Chapter 12 (Accounting)

Question 1

Accounting

Answer 1

a system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other stakeholders to help them make better business decisions

Question 2

Management Accounting

Answer 2

provides information and analysis to decision makers inside the organization (such as owners and managers) to help them operate the business

Question 3

Financial Accounting

Answer 3

provides information not only to internal managers, but also to people outside the organization (such as investors, creditors, government agencies, suppliers, employees, and labor unions) to assist them in assessing a firm’s financial performance

Question 4

GAAP

Answer 4

uniform set of rules called generally accepted accounting principles which are issued by an independent agency called the Financial Accounting Standards Board (FASB)

Question 5

International Financial Reporting Standards (IFRS)

Answer 5

accounting standards issued by the International Accounting Standards Board (IASB)

Question 6

Income Statement

Answer 6

shows a firm’s revenues and expenses and whether it made a profit

Question 7

Balance Sheet

Answer 7

shows a firm’s assets, liabilities and owner’s equity (the amount that its owners have invested in it)

Question 8

Accounting Equation

Answer 8

assets = liabilities + owner’s equity 


Question 9

Statement of Owner’s Equity

Answer 9

reports the changes in owner’s equity that have occurred over a specified period of time

Question 10

Break-even Analysis

Answer 10

a technique used to determine the level of sales needed to break even—to operate at a sales level at which you have neither profit nor loss

Question 11

Inventory

Answer 11

An item manufactured for later sale or bought for resale

Question 12

Gross Profit

Answer 12

REV-COGS

Question 13

Gross Profit Margin

Answer 13

(REV-COGS)/REV

Question 14

Operating Profit

Answer 14

REV-COGS-Op Exp

Question 15

Operating Profit Margin

Answer 15

(REV-COGS-Op Exp)/REV

Question 16

Profit Margins show:

Answer 16

how much is left over after certain costs have been covered

Question 17

Working Capital

Answer 17

CA-CL

Question 18

Current Ratio

Answer 18

CA/CL

Question 19

Quick Ratio (Acid Test)

Answer 19

(CA-Inventory)/CL

Question 20

Debt/Equity

Answer 20

Total Liab./Total Equity

Question 21

Working Capital means:

Answer 21

portion of current assets left-over to service long-term obligations after short-term ones

Question 22

Inventory Turns

Answer 22

Sales/Inventory (shows times per year)

365/ans shows average turnover time

Question 23

Return on Assets (ROA)

Answer 23

Net Profit/Assets

Question 24

Return on Investment (ROI)

Answer 24

Net Profit/Equity

Question 25

Classified Balance Sheet

Answer 25

separates assets and liabilities into two categories—current and long-term

Question 26

Statement of Cash Flows

Answer 26

shows how much cash the business has coming in and going out

Question 27

Vertical Percentage Analysis

Answer 27

eveals the relationship of each item on the income statement to a specified base—generally sales—by expressing each item as a percentage of that base

Question 28

Sarbanes-Oxley Act (SOX)

Answer 28

designed to encourage ethical corporate behavior and to discourage fraud and other forms of corporate malfeasance

Question 29

Public Accounting Firms

Answer 29

provide clients with external audits in which they examine a company’s financial statements and submit an opinion on whether they’ve been prepared in accordance with GAAP.

Question 30

Private Accountants

Answer 30

work for specific companies, nonprofit organizations, or government agencies

Question 31

Certified Management Accountants (CMAs).

Answer 31

Accountants who pass a special exam and meet other professional requirements in the field of management accounting