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SOM Final Exam > Ch. 15 > Flashcards

Ch. 15 Flashcards

1
Q

Accounting

A

Comprehensive system for collecting, analyzing, and communicating financial information to a firm’s owners and employees, to the public, and to various regulatory agencies

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2
Q

Bookkeeping

A

Recording of accounting transactions

Taxes paid, income received, and expenses incurred

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3
Q

Accounting Information System (AIS)

A

Organized procedure for measuring, recording, and retaining financial information for use in accounting statements and management reports

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4
Q

Controller

A

Chief accounting officer manages all a firm’s accounting activities

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5
Q

Financial Accounting

A

Concerned with external users of a company’s financial information

Consumer groups, unions, stockholders, suppliers, creditors, gov’t agencies

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6
Q

Managerial accounting

A

Serves internal users of a company’s financial information

Managers at all levels, employees, engineers

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7
Q

Certified Public Accountants

A

Accountant licensed by the state and offering services to the public

Must pass a CPA exam

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8
Q

Big Four Accounting Firms

A

Deloitte Touche Tohmatsu (USA)
Ernst & Young (UK)
PricewaterhouseCoopers, PwC (UK)
KPMG (Netherlands)

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9
Q

Audit

A

Examines a company’s accounting information system to determine whether its financial reports match its operations

Provide audits when applying for loans, selling stock, or going through reconstruction

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10
Q

Generally Accepted Accounting Principles (GAAP)

A

Guidelines that govern the content and form of financial reports

Auditing must comply with GAAP

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11
Q

Tax Services

A

Assistance provided by CPA’s for tax preparation and tax planning

Can help a business structure operations and investments, and save a company money

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12
Q

Management Advisory Services

A

Assistance from CPA firms in financial planning, information systems design, and other areas of concern for client firms

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13
Q

CPA Vision Project

A

Core competencies for accounting

-Combination of skills, technology, and knowledge necessary for future CPA’s

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14
Q

Private Accountants

A

Salaried accountant hired by a business to carry out day-to-day financial activities

Budgeting, financial planning, internal auditing, payroll, and taxation

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15
Q

Managerial Accountants

A

Private accountants who provide financial services to support managers in various business activities with a firm

Marketing, production, engineering

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16
Q

Certified Management Accountant

A

Designation awarded by the institute of management accountants that recognize their qualification that they passed IMA’s experience and examination requirements

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17
Q

Forensic Accounting

A

Accounting for legal purposes

Investigate businesses and financial issues that may be used in the court of law

Investigate crimes by companies, against companies, and civil disagreements

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18
Q

Investigative Accounting

A

Investigate money-laundering or investment swindles

Analyze documents, bank accounts, phone calls, computer records, and people to report legal implications

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19
Q

Certified Fraud Examiner (CFE)

A
  • Professional designation administered by the ACFE
  • Qualified in forensic accounting

Covers:

  • Fraud prevention and deterrence
  • Financial transactions
  • Fraud Investigation
  • Legal elements of fraud
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20
Q

Sarbanes-Oxley Act of 2002

A

Restored public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations

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21
Q

The Accounting Equation

A

Assets = Liabilities + Owner’s Equity

ALOE

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22
Q

Assets

A

Any economic resource expected to benefit a firm or an individual who owns it

Land, building, equipment, inventory, cash

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23
Q

Liability

A

Debt owed by a firm to an outside organization or individual

Accounts payable, notes payable

24
Q

Owner’s Equity

A

Amount of money that owners would receive if they sold all of a firm’s assets and paid all of its liabilities

Common Stock, Dividends

25
Q

Net worth

A

What a firm owns minus what it owes

26
Q

Financial Statements

A

Any of several types of reports summarizing a company’s financial status to stakeholders and to aid in managerial decision making

Balance sheets, income statements, statements of cash flow

27
Q

Balance sheets

A

Supply information about a firm’s assets, liabilities AND owner’s equity

28
Q

Current Assets

A

Asset that can or will be converted into cash within a year

Liquidity- Ease with which an asset can be converted into cash
-Cash is completely liquid

29
Q

Marketable securities

A

Purchased short term investments that can be sold quickly

30
Q

Merchandise inventory

A

The cost of merchandise that has been acquired for sale to customers and is still on hand

31
Q

Fixed Assets

A

Asset with long term use or value, such as land, buildings, and equipment

Depreciation

32
Q

Depreciation

A

Accounting method for distributing the cost of an asset over its useful time

(Cost-Residual Value)/Useful Life

33
Q

Intangible Asset

A

Nonphysical asset, such as a patent or trademark that has economic value in the form of expected benefit

  • Patents, trademarks, copyrights, and franchises
  • Goodwill
34
Q

Current liabilities

A

Debt that must be paid within one year

35
Q

Accounts payable

A

Current liabilities that include unpaid bills to suppliers for materials, wages, and taxes

36
Q

Long-term liabilities

A

Debt that is not due for at least one year

Borrowed funds with interest

37
Q

Owner’s Equity

A

Paid-in capital (money invested by owners in a company)

Retained earnings (net profits kept by a firm rather than paid out as dividend payments to stockholders)

38
Q

Income Statements

A

Known as Bottom Line

Financial statement listing a firm’s annual revenues and expenses so that a bottom line shows annual profit or loss

Profit = revenue – expenses

39
Q

Revenue

A

Funds that flow into a business from the sales of goods or services

40
Q

Cost of Goods Sold

A

Costs of obtaining materials to make physical products sold during the year

Used by manufacturing firms

41
Q

Gross Profit

A

Quick way to calculate profit figure that considers revenues and cost of revenues

42
Q

Cost of Revenues

A

Costs of obtaining the revenues from other companies during the year

Include expenses of labor, energy, and costs of processing consumer transactions

43
Q

Operating expenses

A

Costs, other than the cost of revenues, that are incurred when producing a good or service

Research and development, administrative and general expenses, selling expenses

44
Q

Operating Income

A

Gross profit minus operating expenses

45
Q

Net income

A

Gross profit minus operating expenses and income taxes

46
Q

Statement of Cash Flows

A

Financial statement describing a firm’s yearly cash receipts and cash payments

Shows how the company generates and uses cash

47
Q

Budget

A

Detailed statement of estimated receipts and expenditures for a future period of time

Used for planning, controlling, and decision making for 1 year, 3 years, or 5 years

48
Q

Revenue recognition

A

Earnings are not reported until earning cycle is complete.

Earning cycle is complete when:

  • Sale is complete and the product delivered
  • The sale price has been collected
49
Q

Full disclosure

A

Guideline that financial statements should include management’s interpretation and explanation of the numbers in the statement

Used to explain why sales have followed a certain trend

50
Q

Three Ratios that determine firm’s financial health

A

Solvency Ratio-

  • Estimate short-term and long-term risk
  • Evaluate borrower’s ability to pay debt

Profitability Ratio-
Measure potential earnings

Activity Ratio-
Evaluate efficiency of use of assets

51
Q

Short-Term Solvency

A

Measure a company’s liquidity and its ability to pay immediate debts

Uses current ratio measures a company ability to pay current debts out of current assets

Current ratio = Assets/Liabilities

52
Q

Long-Term Solvency

A

Debt (total liabilities)/owner equities

Leverage
-Ability to finance an investment through borrowed funds

Leveraged buyouts-
Firm’s willingly taken on debts to buy out other companies

53
Q

Earnings per share

A

Measures the net profit that the company earns for each share of outstanding stock

Determines the size of the dividend that a firm can pare shareholders

***Net income/Net of common shares

54
Q

Activity Ratios

A

Efficiency in assets

Indicated by revenues increasing faster than stock

55
Q

AICPA’s Code of Professional Conduct

A

Code of ethics for CPA’s as maintained and enforced by the AICPA

Serves public interest, maintains integrity, and must be objective and independent

56
Q

International Accounting Standards Board

A

Organization responsible for developing a set of global accounting standards and for gaining implementation of these standards

Many discrepancies in the universal standards of financial reporting

SOM Final Exam (5 decks)

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