Business: A Changing World Chapter 14 – Flashcards
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accounting
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the recording, measurement, and interpretation of financial information
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certified public accountant (CPA)
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an individual who has been state certified to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records
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private accountants
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accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements
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certified management accountants (CMAs)
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private accountants who, after rigorous examination, are certified by the National Association of Accountants and who have some managerial responsibility
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managerial accounting
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the internal use of accounting statements by managers in planning and directing the organization's activities
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cash flow
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the movement of money through an organization over a daily, weekly, monthly, or yearly basis
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budget
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an internal financial plan that forecasts expenses and income over a set period of time
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annual report
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summary of a firm's financial information, products, and growth plans for owners and potential investors
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assets
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a firm's economic resources, or items of value that it owns, such as cash, inventory, land, equipment, buildings, and other tangible and intangible things
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liablilities
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debts that a firm owes to others
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owners' equity
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equals assets minus liabilities and reflects historical values
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accounting equation
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assets = liabilities + owners' equity
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double-entry bookkeeping
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a system of recording and classifying business transactions that maintains the balance of the accounting equation
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accounting cycle
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the four-step procedure of an accounting system: examining source documents, recording transactions in an accounting journal, posting recorded transactions, and preparing financial statements
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journal
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a time-ordered list of account transactions
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ledger
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a book or computer file with separate sections for each account
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income statement
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a financial report that shows an organization's profitability over a period of time - month, quarter, or year
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revenue
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the total amount of money received from the sale of goods or services, ad well as from related business activities
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cost of goods sold
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the amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies
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gross income (profit)
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revenues minus the cost of goods sold required to generate the revenues
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expenses
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the costs incurred in the day-to-day operations of an organizations
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depreciation
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the process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used
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net income
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the total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings
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balance sheet
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a "snapshot" of an organization's financial position at a given moment
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current assets
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assets that are used or converted into cash within the course of a calendar year
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accounts receivable
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money owed a company by its clients or customers who have promised to pay for the products at a later date
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current liabilities
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a firm's financial obligations to short-term creditors, which must be repaids within one year
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accounts payable
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the amount a company owes to suppliers for goods and services purchased with credit
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accrued expenses
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is an account representing all unpaid financial obligations incurred by the organization
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statement of cash flows
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explains how the company's cash changed from the beginning of the accounting period to the end
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ratio analysis
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calculations that measure an organization's financial health
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profitability ratios
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ratios that measure the amount of operating income or net income an organization is able to generate relatives to its assets, owners' equity, and sales
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profit margin
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net income/sales
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return on assets
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net income/assets
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return on equity
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net income/owners' equity also called return on investment (ROI)
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assets utilization ratios
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ratios that measure how well a firm uses its assets to generate each $1 of sale
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receivables turnover
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sales/accounts receivables
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inventory turnover
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sales/total inventory
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total asset turnover
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sales/total assets
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liquidity ratios
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ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt
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current ratio
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current assets/current liabilities
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quick ratio (acid test)
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a stringent measure of liquidity that eliminates inventory
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debt utilization ratios
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ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity
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debt to total assets ratio
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a ratio indicating how much of the firm is financed by debt and how much by owners' equity
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times interest earned ratio
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operating income / interest expense
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per share data
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data used by investors to compare the performance of one company with another on an equal, per share basis
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earnings per share
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net income or profit divided by the number of stock shares outstanding
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dividends per share
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the actual cash received for each share owned
