Financial Accounting Exam 2

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Author:
cardosoval
ID:
241585
Filename:
Financial Accounting Exam 2
Updated:
2013-10-19 22:07:45
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Learning Objectives
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Description:
learning the objectives of chapters 4,5 and 7
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  1. usefulness of the income statement LO1
    • 1. evaluating past performance
    • 2. predicting future performance
    • 3. help access the risk and uncertainty of achieving future cash flows
  2. limitations of the income statement LO1
    • 1. companies omit items from the income statement that they cannot measure reliably
    • 2. income numbers are affected by the accounting methods employed.
    • 3. income measurement involves judgment
  3. two reasons why companies manage their earnings? LO1
    • companies have incentives to manage income to meet or beat the wall street expectations so that
    •  1. market price of stock increases
    •  2. value of tock options increase
  4. why might quality of earnings be reduced? LO1
    only if earnings management results in information that is less useful for predicting future earnings and cash flows
  5. format of the income statement, elements of the statement? LO2
    • revenues
    • expenses
    • gains
    • losses
  6. what are revenues? LO2
    • inflows or other enhancements of assets or settlement of its liabilities that constitute the entity's ongoing mayor or central operations
    • Ex: sales, dividends, rent, fee, interest receivable
  7. what are expenses? LO2
    outflows or other using up of assets or incurrences of liabilities that constitute the entity's ongoing major or central operations
  8. what are gains? LO2
    Gains are increases in equity(net assets) from peripheral or incidental transactions of an entity except those that result from revenues or investment by owners
  9. what are losses? LO2
    Losses are decreases in equity(net assets) from peripheral or incidental transactions of an entity except those that result from expenses or distributions by owners.

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