Business Chapter 15 – Flashcards with Answers
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Accounting
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The process of measuring, interpreting and communicating financial information to enable people inside and outside the firm to make informed decisions
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Open Book Management
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Sharing sensitive financial information for employees and teaching them how to understand and use financial statements
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Financing activities
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Provide necessary funds to start a business and expand it after it begins operating
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Investing activities
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Provide valuable assets required to run a business
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Operating activities
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Focus on selling goods and services, but they also consider expenses as important elements of sound financial management
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What are (3) types of Accounting Professionals?
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Public Accountants, Management Accountants and Government & Not-for-Profit Accountants
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What is a Public Accountant?
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They provide accounting services (auditing, tax preparation, consulting) to individuals or business firms for a fee
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What is a Management Accountant?
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They provide timely, relevant, accurate and concise information that executives can use to operate their firms
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What is the foundation of accounting systems? *****
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(GAAP) Generally Accepted Accounting Principles-encompass the conventions, rules and procedures for determining acceptable accounting practices (FASB) Financial Accounting Standards Board- is primarily responsible for evaluating, setting and modifying GAAP in the US
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Accounting cycle
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Set of activities involved in converting information about transactions into financial statements
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Assets
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Anything of value owned or leased by a business
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Liability
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Claim against a firm's assets by a creditor
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Owner's equity
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All claims of the proprietor, partners or stockholders against the assets of the firm, equal to the excess of assets over liabilities
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Basic accounting equation=
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Assets = Liabilities + Owners' Equity
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Double-entry bookkeeping
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Process by which accounting transactions are entered; each individual transaction always has an offsetting transaction
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Impact of Technology on Accounting
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-Simplifies the accounting process by automating data entry and calculations -Available products are customized for businesses of different sizes
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Balance Sheet
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Statement of a firm's financial position (what it owns and the claims against its assets) at a particular point in time
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Income Statement
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Financial record of a company's revenues and expenses and profits over a period of time. Reports profit or loss
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Statement of Owner's Equity
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Is designed to show the components of the change in equity from the end of one fiscal year to the end of the next
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Statement of cash flows
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A firm's cash receipts and cash payments that presents information on its sources and uses of cash
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Accural accounting
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Method that records revenue and expenses when they occur, not necessarily when cash actually changes hands
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Ratio analysis
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Tool for measuring a firm's liquidity, profitability and reliance on debt financing as well as the effectiveness of management's resource utilization
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Current ratio
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Compares current assets to current liabilities
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Acid-test (or quick) ratio
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Measures the ability of a firm to meet its debt payments on short notice
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Inventory turnover ratio
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Indicates the number of times merchandise moves through a business Cost of goods sold / Average inventory
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Total asset turnover ratio
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Indicated how much in sales each dollar invested in assets generates Sales / Average total assets
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Profitability ratios
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Measure the organization's overall financial performance by evaluating its ability to generate revenues in excess of operating costs and other expenses
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Leverage ratios
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Measure the extent to which a firm relies on debt financing
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Budget
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Planning and control tool that reflects a firm's expected sales revenues
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Cash budget
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Tracks the firm's cash inflows and outflows
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Exchange rates
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Ratio in which a country's currency can be exchanged for other currencies
