Chapter 12 Deck Flashcards
( ) is a system for measuring and summarizing business activities, interpreting financial information, and communicating the results to management.
Accounting
Accounting can be divided into two major fields:
- Management Accounting
2. Financial Accounting
( ) provides information and analysis to decision-makers inside the organization (such as owners and managers) to help them operate the business.
Management 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.
Financial Accounting
Rather than record sales and purchases made on credit, your statement of ( ) tells you where your cash came from and where it went.
cash flows
If a company arranges to pay later rather than in cash for materials and other expenses, its accountant must set up accounts ( ).
payable
The debt owed by a business to an outside individual or organization is called its ( ).
liability
If you buy something with the intent to pay later rather than in cash, the seller will set up an account ( ).
receivable
Accountants do all of the following except ( ).
locate capital
( ) shows when your total sales revenues exactly equal your expenses.
breakeven analysis
The difference between your sales and your cost of goods sold is known as your ( ).
gross profit or gross margin
Firms that provide clients with accounting and tax services are called ( ) accounting firms.
certified public
The ( ) ratio shows how much of each sales dollar is left after certain costs have been covered.
profit margin
( ) is the same thing as the item called net profit on an income statement.
the bottom line
( ) analysis expresses each item on the income statement as a percentage of a specified base (usually sales).
vertical percentage
You can calculate inventory turnover by dividing cost of goods sold by ( ).
inventory
( ) costs vary with quantity of goods sold but remain constant on a per-unit basis.
variable
( ) costs don’t vary with quantity of goods sold.
fixed
Companies that manufacture goods and hold onto them for a while before selling them and companies that buy goods and hold them temporarily for resale have created ( ).
inventories
( ) are principles for financial reporting established by an independent agency called the Financial Accounting Standards Board.
Generally accepted accounting principles
When preparing a company’s income statement, you report on all of the following items except ( ).
short term assets
A company’s ( ) ratio indicates that it is making a reasonable profit on sales, even if profitability is declining.
profit margin
Many companies outside the United States follow a set of accounting principles called ( ).
International Financial Reporting Standards
In accounting ( ) refers to the money you have in checking and savings accounts.
“cash”
The ( ) shows a firm’s revenues and expenses and whether it made a profit.
income statement
The difference between your gross profit and operating expenses is your ( ).
net income or profit
The balance sheet is based on the accounting equation:
assets = liabilities + owner’s equity
Prepared financial statements on a twelve-month basis is a ( ).
fiscal year
The ( ) reports the changes in owner’s equity that have occurred over a specified period of time.
statement of owner’s equity
Financial statements should be completed in a certain order:
- income statements
- statement of owner’s equity
- balance sheet
To break even, total sales revenue must ( ) all your expenses
equal to
To calculate the breakeven point in units to be sold, you divide fixed costs by( ).
contribution margin per unit
There are two different methods for reporting financial transactions:
- cash-basis accounting
2. accrual accounting
Companies using ( ) recognize revenue as earned only when cash is received and recognize expenses as incurred only when cash is paid out.
cash-basis accounting
Companies using ( ) recognize revenues when they’re earned (regardless of when the cash is received) and expenses when they’re incurred (regardless of when the cash is paid out).
accrual accounting
An asset that will be used for several years (say, a truck) appears on the balance sheet as a ( ). Its cost is allocated over its useful life and appears on the income statement as a ( ).
long-term asset/depreciation expense
A ( ) separates assets and liabilities into two categories—current and long-term:
classified balance sheet
On a classified balance sheet, assets are listed in order of ( )—how quickly they can be converted into cash.
liquidity
A ( ) is a company that makes a profit by selling goods.
merchandiser
The statement of cash flows furnishes information about three categories of activities that cause cash either to come in or to go out:
- operating activities
- investing activities
- financing activities.
Cash flows from ( ) come from day-to-day operations of your main line of business.
operating activities
Cash flows from ( ) result from buying or selling long-term assets.
investing activities
Cash flows in ( ) result from obtaining or paying back funds used to finance your business.
financing activities.
( ) analysis is used to assess a company’s performance and financial condition over time and to compare one company to similar companies or to an overall industry.
ratio
The ( ) ratio (which compares current assets to current liabilities) provides a measure of a company’s ability to meet current liabilities.
current
The ( ) ratio (which measures the number of times a firm’s operating income can cover its interest expense) assesses a company’s ability to make interest payments on outstanding debt.
interest coverage
The federal ( ) of 2002 was designed to encourage ethical corporate behavior and to discourage fraud and other forms of corporate malfeasance.
Sarbanes-Oxley Act (SOX)
( ) provide clients with external ( ) in which they examine a company’s financial statements and submit an opinion on whether they’ve been prepared in accordance with GAAP.
public accounting firms/audits
( ) often called management or corporate accountants, work for specific companies, nonprofit organizations, or government agencies. They also conduct ( ).
private accountants/internal audits
Accountants who pass a special exam and meet other professional requirements in the field of management accounting are designated ( ).
certified management accountants (CMAs).
Most members of public accounting firms are ( ) who have met required educational and work requirements.
certified public accountants (CPAs)
A firm’s chief accounting officer is called a ( ).
controller
