Chapter 14 Flashcards
accounting
comprehensive system for collecting, analyzing, and communicating financial information
bookkeeping
recording of accounting transactions
accounting information system (AIS)
organized procedure for identifying, measuring, recording, and retaining financial information for use in accounting statements and management reports
controller
person who manages all of a firm’s accounting activities (chief accounting officer)
financial accounting
field of accounting concerned with external users of a company’s financial information
managerial (management) accounting
field of accounting that serves internal users of a company’s financial information
certified public accountant (CPA)
accountant licensed by the state and offering services to the public
audit
systematic examination of a company’s accounting system to determine whether its financial reports reliably represent its operations
generally accepted accounting principles (GAAP)
accounting guidelines that govern the content and form of financial reports
tax services
assistance provided by CPAs for tax preparation and tax planning
management advisory services
assistance provided by CPA firms in areas such as financial planning, information systems design, and other areas of concern for client firms
core competencies for accounting
the combination of skills, technology, and knowledge that will be necessary for the future CPA
private accounting
salaried accountant hired by a business to carry out its day-to-day financial activities
management accountant
private accountant who provides financial services to support managers in various business activities within a firm
certified management accountant (CMA)
professional designation awarded by the institute of Management Accountants in recognition of management accounting qualifications
forensic accounting
the practice of accounting for legal purposes
certified fraud examiner (CFE)
professional designation administered by the Association of Certified Fraud Examiners in recognition of qualifications for a specialty area within forensic accounting
Sarbanes-Oxley Act of 2002 (SARBOX)
enactment of federal regulations to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations
accounting equation
assets = liabilities + owners’ equity; used by accountants to balance data for the firm’s financial transactions at various points in the year
asset
any economic resource expected to benefit a firm or an individual who owns it
liability
debt owned by a firm to an outside organization or individual
owners’ equity
amount of money that owners would receive if they sold all of a firm’s assets and paid all of its liabilities
financial statement
any of several types of reports summarizing a company’s financial status to stakeholders and to aid in managerial decision making
balance sheet
financial statement that supplies detailed information about a firm’s assets, liabilities, and owners’ equity
current asset
asset that can or will be converted into cash within a year
liquidity
ease with which an asset can be converted into cash
fixed asset
asset with long-term use or value, such as land, buildings, and equipment
depreciation
accounting method for distributing the cost of an asset over its useful life
intangible assets
nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit
goodwill
amount paid for an existing business above the value of its other assets
current liability
debt that must be paid within one year
accounts payable (payables)
current liability consisting of bills owed to suppliers, plus wages and taxes due within the coming year
long-term liabilities
debt that is not due for at least one year
paid-in capital
money that is invested in a company by its owners
retained earnings
earnings retained by a firm for its use rather than paid out as dividends
income statement (profit-and-loss statement)
financial statement listing a firm’s annual revenues and expenses so that a bottom line shows annual profit or loss
revenues
funds that flow into a business from the sale of goods or services
cost of revenues
costs that a company incurs to obtain revenues from other companies
cost of goods sold
costs of obtaining materials for making the products sold by a firm during the year
gross profit
preliminary, quick-to-calculate profit figure calculated from the firm’s revenues minus its costs of revenues (the direct costs of getting the revenues)
operating expenses
costs, other than the cost of revenues, incurred in producing a good or service
operating income
gross profit - operating expense
net income (net profit, net earnings)
gross profit - operating expenses and income taxes
statement of cash flows
financial statement describing a firm’s yearly cash receipts and cash payments
budget
detailed statement of estimated receipts and expenditures for a future period of time
revenue recognition
formal recording and reporting of revenues at the appropriate time
full disclosure
guidelines that financial statements should not include just numbers but should also furnish management’s interpretations and explanations of those numbers
solvency ratio
financial ratio, either short- or long-term, for estimating the borrower’s ability to repay debt
profitability ratio
financial ration for measuring a firm’s potential earnings
activity ratio
financial ratio for evaluating management’s efficiency in using a firm’s assets
short-term solvency ratio
financial ratio for measuring a company’s ability to pay immediate debts
current ratio
financial ratio for measuring a company’s ability to pay current debts out of current assets
debt
company’s total liabilities
leverage
ability to finance an investment through borrowed funds
earnings per share
profitability ratio measuring the net profit that the company earns for each share of outstanding stock
code of professional conduct
code of ethics for CPAs as maintained and enforced by the AICPA
