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BUS 200 Final > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

How do accountants prepare performance reports of businesses

A

accountants keep records of transactions such as taxes paid, income received, and expenses incurred—a process called bookkeeping—and they analyze the effects of these transactions on business activities.

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2
Q

what do accountants prepare

A

performance reports for owners, the public, and regulatory agencies

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3
Q

What does accounting measure

A

business performance and translates the findings into information for management decisions

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4
Q

Accounting

A

comprehensive information system for collecting, analyzing, and communicating financial information

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5
Q

Bookkeeping

A

recording accounting transactions

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6
Q

Accounting information system

A

a system used to make sure financial information is consistent and dependable.
- organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports

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7
Q

controller

A

The individual who manages all the firm’s accounting activities.

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8
Q

financial accounting

A

EXTERNAL accounting process - a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting from business operations over a period of time.

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9
Q

managerial accounting

A

a method of accounting that creates statements, reports, and documents that help management in making better decisions related to their business’ performance. Managerial accounting is primarily used for internal purposes.

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10
Q

financial accounting system

A

The process whereby interested groups are kept informed about the financial condition of a firm

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11
Q

Audit

A

Audit
An accountant’s examination of a company’s financial records to determine if it used proper procedures to prepare its financial reports.

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12
Q

Forensic accountant

A

Accountants who track down hidden funds in business firms.

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13
Q

Management consulting services

A

Specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other a

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14
Q

Private accountant

A

An accountant hired as a salaried employee to deal with a company’s day-to-day accounting needs.

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15
Q

Accounting cycle

A
  1. Analyze transaction documents
  2. Record transactions in journal
  3. transfer entries from journal to ledger
  4. Do a trial balance
  5. Prepare financial statements
  6. Analyze the financial statements
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16
Q

Accounting equation

A

Assets = Liabilities + Owners’ equity

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17
Q

Asset

A

Anything of economic value owned by a firm or individual.

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18
Q

Liability

A

Any debt owed by a firm or individual to other

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19
Q

Owner’s equity

A

Any positive difference between a firm’s assets and its liabilities; what would remain for a firm’s owners if the company were liquidated, all its assets were sold, and all its debts were paid.

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20
Q

Two sources of capital for owner’s equity

A
  1. The amount the owners originally invested 2. Profits earned by and reinvested in the company
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21
Q

Financial statements

A

Any of several types of broad reports regarding a company’s financial status; most often used in reference to balance sheets, income statements, and/or statements of cash flows

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22
Q

Current assets

A

Cash and other assets that can be converted into cash within a year.

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23
Q

Liquidity

A

The ease and speed with which an asset can be converted to cash; cash is said to be perfectly liquid.

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24
Q

Fixed assets

A

Assets that have long-term use or value to the firm, such as land, buildings, and machinery.

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25
Q

Depreciation

A

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

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26
Q

Intangible assets

A

Non-physical assets, such as a patent or trademark, that have economic value in the form of expected benefit.

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27
Q

Goodwill

A

the value of the business that exceeds its assets minus the liabilities. It represents the non-physical assets, such as the value created by a solid customer base, brand recognition or excellence of management.

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28
Q

Current liabilities

A

Debt that must be paid within one year

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29
Q

Accounts payable

A

the money a company owes its suppliers for goods and services that have been provided and for which the supplier has submitted an invoice

30
Q

Paid-in capital

A

Any additional money invested in the firm by the owners

31
Q

Retained earnings

A

the amount of profit a company has left over after paying all its direct costs, indirect costs, income taxes and its dividends to shareholders

32
Q

Income statement (profit-and-loss statement)

A

A type of financial statement that describes a firm’s revenues and expenses and indicates whether the firm has earned a profit or suffered a loss OVER A PERIOD OF TIME

33
Q

Revenues

A

Any monies received by a firm as a result of selling a good or service or from other sources such as interest, rent, and licensing fees.

34
Q

Revenue recognition

A

The formal recording and reporting of revenues in the financial statements.

35
Q

Matching principle

A

Expenses should be matched with revenues to determine net income for an accounting period.

36
Q

Cost of goods sold

A

All expenses directly involved in producing or selling a good or service during a given time period.

37
Q

Gross profit (gross margin)

A

the profit a business makes after subtracting all the costs that are related to manufacturing and selling its products or services

38
Q

Operating expenses

A

Costs incurred by a firm other than those included in cost of goods sold.

39
Q

Operating income

A

Compares the gross profit from business operations against operating expenses.

40
Q

Net income (net profit or net earnings)

A

A firm’s gross profit minus its operating expenses and income taxes.

41
Q

Statement of cash flows

A

The statement of cash flows reports cash receipts and payment from operating, investing, and financial activities. OVER A PERIOD IN TIME

42
Q

Budget

A

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

43
Q

Solvency ratios

A

Ratios used to evaluate short term and long term risk

44
Q

Short-term solvency ratio

A

Financial ratio for measuring a company’s ability to pay immediate debts

45
Q

Current ratio

A

Financial ratio for measuring a company’s ability to pay current debts out of current assets

46
Q

Debt

A

A company’s total liabilities.

47
Q

Debt-to-equity ratio

A

A form of debt ratio calculated as total liabilities divided by owners’ equity

48
Q

Leverage

A

Using borrowed funds to make purchases, thus increasing the user’s purchasing power, potential rate of return, and risk of loss.

49
Q

Profitability ratios

A

Measures of a firm’s overall financial performance in terms of its likely profits; used by investors to assess their probable returns. POTENTIAL EARNINGS

50
Q

Return on equity

A

A form of profitability ratio calculated as net income divided by total owners’ equity.

51
Q

Return on sales

A

Ratio calculated by dividing net income by sales revenue.

52
Q

Earnings per share

A

A form of profitability ratio calculated as net income divided by the number of common shares outstanding.

53
Q

Activity ratios

A

measure the efficiency of a business in using and managing its resources to generate maximum possible revenue EVALUATING MANAGEMENTS USE OF ASSETS

54
Q

Inventory turnover ratio

A

An activity ratio that measures the average number of times inventory is sold and restocked during the year.
Cost of goods sold/ ((beginning inventory+ending inventory)/2)

55
Q

CPA

A

Chartered professional accountant

56
Q

3 types of accountants

A

CA - Chartered Accountant - (CPA, CA)
- acts as an outside accountant for other firms.
CGA - Certified General Accountant (CPA, CGA)
- works in private industry or a CGA firm
CMA - Certified Management Accountant - (CPA, CMA)
- works in industry and focuses on internal management accounting.

57
Q

Tax services

A

helping clients not only with preparing their tax returns but also with their tax planning.

58
Q

gross profit equation

A

Sales revenue minus cost of goods sold

59
Q

current ratio equation

A

current assets/current liabilities

60
Q

Double entry accounting

A

a system that requires two book entries — one debit and one credit — for every transaction within a business. Your books are balanced when the sum of each debit and its corresponding credit equals zero

61
Q

profit vs cash flow

A

Cash flow is the money that flows in and out of your business throughout a given period, while profit is whatever remains from your revenue after costs are deducted.

62
Q

debt-to-owners’-equity ratio

A

Total liabilities/ owners equity
shows how much debt a company has compared to its assets
To describe the extent to which the firm is financed through borrowed money

63
Q

owners equity formula

A

assets-liabilities

64
Q

Balance sheet

A

summarizes a company’s assets, liabilities, and owners’ equity at a given POINT IN TIME.

65
Q

The ratios that measure the solvency

A

The current, short-term solvency (liquidity), and debt-to-equity ratios all measure solvency—a firm’s ability to pay its debt in both the short and long terms

66
Q

The ratios that measure profitability

A

Return on sales, return on equity, and earnings per share are all ratios that measure profitability

67
Q

what does the inventory turnover ratio show

A

how efficiently a firm is using its funds

68
Q

3 sections in statement of cash flows

A

Operating, Investing, Financing

69
Q

The ratios that measure activity

A

Asset turnover ratio, Inventory ratio

70
Q

Asset turnover ratio

A

Revenue/assets

BUS 200 Final (5 decks)

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