Chapter 1-2 Vocab Flashcards
Account payable turnover
A measure of the speed at which the company pays its obligations to suppliers.
Accounting
The information infrastructure of the firm/economy that permits it to achieve its objectives.
Accounting and information systems function
The function that is responsible for providing useful information to the other functional areas and external parties.
Accounting equation
Assets equal liabilities plus owner’s equity.
Accounts receivable turnover
A measure of the speed at which the company receives cash from its customers.
Accrual basis of accounting
A system in which income is measured as the difference between the sale (revenues) earned and the expenses incurred during the period, regardless of when cash is paid or received.
Appraisal cost
The cost incurred to detect mistakes as early in the process as possible.
Assets
The rights to use resources that have expected future economic benefits.
Balance sheet
The financial statement that designed to show the ending amounts of the company’s assets, liabilities, and owner’s equity.
Balanced scorecard approach
A process for translating a company’s strategy into measurable objectives and plans organized into four perspectives.
Bank reconciliation
A control procedure performed periodically by a company to adjust the recorded cash amounts and to reflect any differences between its cash balance and the cash balance according to the bank.
Bank Statements
Reports sent by banks to the businesses and individuals who have an account at the bank showing all transactions in each cash account for the period.
Business
The exchange of goods or services on an arm’s-length basis that results in mutual benefit for both parties involved.
Business entity concept
The concept that requires an accounting system to reflect only information about economic events that pertain to a particular entity.
Business process
A collection of activities that takes one or more kinds of input and creates an output that has value to the customer.
Cash basis accounting
A system in which income is measured as the difference between the cash received from customers and the cash paid to employees and other suppliers of goods and services.
Corporation
A business entity that is legally separate and distinct from its owners.
Current asset
An asset likely to be used or consumed within one year.
Current liability
A liability likely to be paid or otherwise discharged within one year.
Current ratio
A measure of company liquidity; the relationship between current assets and current liabilities.
Debt-to-equity ratio
A measure of company solvency and its ability to meet its long-term obligations.
Deposits in transit
Bank deposits that the business has recorded in its cash records and sent to the bank or put into the nightly depository, but that the bank has not received and recorded before it sent the bank statements to the business.
Double Taxation
A situation in which the profits earned by the corporation are taxed twice - once at the business level and again at the owner level if the profits are distributed as dividends.
Efficiency strategy
A strategy that focuses primarily on the reduction or containment of costs, improvements in productivity, and penetration of products/services in the market by having the lowest cost.
Expense
An amount incurred from using resources or services in the effort to generate revenue.
External failure cost
A cost incurred to fix mistakes after the mistake become known by the customer.
Finance function
The function that is responsible for managing the financial resources of the business.
Financial Accounting Standards Board (FASB)
The group the SEC holds responsible for determining accounting standards in the United States
Financial statements
Statements prepared to communicate the results of business activities to interested users.
Financing processes/activities
Activities that involve obtaining the cash or other resources as means to pay for investments in long-term assets, to repay money borrowed from creditors, and to provide a return to owners (shareholders).
Flexibility strategy
A strategy in which a company strives to adapt to changing market conditions by developing new products/services, markets, and technologies.
Generally accepted accounting principles (GAAP)
The set of reporting standards applicable to all US companies that issue financial reports for external users.
Going concern concept
The concept that assumes that, absent from any information to the contrary, the business entity will continue into the foreseeable future.
Gross margin ratio
A ratio used to monitor the profitability of the company’s products
Human resource function
The function that is responsible for ensuring that capable employees are given opportunities to succeed in a safe work environment.
Income statement
The financial statement designed to show the net income of the company for a period of time.
Internal control
A process designed to provide reasonable assurance that a company has achieved objectives in three categories (1) effectiveness and efficiency of operations, (2) reliability of financial reporting, and (3) compliance with applicable laws and regulations.
Internal failure cost
A cost incurred to fix mistakes before the mistakes become known to the customer.
International Financial Reporting Standards (IFRS)
The set of global reporting standards for the preparation of public financial statements.
Inventory turnover
A measure of the speed at which the company sells its inventory/
Investing processes/activities
Activities involving the purchase and sale of long-term assets and other major items to achieve the business’s strategy.
Just-In-Time (JIT)
A philosophy that stipulates products should be received by customers just as they are needed and, in the quantities needed.
Lead time
The amount of time that elapses from when a customer places an order until the customer receives that order.
Liability
The obligation to transfer economic resources to suppliers of goods and services at some point in the future.
Limited liability
A situation in which the money invested in a corporation is at risk, but investors’ personal possessions are not at risk if the business fails.
Limited liability company (LLC)
Eliminates the impact of unlimited liability for all the owners, does not limit the number of owners as required by the S-corporation, and does not limit participation in the management of the firm like limited partnerships.
Limited liability partnership (LLP)
A partnership in which the individual partners are liable only for their own actions and the actions of those individuals under their control.
Limited partnership
A partnership composed of one or more general partners and one or more limited partners; only the general partners’ personal possessions are at risk if the business should fail.
Long-term assets
See noncurrent assets; an asset that is likely to provide economic benefits for more than one year.
Long-term liability
See noncurrent liability; an obligation that extends beyond one year.
Manufacturing firm
A business organized to convert raw materials into finished goods.
Marketing function
The function of business that determines the wants and needs of consumers and devises a system for distributing the goods and services customer’s demand.
Mechanistic organization structure
A structure in which activities and people are arranged by functions.
Merchandising company
A business that obtains and distributes goods to customers.
Monetary unit concept
The concept that asserts money is the common measurement unit of economic activity.
Mutual agency
A situation whereby each partner has the power to act for all, and legally obligate, other partners.
Net assets
Asset minus liabilities.
Net income
A company’s total revenue less it’s total expenses for a period of time.
Noncurrent asset
An asset that is likely to provide economic benefits for more than one year.
Noncurrent liability
An obligation that extends beyond one year.
Nonsufficient funds (NSF) check
A check received and deposited by the company that has been returned for lack of funds.
Nonvalue-added time
Time spent on activities that do not add value to the company’s products/services or processes.
Operating process/activities
The profit-making activities of a business enterprise.
Organic organizational structure
A structure in which activities and people are arranged in cross-functional teams.
Organizational strategy
A company’s long-term plan for using its resources, both physical and human.
Outstanding checks
Checks written and mailed by the business and deducted from the business’s cash records, but that the bank has not processed yet.
Owner’s equity
Represents the claims on the business to transfer the residual interest (net assets of the business) to the owners.
Partnership
A business owned by two or more individuals whose personal possessions are at risk if the business fails.
Partnership Agreement
An agreement that outlines the rights and responsibilities of each partner.
Periodicity concept
The concept that requires that the success or failure of the business be determined at regular intervals.
Prevention cost
A cost incurred to prevent mistakes from occurring.
Product life cycle
The time span from the conception of the product until it is no longer demanded by consumers.
Production and operations functions
The function that is responsible for planning, directing, and controlling the operations of the business.
Quick ratio
A measure of the company’s’ ability to meet its current obligations as they become due.
Return on investment ratio
The return generated per dollar of total investment.
Return on owner’s equity ratio
The return generated per dollar of owners’ equity
Return on sales ratio
A measure of company profitability; the relationship between net income and sales.
Revenue
An amount earned from rendering services or transferring resources to customers.
S-corporation
A small business corporation owned by no more than 100 individuals; its profits are taxed at the individual level rather than the corporate level.
Service charge
A fee charged by the bank for services to customers.
Service firm
A business that exists to provide services such as loaning money, finding investors, and other services for which it charges fees.
Sole proprietorship
A business owned by one person whose personal possessions are at risk if the business fails.
Stakeholders
Those people and entities (both internal and external) that have a stake, or interest, in the outcomes of the company.
Statement of Cash Flows
The financial statement designed to show the cash inflows and cash outflows for the periods of time covered by the income statement.
Statement of Owner’s Equity
The financial statement designed to show the changes that occurred in owners’ equity during the period of time covered by the income statement.
Unlimited liability
A situation where once the assets of a business are exhausted, the personal assets of the owners can be used to satisfy liabilities of the business.
Value-added time
Time spent on activities that add value to the company’s products/services or processes.
