Chapter 11 Flashcards
Define accounting
comprehensive system for collecting, analyzing, and communicating financial information
Define bookkeeping
recording accounting transactions
Define accounting info system (AIS)
organized procedure for identifying, measuring, recording, and retaining financial information
Who are the users of accounting info
Business managers
Employees and unions
Investors and creditors
Taxing authorities
Government regulatory agencies
Define “controller” in AIS
ensures that the accounting system provides the reports and statements needed for planning, controlling and decision-making; activities may need different types of accounting specialists
Define financial accounting
keeps external parties informed about the firm’s financial condition
Define managerial accounting
directed at internal parties (managers); provides information to facilitate planning, forecasting, and decision-making
What are the levels of professional accountants + the unified
Chartered (CA)
Certified general (CGA)
Certified management (CMA)
Unified to Chartered professional (CPA)
What accounting services exist
Auditing
Tax services
Management consulting services
Define auditing in accounting
Examination of financial records to ensure fair rep. (GAAP)
Define tax services in accounting
Tax return prep and tax planning
Define management consulting services in accounting
Personal financial planning to business planning
Define private accountants
Hired as salaried employees
Duties cover daily accounting needs
Small business will have just one
Larger business will have specialists (budgeting, taxation, accounts payable, etc)
What are the 6 steps to the accounting cycle
- Analyze transaction documents
- Record transactions in journal
- Transfer journal entries to ledger
- Trial balance
- Prep financial statements
- Analyze financial statements
Define the International Accounting Standards Board (IASB)
Members in 80+ countries
Goal to eliminate differences in financial reporting globally
Statements include: income statement, balance sheet, statement of cash flow
Define International Financial Reporting Standards (IFRS)
Standard accounting rules dev. by IASB
Used by publicly accountable/privately government enterprises
Define Accounting Standard for Private Enterprises (ASPE)
Standard accounting rules can be used by private businesses in Canada to prepare financial reports
Define an asset
Anything of economic value owner by firm/indiv
Define a liability
Any debt owed by firm/indiv
Define owners’ equity
Any positive difference between firm’s assets and liabilities
Define the double-entry bookkeeping system
Transactions entered two ways showing how impact assets AND liabilities; accounting equation always kept in balance
What is the accounting equation
Assets = liabilities + owners equity
What are the 3 important financial statements + their purpose together
Balance sheets
Income statements
Statements of cash flow
Reflect activity/financial conditions of company
Define balance sheets
Provide detailed information about accounting equation factors; show firm’s financial condition at a point in time
What makes up a current asset
Cash
Assets capable of being converted into cash within a year
Accounts receivable (amount customers owe firm)
Inventory (cost of merchandise not yet sold but ready for sale)
Prepaid expenses (supplies onhand + bills paid for in advance)
Define fixed assets + what makes it up
Long-term use/value
Land
Buildings
Machinery
How to calculate fixed assets depreciation
Distribute cost of major asset over lifetime, deduct yearly
Define intangible assets + ex
Non physical assets with economic value but difficult to calculate
Patents
Trademarks
Franchise fees
Copyright
Define goodwill
Amount paid for existing business beyond value of other assets
Define current liabilities
Debts owed by firm that must be repaid within one year (ie accounts payable)
Define long term liabilities
Debts owed by firm due in over a year
Define owners’ equity
Owners’ holdings in firm
What makes up a balance sheet
Assets, liabilities, owners equity
Define an income statement
Describes revenues, expenses showing firm’s annual profit/loss (AKA profit-and-loss statement)
What is the profit equation
Revenues - expenses
What is included on an income statement
Net sales
Cost of goods sold
Gross profit
Operation expenses
Income
What is included in the statement of cash flows
Operations (g/s)
Investments
Financing
Define revenue recognition
Formal recording, reporting of revenues in financial statements once earnings cycle is completed
Define matching
Expenses match with revenue to show net income for accounting period
Define a budget
Detailed financial plan of estimated receipts/expenditures for future period
What does a budget requier
Internal financial statement of approx. 1 year
Input from multiple departments
Comparison of actual to signal problems
What are the 3 types of ratios that analyze financial statements
Solvency
Profitability
Activity
Define two types of solvency ratios
Short term: Current assets/current liabilities
Long term: debt to equity (debt/owner equity)
Define profitability ratios
Return on equity: net income/total OE
Return on sales: net income/sales rev
Earnings per share: net income/# of common shares outstanding
Define activity ratios
Inventory turnover ratio (cost of goods sold/avg inventory); measures avg # of times inventory is sold and restocked during the year
Are ethics important in accounting
Yes because they help maintain public’s confidence in institutions, financial markets, accounting professionW
What happens if there are no ethics in accounting
Accounting tools would be meaningless
What are competencies accountants should posses
Strategic thinking
Problem solving
Communications
Leadership
Dedication to meeting customer needs
Tech profficient
