people

• all of the above

all of the above

What does the Net Profit Margin Ratio (percentage) measure?

percentage of sales retained after taking out expenses

On the balance sheet, what do we call the money we have tied up in the things we intend to sell?

inventory

What is working capital (short term assets)?

current assets - current liabilities

__ arises when our interest conflict with another’s to whom we owe a duty.

conflict of interest

What is a duty of loyalty?

fiduciary duty

__ refers to when we figure out ways to increase our rewards for performance without actually improving our performance.

incentive gaming

What is an intentional deception for the purpose of personal or financial gain?

fraud

What is downwards earning management in a period of already depressed income?

big bath

What are earnings that are managed to maintain a steady improvement in income each year?

income smoothing

What do accountants use to record each day’s events?

general journal

What is used to bookkeep financial journals?

general ledger

When/who originally documented double-entry accounting?

1494 by Luca Pacioli

Why was double-entry accounting so important?

for the emergence of large-scale capitalist economies

What does the balance sheet measure?

financial position in a single point in time

What does the income statement measure?

operating performance between two points in time

What does the statement of cash flows measure?

operating performance under the cash basis of accounting

What are the three activities on the statement of cash flows?

• operating

• investing

• financial

What uses information that is objective and verifiable, and documents an actual exchange transaction?

historical cost

What measures assets using updated values?

fair value

What measures assets at what you could get if you were to sell them?

net realizable value

What measures assets at how much it would cost to replace that asset?

replacement cost

What is on the balance sheet?

• assets

• liabilities

• equity

How is a balance sheet organized?

in order of liquidity

What must be owned or controlled by a company and provide expected future benefits?

assets

What kind of asset is used/ turned to cash within one year?

current assets

What kind of asset takes longer than one year to turn to cash?

non-current assets

What is the amount paid in excess of the market value?

goodwill

What represents the obligations that a firm has to outside creditors?

liabilities

What are liabilities due within one year?

current liabilities

What are liabilities due after one year?

non-current liabilities

What is the value of the firm to its owners?

equity

What is the amounts paid directly to the firm in exchange for shares of ownership?

contributed capital

What is the portion of the income that the firm has earned over the years that has not been distributed to the owners in the form of dividends?

retained earnings (earned capital)

What are the notes to the financial statements?

• significant accounting policies

• material information not disclosed in the F/S

• important details about line items in the F/S