Ch 14 Flashcards
Accounting
The recording classifying, summarizing, and interpreting of financial events and transactions in an organization to provide management and other interested parties the financial information they need to make good decisions about its operation
Accounting cycle
A 6 step procedure that results in the preparation and analysis of the major financial statements
Bookkeeping
The recording of business transactions
Double entry bookkeeping
Practice of writing every business transaction in 2 place
Ledger
A specialized accounting book or computer program in which the information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place
Trial balance
Summary of all the financial data in the account ledger that ensures the figures are correct and balance.
financial statement
summary of all the financial transactions that have occurred over a particular period
Balance sheet
The financial statement that reports a firms financial conditions at a specific time
Assets
economic resources owned by a firm
Liquidity
The ease with which an asset can be converted into cash
current assets
items that can or will be converted into cash within one year
Fixed assets
Longterm assets that are relatively permanent, such as Land, buildings, and equipment
intangible assets
Longterm assets that have no physical form but do have value (examples: patents, trademarks, copyrights)
Liabilities
What the business owe to others (debt)
Accounts payable
Current liabilities or bills the company owes others for merchandise or services it purchased on credit but has not yet paid for.
Notes payable
Short term or long term liabilities that a business promises to repay by a certain date.
Bonds payable
Long term liabilities, money lent to the firm by bondholders that it must pay back at a specific date
Owners equity
Amount of the business that belongs to the owners minus any liabilities owned by the business
Retained earnings
Accumulated earnings from the firm’s profitable operations that are reinvested in the business and not paid out to stockholders in distributions of company profits.
Income statement
Financial statement that shows a firm’s profit after cost expenses and taxes; it’s summarises all of the resources that have come into the firm (revenue) , all the resources that have left the firm, expenses, and the resulting net income of a net loss
Cost of goods sold (or cost of goods manufactured)
Measures the cost of merchandise the firm sells, or the cost of raw material and supplies it used in producing items for resale
Gross profit (or gross margin)
How much a business earned by buying (or making) and selling merchandise
Operating expenses
Cost involved in operating a business, such as rent, utilities, and salaries
Depreciation
Systematic ride off of the cost of a tangible asset over its estimated useful life
Statement of cash flow
Financial statement that reports cash receipts and disbursement related to the firm’s 3 major activities: operation, investment, and financing
cash flow
The difference between cash coming in and cash going out of her business
financial accounting
Generates financial information and analyses is for people primarily outside the organization
Annual report
A yearly statement of the financial condition, progress, and expectations of an organization
private accountant
Accountant who works for a single firm government agency or nonprofit organization
Public accountant
Provides accounting services to individuals or business on a fee basis
Certified public accountant (CPA)
An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA)
Managerial accounting
Provides information and analysis to managers inside the organization to assist them in decision making
Auditing
Job of reviewing and evaluating the information used to prepare a company’s financial statements
Independent audit
An evaluation and unbiased opinion about the accuracy of a company’s financial statements
Tax accountant
Trained in tax law and is responsible for preparing tax returns or developing tax strategies
Government and nonprofit accounting
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget
fundamental accounting equation
Assets=Liabilities+Owners equity, the basis for the balance sheet
Journal
The record book or computer program where accounting data is first entered
Net income or net loss
Revenue leftover after all costs and expenses including taxes are paid
