Chapter 14

Question 1

accounting

Answer 1

comprehensive system for collecting, analyzing, and communicating financial information

Question 2

bookkeeping

Answer 2

recording of accounting transactions

Question 3

accounting information system (AIS)

Answer 3

organized procedure for identifying, measuring, recording, and retaining financial information for use in accounting statements and management reports

Question 4

controller

Answer 4

person who manages all of a firm’s accounting activities (chief accounting officer)

Question 5

financial accounting

Answer 5

field of accounting concerned with external users of a company’s financial information

Question 6

managerial (management) accounting

Answer 6

field of accounting that serves internal users of a company’s financial information

Question 7

certified public accountant (CPA)

Answer 7

accountant licensed by the state and offering services to the public

Question 8

audit

Answer 8

systematic examination of a company’s accounting system to determine whether its financial reports reliably represent its operations

Question 9

generally accepted accounting principles (GAAP)

Answer 9

accounting guidelines that govern the content and form of financial reports

Question 10

tax services

Answer 10

assistance provided by CPAs for tax preparation and tax planning

Question 11

management advisory services

Answer 11

assistance provided by CPA firms in areas such as financial planning, information systems design, and other areas of concern for client firms

Question 12

core competencies for accounting

Answer 12

the combination of skills, technology, and knowledge that will be necessary for the future CPA

Question 13

private accounting

Answer 13

salaried accountant hired by a business to carry out its day-to-day financial activities

Question 14

management accountant

Answer 14

private accountant who provides financial services to support managers in various business activities within a firm

Question 15

certified management accountant (CMA)

Answer 15

professional designation awarded by the institute of Management Accountants in recognition of management accounting qualifications

Question 16

forensic accounting

Answer 16

the practice of accounting for legal purposes

Question 17

certified fraud examiner (CFE)

Answer 17

professional designation administered by the Association of Certified Fraud Examiners in recognition of qualifications for a specialty area within forensic accounting

Question 18

Sarbanes-Oxley Act of 2002 (SARBOX)

Answer 18

enactment of federal regulations to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations

Question 19

accounting equation

Answer 19

assets = liabilities + owners’ equity; used by accountants to balance data for the firm’s financial transactions at various points in the year

Question 20

asset

Answer 20

any economic resource expected to benefit a firm or an individual who owns it

Question 21

liability

Answer 21

debt owned by a firm to an outside organization or individual

Question 22

owners’ equity

Answer 22

amount of money that owners would receive if they sold all of a firm’s assets and paid all of its liabilities

Question 23

financial statement

Answer 23

any of several types of reports summarizing a company’s financial status to stakeholders and to aid in managerial decision making

Question 24

balance sheet

Answer 24

financial statement that supplies detailed information about a firm’s assets, liabilities, and owners’ equity

Question 25

current asset

Answer 25

asset that can or will be converted into cash within a year

Question 26

liquidity

Answer 26

ease with which an asset can be converted into cash

Question 27

fixed asset

Answer 27

asset with long-term use or value, such as land, buildings, and equipment

Question 28

depreciation

Answer 28

accounting method for distributing the cost of an asset over its useful life

Question 29

intangible assets

Answer 29

nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit

Question 30

goodwill

Answer 30

amount paid for an existing business above the value of its other assets

Question 31

current liability

Answer 31

debt that must be paid within one year

Question 32

accounts payable (payables)

Answer 32

current liability consisting of bills owed to suppliers, plus wages and taxes due within the coming year

Question 33

long-term liabilities

Answer 33

debt that is not due for at least one year

Question 34

paid-in capital

Answer 34

money that is invested in a company by its owners

Question 35

retained earnings

Answer 35

earnings retained by a firm for its use rather than paid out as dividends

Question 36

income statement (profit-and-loss statement)

Answer 36

financial statement listing a firm's annual revenues and expenses so that a bottom line shows annual profit or loss

Question 37

revenues

Answer 37

funds that flow into a business from the sale of goods or services

Question 38

cost of revenues

Answer 38

costs that a company incurs to obtain revenues from other companies

Question 39

cost of goods sold

Answer 39

costs of obtaining materials for making the products sold by a firm during the year

Question 40

gross profit

Answer 40

preliminary, quick-to-calculate profit figure calculated from the firm's revenues minus its costs of revenues (the direct costs of getting the revenues)

Question 41

operating expenses

Answer 41

costs, other than the cost of revenues, incurred in producing a good or service

Question 42

operating income

Answer 42

gross profit - operating expense

Question 43

net income (net profit, net earnings)

Answer 43

gross profit - operating expenses and income taxes

Question 44

statement of cash flows

Answer 44

financial statement describing a firm's yearly cash receipts and cash payments

Question 45

budget

Answer 45

detailed statement of estimated receipts and expenditures for a future period of time

Question 46

revenue recognition

Answer 46

formal recording and reporting of revenues at the appropriate time

Question 47

full disclosure

Answer 47

guidelines that financial statements should not include just numbers but should also furnish management's interpretations and explanations of those numbers

Question 48

solvency ratio

Answer 48

financial ratio, either short- or long-term, for estimating the borrower's ability to repay debt

Question 49

profitability ratio

Answer 49

financial ration for measuring a firm's potential earnings

Question 50

activity ratio

Answer 50

financial ratio for evaluating management's efficiency in using a firm's assets

Question 51

short-term solvency ratio

Answer 51

financial ratio for measuring a company's ability to pay immediate debts

Question 52

current ratio

Answer 52

financial ratio for measuring a company's ability to pay current debts out of current assets

Question 53

debt

Answer 53

company's total liabilities

Question 54

leverage

Answer 54

ability to finance an investment through borrowed funds

Question 55

earnings per share

Answer 55

profitability ratio measuring the net profit that the company earns for each share of outstanding stock

Question 56

code of professional conduct

Answer 56

code of ethics for CPAs as maintained and enforced by the AICPA