Chapter 16 Flashcards Preview

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Flashcards in Chapter 16 Deck (52):
1

accounting

the process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activites

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managerial accounting

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

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financial accounting

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

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generally accepted accounting principles (GAAP)

the financial accounting rules, standards, and usual practices followed by accountants in Canada when preparing financial statements ,until January 2011

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International Financial Reporting Standards (IFRS)

a set of globally accepted accounting standards adopted in Canada on January 1, 2011, for public companies and those private companies that chose to adopt them

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Accounting Standards for Private Enterprises (ASPE)

the accounting framework designed to replace Canadian GAAP for private companies

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annual report

a yearly document that describes a company's financial status and usually discusses the company's activities during the past year and its prospects for the future

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chartered accountant (CA)

an accountant who typically provides tax, audit, and management services

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certified management accountant (CMA)

an accountant who works primarily in industry and focuses on internal management accounting

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certified general accountant (CGA)

an accountant who focuses primarily on external financial reporting

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chartered professional accountant (CPA)

an accounting designation that unites the various accounting designations in Canada

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assets

things of value owned by a company

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liabilities

what a company owes to its creditors; also called debts

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owners' equity

the total amount of investment in the company minus and liabilities; also called net worth

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accounting equation

assets = owners equity + liabilities

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double-entry bookkeeping

a method of accounting in which each transaction is recorded as at least two entries, so that the accounts or records are changed

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T-account

an account that is often used to analyze financial transactions; T-accounts are named as such because they resemble the letter T

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trial balance

a list of each account and its net balance

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balance sheet (statement of financial position)

a financial statement that summarizes a company's financial position at a specific point in time

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current assets

assets that can or will be converted into cash within the next 12 months

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liquidity

the speed with which an asset can be converted to cash

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capital assets

long-term assets used by a company for more than a year, such as land, buildings, and machinery, also referred to as fixed assets or property, plant, and equipment (PPE)

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amortization (depreciation)

the allocation of an asset's original cost to the years in which it is expected to produce revenues

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intangible assets

long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill

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goodwill

the value that has been paid for a company that exceeds the value of its net tangible assets

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current liabilities

short-term claims that are due within a year of the date of the balance sheet

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long-term liabilities

claims that come due more than one year after the date of the balance sheet

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retained earnings

the amounts left over from profitable operations since the company's beginning; equal to total profits minus all dividends paid to shareholders

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income statement (statement of comprehensive income)

a financial statement that summarizes a company's revenues and expenses, and shows its total profit or loss over a period of time. Also known as the statement of comprehensive income, statement of earnings, and the profit and loss statement

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revenues (also called sales and income)

the dollar amount of a company's sales plus any other income it received from sources such as interest, dividends, and rents

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gross sales

the total dollar amount of a company's sales

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net sales

the amount left after deducting sales discounts and returns and allowances from gross sales

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expenses

the costs of generating revenues

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cost of goods sold (COGS)

the total expense of buying or producing a company's goods or services

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gross profit

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

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operating expenses

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

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net profit (net income)

the amount obtained by subtracting all of a company's expenses from its revenues, when the revenues are more than the expenses

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net loss

the amount obtained by subtracting all of a company's expenses from its revenues, when the expenses are more than the revenues

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statement of cash flows

a financial statement that provides a summary of the money flowing into and out of a company during a certain period, typically one year

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ratio analysis

the calculation and interpretation of financial ratios using data taken from the company's financial statements to assess its condition and performance

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liquidity ratios

ratios that measure a company's ability to pay its short-term debts as they come due

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current ratio

the ratio of total current assets to total current liabilities; used to measure a company's liquidity

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acid-test (quick) ratio

the ratio of total current assets excluding inventory to total current liabilities; used to measure a company's liquidity

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net working capital

the amount obtained by subtracting total current liabilities from total current assets; used to measure a company's liquidity

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profitability ratios

ratios that measure how well a company is using its resources to generate profit and how efficiently it is being managed

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net profit margin

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

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return on equity (ROE)

the ratio of net profit to total owners' equity; measures the return that owners receive on their investment in the company

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earnings per share (EPS)

the ratio of net profit to the number common shares outstanding; measures the number of dollars earned by each share

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activity ratios

ratios that measure how well a company uses its assets

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inventory turnover ratio

the ratio of costs of goods sold to average inventory; measures the speed with which inventory moves through a company and is turned into sales

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debt ratios

ratios that measure the degree and effect of a company's use of borrowed funds (debt) to finance its operations

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debt-to-equity ratio

the ratio of total liabilities to owners' equity; measures the relationship between the amount of debt financing and the amount of equity financing (owners' funds)