Ratio expresses the mathematical relationship between one quantity and another

Working capital measure of liquidity - The difference between the amounts of current assets and current
liabilities
Relevance - quality of information that indicates the information makes a difference in a decision
Comparability - Ability to compare the accounting information of different companies because they use the same
accounting principles
Consistency - Use of the same accounting principles and methods from year to year within a company
financing activities - Borrowing money (debt) Issuing shares of stock for cash
Investing activities - involve the purchase of the resources a company needs in order to operate. Purchase
computers, delivery trucks, furniture, buildings. Investments example of an investing activity.
Operating Activities Revenues amounts earned from the sale of products. Inventory Goods available for sale
to customers.
Materiality- Whether an item is large enough to likely influence the decision of an investor or creditor.
An item is material when its size makes it likely to influence the decision of an investor or creditor.
Profitability ratios- Measures of the operating success of a company for a given period of time.
Liquidity ratios- Measures of the short-term ability of the company to pay its maturing obligations and to meet
unexpected needs for cash.
Solvency ratios- Measures of the ability of the company to survive over a long period of time.
Current ratio- A measure of liquidity computed as current assets divided by current liabilities.
Debt to assets ratio - A measure of solvency calculated as total liabilities divided by total assets - measures the
percentage of total financing provided by creditors.
Dividends appear on Retained Earnings Statement and Cash Flow Statement.
Retained earnings Net Gain will increases it, Net Loss will decreases it, and Dividends will decreases it
List CURRENT ASSETS in order of liquidity. 1. Cash 2. Short-term investments 3. Accounts Receivable 4. Inventory
5. Prepayments (Prepaid expenses)
Current liabilities - Accounts payable, salaries and wages payable, notes payable, interest payable, and income
taxes payable
Intangible assets - Goodwill, patents, copyrights, and trademarks or trade names
Fair value principle - Assets and liabilities should be reported at fair value (the price received to sell an asset or
settle a liability)
Historical cost principle - An accounting principle that states that companies should record assets at their cost
Full disclosure principle - Accounting principle that dictates that companies disclose circumstances and events
that make a difference to financial statement users
Income statement - reports a company's revenues and expenses and resulting net income or net loss for a
specific period of time.
Retained earnings statement - summarizes the amounts and causes of changes in retained earnings for a specific
time period.
Balance sheet - reports the assets and claims to those assets at a specific point in time
Statement of cash flows - A financial statement that provides financial information about the cash receipts and
cash payments of a business for a specific period of time. Statement of cash flows reports the cash effects of a
company's operating, investing, and financing activities.
Statement of Cash Flows - cash provided by operating activities fails to take into account that a company must
invest in new property, plant, and equipment and must maintain dividends at current levels to satisfy investors.
Free cash flow describes the net cash provided by operating activities after adjusting for capital expenditures and
dividends paid.
Generally accepted accounting principles (GAAP) - A set of accounting standards that have substantial
authoritative support and which guide accounting professionals

Solving an Ethical Dilemma 1. Recognize an ethical situation and the ethical issues involved. 2. Identify and
analyze the principal elements in the situation. 3. Identify the alternatives, and weigh the impact of each
alternative on various stakeholders