CHAPTER 15

Question 1

Accounting

Answer 1

Measuring, interpreting, and communicating financial information to support internal and external decision-making.

Question 2

Financial Accounting

Answer 2

The area of accounting concerned with preparing financial information for users outside the organization.

Question 3

Management Accounting

Answer 3

The area of accounting concerned with preparing data for use by managers within the organization.

Question 4

Bookkeeping

Answer 4

Recordkeeping; the clerical aspect of accounting.

Question 5

Private Accountants

Answer 5

In-house accountants employed by organizations and businesses other than a public accounting firm; also called corporate accountants.

Question 6

Controller

Answer 6

The highest-ranking accountant in a company, responsible for overseeing all accounting functions.

Question 7

Certified Public Accountants (CPAs)

Answer 7

Professionally licensed accountants who meet certain requirements for education and experience and who pass a comprehensive examination.

Question 8

Public Accountants

Answer 8

Professionals who provide accounting services to other businesses and individuals for a fee.

Question 9

Audit

Answer 9

Formal evaluation of the fairness and reliability of a client’s financial statements.

Question 10

Generally Accepted Accounting Principles (GAAP)

Answer 10

Standards and practices used by publicly held corporations in the United States and a few other countries in the preparation of financial statements.

Question 11

External Auditors

Answer 11

Independent accounting firms that provide auditing services for public companies.

Question 12

International Financial Reporting Standards (IFRS)

Answer 12

Accounting standards and practices used in many countries outside the United States.

Question 13

Sarbanes-Oxley

Answer 13

The informal name of comprehensive legislation designed to improve the integrity and accountability of financial information.

Question 14

Assets

Answer 14

Any things of value owned or leased by a business.

Question 15

Owners’ Equity

Answer 15

The portion of a company’s assets that belongs to the owners after obligations to

Question 16

Liabilities

Answer 16

Claims against a firm’s assets by creditors.

Question 17

Accounting Equations

Answer 17

The equation stating that assets equal liabilities plus owners’ equity.

Question 18

Double-Entry Bookkeeping

Answer 18

A method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance.

Question 19

Matching Principle

Answer 19

The fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period.

Question 20

Accrual Basis

Answer 20

An accounting method in which revenue is recorded when a sale is made and an expense is recorded when it is incurred.

Question 21

Cash Basis

Answer 21

An accounting method in which revenue is recorded when payment is received and an expense is recorded when cash is paid.

Question 22

Depreciation

Answer 22

An accounting procedure for sys- tematically spreading the cost of a tangible asset over its estimated useful life.

Question 23

Closing the Books

Answer 23

Transferring net revenue and expense account balances to retained earnings for the period.

Question 24

Balance Sheet

Answer 24

A statement of a firm’s financial position on a particular date; also known as a statement of financial position.

Question 25

Calendar Year

Answer 25

A 12-month accounting period that begins on January 1 and ends on December 31.

Question 26

Fiscal Year

Answer 26

Any 12 consecutive months used as an accounting period.

Question 27

Current Assets

Answer 27

Cash and items that can be turned into cash within one year.

Question 28

Fixed Assets

Answer 28

Assets retained for long-term use, such as land, buildings, machinery, and equipment; also referred to as property, plant, and equipment.

Question 29

Current Liabilities

Answer 29

Obligations that must be met within a year.

Question 30

Long-Term Liabilities

Answer 30

Obligations that fall due more than a year from the date of the balance sheet.

Question 31

Retained Earnings

Answer 31

The portion of shareholders’ equity earned by the company but not distributed to its owners in the form of dividends.

Question 32

Income Statement

Answer 32

A financial record of a company’s revenues, expenses, and profits over a given period of time; also known as a profit- and-loss statement.

Question 33

Expenses

Answer 33

Costs created in the process of generating revenues.

Question 34

Cost of Goods Sold

Answer 34

The cost of producing or acquiring a company’s products for sale during a given period.

Question 35

Gross Profit

Answer 35

The amount remaining when the cost of goods sold is deducted from net sales; also known as gross margin.

Question 36

Operating Expenses

Answer 36

All costs of operation that are not included under cost of goods sold.

Question 37

EBITDA

Answer 37

Earnings before interest, taxes, depreciation, and amortization.

Question 38

Statement of Cash Flows

Answer 38

A statement of a firm’s cash receipts and cash payments that presents information on its sources and uses of cash.

Question 39

Return on Sales

Answer 39

The ratio between net income after taxes and net sales; also known as the profit margin.

Question 40

Return on Equity

Answer 40

The ratio between net income after taxes and total owners’ equity.

Question 41

Earnings per Share

Answer 41

A measure of a firm’s profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding.

Question 42

Working Capital

Answer 42

Current assets minus current liabilities.

Question 43

Current Ratio

Answer 43

A measure of a firm’s short-term liquidity, calculated by dividing current assets by current liabilities.

Question 44

Quick Ratio

Answer 44

A measure of a firm’s short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities; also known as the acid-test ratio.

Question 45

Inventory Turnover Ratio

Answer 45

A measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period.

Question 46

Accounts Receivable Turnover Ratio

Answer 46

A measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period.

Question 47

Debt-to-Equity Ratio

Answer 47

A measure of the extent to which a business is finance by debt as opposed to invested capital, calculated by dividing the company’s total liabilities by owners’ equity.

Question 48

Debt-to-Assets Ratio

Answer 48

A measure of a firm’s ability to carry long-term debt, calculated by dividing total liabilities by total assets.

Question 49

Distributed Ledger

Answer 49

Method of verifying and record- ing transactions that replaces the individual ledgers of market participants with a shared ledger that everyone can access.

Question 50

Blockchain

Answer 50

A type of distributed ledger in which each new transaction is captured in a “block,” which is then appended to the previous block in a continuous chain.