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Understanding Business > Ch, 17,18,20 > Flashcards

Ch, 17,18,20 Flashcards

1
Q

The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested the information they need to make good decisions

A

Accounting

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2
Q

A six-step procedure that results in the preparation and analysis of the major financial statements

A

Accounting Cycle

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3
Q

The recording of business transactions
(Bookkeepers divide a firm’s transactions into meaningful categories and post them into a record book or computer program called a journal.)

A

Bookkeeping

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4
Q

The practice of writing every business transaction in two places; done so they can check one list of transactions against the other for accuracy

A

Double-entry bookkeeping

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5
Q

Steps in the account process

A

analyze documents
record transactions in journals
transfer
trial balance
prepare financial statements
analyze financial statements

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5
Q

A specialized accounting book or computer program in which 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

A

Ledger

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6
Q

A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced

A

Trial balance

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7
Q

A summary of all the transactions that have occurred over a particular period

A

Financial Statement

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8
Q

The basis for the balance sheet

A

Fundamental accounting equation

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9
Q

Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity

A

Balance sheet

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10
Q

Economic resources (things of value) owned by a firm; items can be tangible or intangible

A

Assets

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11
Q
A

The ease with which an asset can be converted into cash

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12
Q

Three categories of assets

A

Current assets

Fixed Assets

Intangible assets

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13
Q

What the business owes to others (debts)

A

Liabilities

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14
Q

Current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for

A

Accounts payable

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15
Q

Short-term or long-term liabilities that a business promises to pay by a certain date

A

Notes payable

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16
Q

Long-term liabilities that represent money lent to the firm that must be paid back

A

Bonds payable

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17
Q

The accumulated earnings from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends

A

Retained earnings

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17
Q

The amount of the business that belongs to the owners minus any liabilities owed by the business
(The formula is assets minus liabilities.)

A

Owners’ equity

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18
Q

What do we call the formula for the balance sheet? What three accounts does it include?

A

Fundamental accounting equation. This equation includes the following three accounts: assets, liabilities, and owners’ equity.

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19
Q

Revenue left over after all costs and expenses, including taxes, are paid

A

Net income or net loss

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20
Q

The income statement reports the firm’s financial operations over a particular period of time, usually a year, a quarter of a year, or a month

A

The Income Statement

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21
Q

is the monetary value a firm received for goods sold, services rendered, or other payments.

A

Revenue

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21
Q

A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale

A

Cost of goods sold (or manufactured

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22
Q

How much a firm earned by buying (or making) and selling merchandise

A

Gross profit (or gross margin)

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23
Q

Costs involved in operating a business, such as rent,
utilities, and salaries

A

Operating Expenses

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24
Q

The systematic write-off of the cost of a
tangible asset over its estimated useful life

A

Depreciation

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25
Q

Net Profit or Loss Bottom line

A

Revenue minus sales returns, costs,
expenses, and taxes over a period of time

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26
Q

Financial statement that
reports cash receipts and disbursements related to a firm’s
three major activities

A

Statement of cash flows

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27
Q

The difference between cash coming in and cash going out of a business

A

Cash flow

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27
Q

Three major activities of a firm

A

Operations, Investments, & Financing

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28
Q

Ratio Analysis for analyzing financial performance

A

The assessment of a firm’s financial condition using
calculations and interpretations of financial ratios developed
from the firm’s financial statements.

(liquidity, profitability, leverage, & activity ratios)

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29
Q

Leverage ratios measure the degree to which a firm relies on
borrowed funds in its operations.

A

Leverage (Debt) Ratios

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29
Q

(indirectly measures risk by telling us how much a firm
earned for each dollar invested by its owners. We calculate it by comparing a
company’s net income to its total owners’ equity.)

A

Return on equity

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30
Q

A financial plan that sets forth management’s expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm.

A

budget

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30
Q

A budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money.

A

capital budget

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31
Q

Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights.

A

capital expenditures

32
Q

A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.

A

cash budget

33
Q

Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.
cash flow forecast

A

cash flow forecast

34
Q

The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.

A

cost of capital

35
Q

Funds raised through various forms of borrowing that must be repaid.

A

debt financing

36
Q

Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).

A

equity financing

37
Q

The process of selling accounts receivable for cash.

A

factoring

38
Q

A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.

A

financial control

39
Q

The function in a business that acquires funds for the firm and manages those funds within the firm.

A

finance

40
Q

The job of managing a firm’s resources so it can meet its goals and objectives.

A

financial management

41
Q

Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.

A

financial managers

41
Q

Raising needed funds through borrowing to increase a firm’s rate of return.

A

leverage

42
Q

A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available.

A

line of credit

42
Q

The budget that ties together the firm’s other budgets and summarizes its proposed financial activities.

A

operating (or master budget)

43
Q

The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required.

A

risk/return trade off

43
Q

A written agreement with a promise to pay a supplier a specific sum of money at a definite time.

A

promissory note

44
Q

A promissory note that requires the borrower to repay the loan in specified installments.

A

term-loan agreement

44
Q

A loan backed by collateral (something valuable, such as property).

A

secured loan

45
Q

The practice of buying goods and services now and paying for them later.

A

trade credit

45
Q

A loan that doesn’t require any collateral.

A

unsecured loan

46
Q
A

bond

47
Q

Money that is invested in new or emerging companies that are perceived as having great profit potential.

A

venture capital

48
Q

Purchasing stocks by borrowing some of the purchase cost from the brokerage firm

A

buying stock on margin

49
Q

The positive difference between the purchase price of a stock and its sale price.

A

capital gains

50
Q

Bonds that are unsecured (no collateral)

A

debenture bonds

50
Q

The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm’s profits through dividends, if offered by the firm’s board of directors.

A

common stock

51
Q

Buying several different investment alternatives to spread the risk of investing.

A

diversification

52
Q

Part of a firm’s profits that the firm may distribute to stockholders as either cash payments or additional shares of stock.

A

dividends

52
Q

Collections of stocks, bonds, and other investment that are traded on exchanges but are traded more like individual stocks than like mutual funds.

A

exchange-traded funds (ETFs)

53
Q

The average cost of 30 selected industrial stocks, used to give an indication of the direction (up or down) of the stock market over time.

A

Dow Jones Industrial Average (the Dow)

54
Q

The first public offering of a corporation’s stock.

A

initial public offering (IPO)

55
Q

Specialists who assist in the issue and sale of new securities.

A

investment bankers

56
Q

Large organizations—such as pension funds, mutual funds, and insurance companies—that invest their own funds or the funds of others.

A

institutional investors

57
Q

The payment the issuer of the bond makes to the bondholders for use of the borrowed money.

A

interest

58
Q

The exact date the issuer of a bond must pay the principal to the bondholder.

A

maturity date

59
Q

high interest, high risk bonds

A

junk bonds

60
Q

A nationwide electronic system that communicates over-the-counter trades to brokers.

A

NASDAQ

60
Q

An organization that buys stocks and bonds and then sells shares in those securities to the public.

A

mutual fund

61
Q

Exchange that provides a means to trade stocks not listed on the national exchanges.

A

over-the-counter (OTC) market

62
Q

Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold.

A

preferred stock

62
Q

Giving instructions to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses.

A

program trading

63
Q

A condensed version of economic and financial information that a company must file with the SEC before issuing stock; the prospectus must be sent to prospective investors.

A

prospectus

64
Q

A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond.

A

sinking fund

65
Q

A registered representative who works as a market intermediary to buy and sell securities for clients.

A

stockbroker

66
Q

Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.

A

stock certificate

66
Q

An organization whose members can buy and sell (exchange) securities for companies and investors.

A

stock exchange

67
Q

Shares of ownership in a company.

A

stocks

68
Q

5 C’s of credit

A

Character, capacity, capital,conditions, collateral

69
Q

5 major parts of the Federal Reserve

A

board of governors, federal open market committee (FOMC), twelve federal reserve banks, three advisory councils, member banks of the system

70
Q

what are the standards for useful forms of money?

A

portability, divisibility, stability, durability, uniqueness

71
Q

what are the 4 parts of the US Banking System?

A

commercial banks, savings & loans associations, credit unions, nonbanks

72
Q

What is the formula for income statements?

A

revenue- cost of goods sold = gross profit-operating expenses = Net income before taxes - taxes = net income or loss

73
Q

3 major activities on a statement of cash flows?

A

operations,investments, financing

74
Q

what are the financial ratios?

A

liquidity r

75
Q
A

Understanding Business (6 decks)

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