Ratio expresses the mathematical relationship between one quantity and anotherWorking capital – measure of liquidity - The difference between the amounts of current assets and current liabilitiesRelevance - quality of information that indicates the information makes a difference in a decisionComparability - Ability to compare the accounting information of different companies because they use the same accounting principlesConsistency - Use of the same accounting principles and methods from year to year within a companyfinancing activities - Borrowing money (debt) – Issuing shares of stock for cashInvesting 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.5.The constraint of determining whether an item is large enough to likely influence thedecision of an investor or creditor.6.An assumption that economic events can be identified with a particular unit ofaccountability.7.Obligations that companies reasonably expect to pay within the next year or operatingcycle, whichever is longer.8.Use of the same accounting principles and methods from year to year within a company.9.An accounting principle that states that companies should record assets at their cost.Multiple Choice10.Earnings per share is:A.A measure of liquidity.B.Most meaningful when used to analyze the performance of different companies.C.A measure of net income earned on each share of common stock.D.Determines the amount of dividends that a company pays.Page 9
