Chapter 12 (Accounting) Flashcards
Accounting
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
Management Accounting
provides information and analysis to decision makers inside the organization (such as owners and managers) to help them operate the business
Financial Accounting
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
GAAP
uniform set of rules called generally accepted accounting principles which are issued by an independent agency called the Financial Accounting Standards Board (FASB)
International Financial Reporting Standards (IFRS)
accounting standards issued by the International Accounting Standards Board (IASB)
Income Statement
shows a firm’s revenues and expenses and whether it made a profit
Balance Sheet
shows a firm’s assets, liabilities and owner’s equity (the amount that its owners have invested in it)
Accounting Equation
assets = liabilities + owner’s equity
Statement of Owner’s Equity
reports the changes in owner’s equity that have occurred over a specified period of time
Break-even Analysis
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
Inventory
An item manufactured for later sale or bought for resale
Gross Profit
REV-COGS
Gross Profit Margin
(REV-COGS)/REV
Operating Profit
REV-COGS-Op Exp
Operating Profit Margin
(REV-COGS-Op Exp)/REV
Profit Margins show:
how much is left over after certain costs have been covered
Working Capital
CA-CL
Current Ratio
CA/CL
Quick Ratio (Acid Test)
(CA-Inventory)/CL
Debt/Equity
Total Liab./Total Equity
Working Capital means:
portion of current assets left-over to service long-term obligations after short-term ones
Inventory Turns
Sales/Inventory (shows times per year)
365/ans shows average turnover time
Return on Assets (ROA)
Net Profit/Assets
Return on Investment (ROI)
Net Profit/Equity
Classified Balance Sheet
separates assets and liabilities into two categories—current and long-term
Statement of Cash Flows
shows how much cash the business has coming in and going out
Vertical Percentage Analysis
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
Sarbanes-Oxley Act (SOX)
designed to encourage ethical corporate behavior and to discourage fraud and other forms of corporate malfeasance
Public Accounting Firms
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.
Private Accountants
work for specific companies, nonprofit organizations, or government agencies
Certified Management Accountants (CMAs).
Accountants who pass a special exam and meet other professional requirements in the field of management accounting
