Accruals/Deferrals
Name two types of deferrals
Prepaid Expenses and Unearned Revenues
What is the current ratio and what does it tell investors?
Current ratio: current assets/current liabilities
how a company can pay back it's short term liabilities with its current assets
Belief that a company will continue to operate for the forseeable future
Going concern
What is the main difference between accrual and cash basis accounting
accrual- recognize revenue when earned and expenses when incurred; matching principle
cash- record revenue when cash is received and record expenses when paid in cash
What is the Gross Profit/Gross Margin Rate?
Gross Profit/Net Sales
practice of preparing financial statements at regular intervals
periodicity
What is a deferral?
Dollars before action
Pay for something in advance to be used in the future
What is the profit margin ratio?
Net Income/Net Sales
belief that items should be reported on the balance sheet at the price that was paid to acquire the item
Historical cost
What 2 things must always be remembered when recording entries under the accrual accounting method?
1. Cash is never included
2. 1 income statement/1 balance sheet account
What is solvency?
measure the ability of the company to survive over a long period of time
Revenue recognized in the period in which the performance obligation is satisfied
Revenue recognition principle
True or false: Accrual accounting is accepted under GAAP
True
What is the formula for free cash flow and what does it state?
FCF=net cash provided by operating activities-capital expenditures-dividends
deals with a firm's cash generating ability
Matches expenses with revenues in the period when the company makes efforts to generate those revenues
Expense recognition principle (AKA Matching Principle)