Chapter 14 Using Financial Information and Accounting

Question 1

Questions

Answer 1

Answers

Question 2

The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities is called __________.

Answer 2

accounting

Question 3

___________ accounting provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.

Answer 3

managerial accounting

Question 4

___________ accounting focuses on preparing external financial reports that are used by outsiders such as lenders, suppliers, investors, and government agencies to assess the financial strength of a business.

Answer 4

financial accounting

Question 5

The financial accounting standards followed by accountants in the United States when preparing financial statements is the __________________.

Answer 5

generally accepted accounting principles (GAAP)

Question 6

The private organization that is responsible for establishing financial accounting standards in the United States is __________________.

Answer 6

Financial Accounting Standards Board (FASB)

Question 7

The ________ is a yearly document that describes a firm’s financial status and usually discusses the firm’s activities during the past year and its prospects for the future.

Answer 7

annual report

Question 8

_________ is the process of reviewing the records used to prepare financial statements and issuing a formal auditor’s opinion indicating whether the statements have been prepared in accordance with accepted accounting rules.

Answer 8

auditing

Question 9

An accountant who has completed an approved bachelor’s degree program, passed a test prepared by the American Institute of CPAs, and met state requirements is called a(n) _______________. Only they can issue an auditor’s opinion on a firm’s financial statements.

Answer 9

certified public accountant (CPA)

Question 10

_________________ accountants are employed to serve one particular organization.

Answer 10

private accountants

Question 11

A managerial accountant who has completed a professional certification program, including passing an examination is called a(n) _______________.

Answer 11

certified management accountant (CMA)

Question 12

_________ accountants independently serve organizations and individuals on a fee basis.

Answer 12

public accountants

Question 13

The ____________, passed in 2002, set new standards for auditor independence, financial disclosure and reporting, and internal controls. It established an independent oversight board and restricts the types of non-audit services auditors can provide audit clients.

Answer 13

Sarbanes-Oxley Act

Question 14

_______ are things of value owned by a firm.

Answer 14

assets

Question 15

_____________, also called debts, are what a firm owes to its creditors.

Answer 15

liabilities

Question 16

The total amount of investment in the firm minus any liabilities is called __________ or net worth.

Answer 16

owners’ equity

Question 17

___________ is a method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.

Answer 17

double-entry bookkeeping

Question 18

A financial statement that summarizes a firm’s financial position at a specific point in time is the ____________.

Answer 18

balance sheet

Question 19

_________ is the speed with which an asset can be converted to cash.

Answer 19

liquidity

Question 20

Assets that can or will be converted to cash within the next 12 months are ______ assets.

Answer 20

current assets

Question 21

Long-term assets used by a firm for more than a year such as land, buildings, and machinery are _______ assets.

Answer 21

fixed assets

Question 22

The allocation of an asset’s original cost to the years in which it is expected to produce revenues is called __________.

Answer 22

depreciation

Question 23

Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill are ____________ assets.

Answer 23

intangible assets

Question 24

Short-term claims that are due within a year of the date of the balance sheet are _____________.

Answer 24

current liabilities

Question 25

Claims that come due more than one year after the date of the balance sheet are ___________ liabilities.

Answer 25

long-term liabilities

Question 26

The amounts left over from profitable operations since the firm’s beginning are the __________. These are equal to total profits minus all dividends paid to stockholders.

Answer 26

retained earnings

Question 27

A financial statement that summarizes a firm’s revenues and expenses and shows its total profit or loss over a period of time is a _________ statement.

Answer 27

income statement

Question 28

The dollar amount of a firm’s sales plus any other income it received from sources such as interest, dividends, and rents is ______________.

Answer 28

revenues

Question 29

The total dollar amount of a company’s sales is the _______________.

Answer 29

gross sales

Question 30

The amount left after deducting sales discounts and returns and allowances from gross sales is the _______________.

Answer 30

net sales

Question 31

The costs of generating revenues are called __________.

Answer 31

expenses

Question 32

_______________ is the total expense of buying or producing a firm’s goods or services.

Answer 32

cost of goods sold

Question 33

_________ is the amount a company earns after paying to produce or buy its products but before deducting operating expenses.

Answer 33

gross profit

Question 34

__________________ are those expenses of running a business that are not directly related to producing or buying its products.

Answer 34

operating expenses

Question 35

The amount obtained by subtracting all of a firm’s expenses from its revenues when the revenues are more than the expenses is the ______________.

Answer 35

net profit (net income)

Question 36

The amount obtained by subtracting all of a firm’s expenses from its revenues when the expenses are more than the revenues is the ______________.

Answer 36

net loss

Question 37

A financial statement that provides a summary of the money flowing into and out of a firm during a certain period, typically one year is the ___________________.

Answer 37

statement of cash flows

Question 38

The calculation and interpretation of financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance is called ____________.

Answer 38

ratio analysis

Question 39

Ratios that measure a firm’s ability to pay its short-term debts as they come due are __________ ratios.

Answer 39

liquidity ratios

Question 40

The ratio of total current assets to total current liabilities and is used to measure a firm’s liquidity is the _______ ratio.

Answer 40

current ratio

Question 41

The ratio of total current assets excluding inventory to total current liabilities and used to measure a firm’s liquidity is the __________ ratio.

Answer 41

acid-test (quick) ratio

Question 42

The amount obtained by subtracting total current liabilities from total current assets is the _________ and can be used to measure a firm’s liquidity.

Answer 42

net working capital

Question 43

Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed are ____________ ratios.

Answer 43

profitability ratios

Question 44

The ratio of net profit to net sales is called ________________ or return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.

Answer 44

net profit margin

Question 45

The ratio of net profit to total owners’ equity is the ___________ which measures the return that owners receive on their investment in the firm.

Answer 45

return on equity (ROE)

Question 46

The ratio of net profit to the number of shares of common stock outstanding is the __________. It measures the number of dollars earned by each share of stock.

Answer 46

earnings per share (EPS)

Question 47

Ratios that measure how well a firm uses its assets are __________ ratios.

Answer 47

activity ratios

Question 48

The ratio of cost of goods sold to average inventory is the ____________ ratio. It measures the speed with which inventory moves through a firm and is turned into sales.

Answer 48

inventory turnover ratio

Question 49

Ratios that measure the degree and effect of a firm’s use of borrowed funds (debt) to finance its operations are ________ ratios.

Answer 49

debt ratios

Question 50

The ratio of total liabilities to owners’ equity is the ___________ ratio. It measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner’s funds).

Answer 50

debt-to-equity ratio