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Chapter 17 Flashcards

1
Q

Accounting

A

The recording, classifying, summarizing, and interpreting of financial events and transactions in an organization to provide management and other interested parties

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2
Q

Accounting system

A

Method used to record and summarize accounting data

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3
Q

purposes of accounting

A
  • Help managers make well informed decisions
  • To report financial information about the firm to interested stakeholders (employees, owners, creditors, etc)
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4
Q

FASB

A

The Independent Financial Accounting Standards Board

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5
Q

GAAP

A

Generally accepted accounting principles

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6
Q

Accounting cycle

A

A six step procedure that results in the preparation and analysis of the major financial statements

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7
Q

Bookkeeping

A

The recording of business transactions

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8
Q

Journal

A

record book or computer program where the day’s transactions are kept by the bookkeeper

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9
Q

Double-entry bookkeeping

A

The practice of writing every transaction in two places so bookkeepers can check one list of transactions against another to make sure they both add up to the same amount

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10
Q

Ledger

A

Specialized accounting book or computer program where bookkeepers transfer information from accounting journals into specific categories so manager can find all the information about a single account in one place

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11
Q

Trial balance

A

A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced

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12
Q

financial statement

A

A summary of all the financial transactions that have occurred over a particular period. They indicate a firms financial health and stability, and are key factors in management decision making

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13
Q

Key financial statements of a business

A
  1. balance Sheet
  2. income statement
  3. statement of cashflows
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14
Q

Balance sheet

A

reports the firms financial condition on a specific date (Assets, liabilities, owner’s equity)

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15
Q

Income Statement

A
  • Shows a firms bottom line (profit)
    -Summarizes revenues, cost of goods sold, and expenses (including taxes) for a specific period and highlights the total profit or loss the firm experienced during that period
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16
Q

Statement of cash flows

A
  • provides a summary of money coming into and going out the firm. It tracks a company’s cash receipts and cash payments
  • reports cash receipts and disbursements related to the three major actives of a firm (Operations, Investments, Financing)
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17
Q

fundamental accounting equation

A

Assets = Liabilities + Owner’s equity

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18
Q

Assets

A

economic resources (things of value) owned by a firm.
- tangible and intangible items
- are measurable and quantifiable

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19
Q

Liquidity

A

the ease which accountants can convert assets to cash

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20
Q

Current Assets

A

items that can or will be converted into cash within one year

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21
Q

Fixed Assets

A

long term assets that are relatively permanent such a land

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22
Q

Intangible Assets

A

long term assets that have no physical form but do have value like patents, trademarks, copyrights.

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23
Q

Liabilities

A

what the business owes to others

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24
Q

current liabilities

A

debts due in one year or less

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25
long term liabilities
debts not due for another year or more
26
Accounts payable
current liabilities or bills the company owes others fro merchandise or services it purchases on credit that's not yet paid for
27
notes payable
can be short or long term that a business promises to pay by a certain date
28
bonds payable
long term liabilities
29
retained earning
accumulated earning from the firm's profits that are reinvested in the business and not paid out to stockholders in distributions of company profits
30
Revenue
the monetary value of what a firm received for goods sold, services rendered, and other payments,
31
cost of goods sold
measures the cost of merch the firms sells or the cost of raw materials and supplies it used in producing items for resale
32
Gross profit
how much a business earned by buying (or making) and selling merchandise
33
depreciation
the systemic write-off of the cost of a tangible asset over its estimated useful life
34
cash flow
the difference between cash coming in and going out of a business
35
steps in the accounting cycle
1. analyze source documents 2. record transactions in journals 3. transfer journal entries to ledger 4. take a trial balance 5. prepare financial statements 6. analyze financial statements
36
Ratio analysis
- the assessment of a firms financial condition, using calculations and financial ratios developed from the firms financial statements - provides key insights into how a firm compares to other firms in its industry on liquidity, amount of debt, profitability, and overall business activity
37
Liquidity ratios
measure a company's ability to turn assets into cash to pay its short term debts
38
current ratio
the ratio of a firms current assets to its current liabilities current ratio = Current assets / current liabilities
39
acid test / quick ratio
measures the cash, marketable securities (such as stocks or bonds) and receivables of a firm, compared to its current liabilities cash + accounts receivable + marketable securities / current liabilities
40
leverage (debt) ratios
measure the degree to which a firm relies on borrowed funds in its operations
41
debt to owners equity ratio
total liabilities/ owners equity
42
Profitability (performance) ratios
measure how effectively a firms managers are using its various resources to achieve profits
43
return on equity
measures risk by telling us how much a firm earned for each dollars invested by its owners equity
44
activity ratios
tells us how efficiently management is turning their inventory into sales
45
inventory turnover ratio
measures the speed with which inventory moves through the firms and gets converted into sales
46
lower than average inventory
often indicates obsolete merchandise on hand or boor buying practices
47
Financial accounting
generates financial information and analyses for people primarily outside the organization
48
annual report
a yearly statement pf the financial condition, progress, and expectations of an organization
49
private accountant
works for a single firm, gov agency, or nonprofit organization
50
public accountant
provides accounting services to individuals of businesses
51
CPA
certified public accountant
52
key provisions of Sarbanes Oxley Act
- prohibits accounting firms from providing certain nonaddicting work to companies they audit - strengthens the procreation of those who report wrongful actions of company officers - Requires CEOs and CFOs to certify the accuracy of financial reports and imparts strict penalties for any violation - prohibits corporate loans to directors and executives of the company - establishes PCAOB (Public Company Accounting Oversight Board) under SEC (Securities and Exchange Commissions) to oversee the accounting industry - altering or destroying key audit docs will result in felony charges
53
Managerial Accounting
provides information and analysis to managers inside the organization assist them in decision making
54
Auditing
reviewing and evaluating the info used to prepare a company's financial statements
55
Independent Audit
an evaluation and unbiased opinion about the acutance of a company's financial statements
56
tax accountants
is trained in tax law and is responsible for preparing tax returns, or developing tax strategies
57
government and not for profit accounting
supports organizations whose purpose is not generating profit, but serving ratepayers, taxpayers, and others according to a budget
58
10k part 1
a comprehensive overview of a company's operation, products, and or services
59
10k part 2
lists financial statements from the company
60
10k part 3
details about the company's senior excecutive team
61
10k part 4
exhibits
62
Sustainability reports
the environmental, social and governance issues and impacts caused by the company's everyday activities
63
fiscal period
full cycle of business
64
equity
residual ownership
65
net operating income
how much did a company make from their core business

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