Classified Balance Sheet
True or false: The liabilities and equity section on the balance sheet must be equal
False; assets must be equal to the sum of liabilities and equity
What are the 3 main types of ratios discussed in class?
2. Solvency
3. Liquidity
According to the financial accounting standards board, what are the 2 fundamental qualities useful information should possess?
1. Relevance
2. Faithful Representation
What are the 4 subcategories of the assets section on the classified balance sheet in order of liquidity?
1. Current assets
2. Long term investments
3. Property plant and equipment
4. Intangible assets
What is the formula for earnings per share and what does it measure?
net income-preferred dividends/(average common shares outstanding); measures profitability
Which assumption states that a company will remain in operation for the foreseeable future?
Going concern
Provide 3 examples of intangible assets
1. patent
2. copyright
3. goodwill
Which ratio provides additional insight regarding a company's cash generating ability?
Free cash flow
What qualities should information possess in order to have faithful representation?
1. Complete
2. Neutral
3. Free from error
What are the 2 main components that make up the equity section of the balance sheet?
1. Retained earnings
2. Paid in capital
is it more ideal to have a larger or small debts to assets ratio?
smaller; the higher the ratio the less likely it is for you to pay off your debt
Formula: total liabilities/total assets
Which assumption states that the life of a business can be divided into artificial time periods?
Periodicity assumption
What is the main distinction between a classified and unclassified balance sheet?
classified- separates the assets, liabilities and equity sections into more defined classes
unclassified- does not break down the balance sheet into more defined classes
What is the main distinction between solvency and liquidity ratios?
Solvency- measure a company's ability to survive over a LONG period of time
Liquidity- measure a company's ability to pay obligations that are due within the next year (SHORT) term
List 3 out of the 5 enhancing qualities?
1. Consistency
2. Comparability
3. Timely
4. Verifiability
5. Understandability