question

Accounting

answer

The recording, measurement and interpretation of financial information

question

Certified Public Accountant (CPA)

answer

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 -Most CPAs are self-employed or members of large public accounting firms

question

Sarbanes-Oxley Act

answer

required firms to be more rigorous in their accounting and reporting practices -After the accounting scandals of Enron and Worldcom in the early 2000's, Congress passed this

question

Dodd Frank Act

answer

strengthens the oversight of financial institutions -During the latest financial crisis, banks developed questionable lending practices, leading to this

question

Forensic accounting

answer

-fit for legal review -Involves analyzing financial documents in search of fraudulent entries or financial misconduct, in other words "cooked books"

question

Private Accountants

answer

Employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements -Deeply involved in most of the important financial decisions of the organization

question

Certified Management Accountants (CMAs)

answer

Private accountants who, after rigorous examination, are certified by the National Association of Accountants and who have some managerial responsibility

question

Bookkeeping

answer

-much narrower and more mechanical than accounting; limited to routine recording of business transactions -obtain and record the information used by accountants; requires less training

question

Accountants

answer

have more training allowing them to understand, interpret and analyze financial information

question

Managerial Accounting

answer

The internal use of accounting statements by managers in planning and directing the organization's activities

question

Cash Flow

answer

The movement of money through an organization over a daily, weekly, monthly or yearly basis -Perhaps management's single greatest concern is:

question

Budget

answer

An internal financial plan that forecasts expenses and income over a set period of time -Managerial accountants help prepare this -The principal value of budgets lies in the breakdown of cash inflows and outflows

question

accounting statements

answer

-Managers use accounting statements to report to outsiders -Used for filing income taxes, obtaining credit and reporting results to stockholders

question

Audited financial statements

answer

are those signed off on by a certified public accountant

question

The Accounting Equation

answer

Assets = Liabilities + Owner's Equity

question

Assets

answer

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

question

Short term assets

answer

anything that can be turned into cash after a year, always at the top of financial statement, wall street pays attention to this

question

Long term assets

answer

asset that will take longer than a year to liquidate it into cash, like land

question

Liabilities

answer

Debts that a firm owes to others Not all debt is bad to a company -Interest you pay on a debt is a write off

question

Owners' Equity

answer

Equals assets minus liabilities and reflects historical values

question

Double-Entry Bookkeeping

answer

A system of recording and classifying business transactions that maintains the balance of the accounting equation

question

Balance

answer

To keep the accounting equation in balance, each transaction must be recorded in two separate accounts

question

Classification

answer

All business transactions are classified as either assets, liabilities, or owner's equity

question

Break Down

answer

Most organizations further break down these accounts, such as assets may be broken down into cash, inventory and equipment

question

Accounting Cycle

answer

The four-step procedure of an accounting system: 1)examining source documents, 2)recording transactions in an accounting journal, 3) posting recorded transactions 4) preparing financial statements

question

Journal

answer

A time-ordered list of account transactions

question

Ledger

answer

A book or computer file with separate sections for each account

question

Income Statement

answer

A financial report that shows an organization's profitability over a period of time - month, quarter, or year -Indicates a firm's profitability or income (the bottom line), derived by subtracting expenses from revenues -Other names include profit and loss (P) statement or operating statement

question

Revenue

answer

The total amount of money received from the sale of goods or services, as well as from related business activities -Total dollar amount of products sold; includes rental-lease income and interest income -Nonbusiness entities obtain revenues through donations and grants

question

Cost of Goods Sold

answer

The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies -The cost of producing the goods and services, including labor, raw materials and other expenses associated with production

question

Cost of Goods Equation

answer

Cost of Goods Sold = Beginning Inventory + Interim Purchases - Ending Inventory

question

Gross Income (or Profit)

answer

Revenues minus the cost of goods sold required to generate the revenues

question

Expenses

answer

Always referred to as a percentage -The costs incurred in the day-to-day operations of an organization

question

Common expense accounts

answer

1) Selling, general, and administrative expenses (includes depreciation) 2) Research, development and engineering expenses 3) Interest expenses

question

Depreciation

answer

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

question

Net Income

answer

The total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings -Most companies present the current year's results along with the previous two years' income statements -The portion of net income the business does not keep is what it pays out as dividends to shareholders

question

Shares outstanding

answer

can be classified as either primary (primary EPS) or fully diluted (diluted EPS).

question

EPS

answer

net income divided by the number of shares outstanding

question

Primary EPS

answer

is calculated using the number of shares that have been issued and held by investors. These are the shares that are currently in the market and can be traded.

question

Diluted EPS

answer

entails a complex calculation that determines how many shares would be outstanding if all exercisable warrants, options, etc. were converted into shares at a point in time, generally the end of a quarter.

question

Why we prefer diluted EPS

answer

it is a more conservative number that calculates EPS as if all possible shares were issued and outstanding. The number of diluted shares can change as share prices fluctuate (as options fall into/out of the money), but generally the Street assumes the number is fixed as stated

question

Companies report both primary and diluted EPS

answer

and the focus is generally on diluted EPS, but investors should not assume this is always the case. Sometimes, diluted and primary EPS are the same because the company does not have any "in-the-money" options, warrants or convertible bonds outstanding. Companies can discuss either, so investors need to be sure which is being used

question

Balance Sheet

answer

A "snapshot" of an organization's financial position at a given moment -Shows assets and the funding used to pay for these assets, such as bank debt or owners' equity -Takes its name from its reliance on the accounting equation: assets must equal liabilities plus owners' equity -The balance sheet is an accumulation of all financial transactions since the company's founding

question

liquidity

answer

how fast they can be turned into cash

question

Current Assets

answer

Assets used or converted into cash within the course of a calendar year Cash, temporary investments, accounts receivable and inventory

question

Accounts Receivable

answer

Money owed a company by its clients or customers who have promised to pay for the products at a later date

question

Current Liabilities

answer

A firm's financial obligation to short-term creditors, which must be repaid within one year

question

Accounts Payable

answer

The amount a company owes to suppliers for goods and services purchased with credit

question

Accrued Expenses

answer

An account representing all unpaid financial obligations incurred by the organization

question

Owners' Equity

answer

-Owners' equity includes the owners' contributions along with income retained to finance growth and development -Owners' equity differs dramatically from company to company as some corporations sell stock to investors, who then become the owners -Some companies have several kinds of stock, each with a different claim on the organization -Each type of stock is represented by a separate owners' equity account, called contributed capital

question

Statement of Cash Flows

answer

Explains how the company's cash changed from the beginning of the accounting period to the end -flows takes the cash balance from one year's balance sheet and compares it with the next while providing detail about how the firm used the cash

question

Cash From Operating Activities

answer

Calculated by combining the changes in the revenue, expense, current assets and current liability accounts

question

Cash From Investing Activities

answer

Calculated from changes in the long-term or fixed asset accounts

question

Cash From Financing Activities

answer

Calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity

question

Goodwill

answer

The excess of the purchase price over the fair market value of an asset. Accountants record this as a 'write off' in the financial report. -The market sets the price of what a business is worth. In mergers and acquisitions, goodwill arises when more was paid for the business than you'd expect from just looking at the value of its assets and liabilities. This difference can have a number of reasons, including a happy workforce, customer loyalty, a good location, and so on.

question

Ratio Analysis

answer

Calculations that measure an organization's financial health -Brings the complex information from the income statement and balance sheet into sharper focus -A ratio is simply a number divided by another resulting in a number showing a relationship between the two -Whether these numbers are good or bad depends on their relation to other numbers, such as ratios of prior performance or the performance of "peers"

question

Profitability Ratios

answer

-Ratios measuring the amount of operating income or net income an organization is able to generate relative to its assets, owners' equity, and sales -Common profitability ratios include profit margin, return on assets and return on equity

question

Profit Margin

answer

Net income divided by sales

question

Return on Assets

answer

Net income divided by assets

question

Return on Equity

answer

Net income divided by owners' equity; also called return on investment (ROI)

question

Asset Utilization Ratios

answer

Ratios that measure how well a firm uses its assets to generate each $1 of sales -Managers use asset utilization ratios to pinpoint areas of inefficiency in their operations -These ratios - receivables turnover, inventory turnover, and total asset turnover - relate balance sheet assets to sales, which are found on the income statement

question

Receivables Turnover

answer

Sales divided by accounts receivable

question

Inventory Turnover

answer

Sales divided by total inventory

question

Total Asset Turnover

answer

Sales divided by total assets

question

Liquidity Ratios

answer

Ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt -High liquidity ratios may satisfy a creditor's need for safety, but may indicate the company is not using its current assets efficiently -Liquidity ratios are best examined in conjunction with asset utilization ratios because high turnover ratios imply cash is flowing through very quickly

question

Current Ratio

answer

Current assets divided by current liabilities

question

Quick Ratio (Acid Test)

answer

A stringent measure of liquidity that eliminates inventory

question

Debt Utilization Ratios

answer

Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity -Debt financing is riskier than equity as it demands a monthly payment regardless of profitability -Recessions affect heavily indebted firms far more than those financed through equity -Most companies tend to keep debt-to-asset levels below 50 percent

question

Debt to Total Assets Ratio

answer

A ratio indicating how much of the firm is financed by debt and how much by owners' equity

question

Times Interest Earned Ratio

answer

Operating income divided by interest expense

question

Per Share Data

answer

Data used by investors to compare the performance of one company with another on a equal, per share basis

question

Earnings Per Share

answer

Net income or profit divided by the number of stock shares outstanding

question

Dividends Per Share

answer

The actual cash received for each share owned

BUSN 70, Chapter 14 – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards