12. Accounting information Flashcards
define accounting
- collecting, analysing and communicating accounting information
define bookkeeping
recording of accounting transactions
who using accounting information
- employees and union
- business managers
- investors and creditors
- tax authorities
- government regulatory agencies
3 accountant
- controller
- Certified Public Accountant
- private accountant
controller
control all of a firm’s accounting activities
certified public account (CPA)
- licensed by state
- offering services to public
private account
- hired by a business to carry day-to-day financial activity
3 CPA services
- audit
- tax services
- management advisory services
define audit
- systematic examination of company’s accounting system to determine whether the financial report is reliably represent the operations
define tax services
- assistance for tax planning and tax preparation
define management advisory services
assistance to certain areas
- financial planning
- information system design
accounting equation
asset = liability + owner’s equity
define financial statement
report summarizing financial status to stakeholders
- to aid managerial decision making
3 types of financial statements
- financial position
- income
- cash flow
statement of financial position
- detailed firms asset, liability and equity
6 sectors in statements of financial position
- current asset- convert into cash within one years
- fixed asset - long-term use or value (land, buildings)
- current liability - debt due within one years
- long term liability - debt not due more than one year
- account payable - current liability including bills owed by suppliers
- retained earnings - earnings excluding dividend
define income statement
- listing revenue and expenses
- show annual profit or loss
6 part of income statements
- revenue
- cost of revenue
- gross profit
- operating expenses
- operating income
- net income (income tax)
define cash flow statement
yearly cash receipt and cash payments
3 types of cash flow
- investing
- financing
- operating
2 reporting standard
- revenue recognition
- full disclosure
3 major classifications of financial ratios
- solvency
- profitability
- activity
solvency ratio
- estimating the ability of a borrowers to repay debt
activity ratio
- evaluating the management efficiency
profitability ratio
- measure firm’s potential earnigns
current ratio
= current assets / current liability
debt to equity ratio
debt / equity
return on equity ratio
net income / total equity
earning per share ratio
net income / number of share outstanding
