Chapter 14 Using Financial Information and Accounting Flashcards

Key terms used in Chapter 14 of Openstax Introduction to business

1
Q

Questions

A

Answers

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2
Q

The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities is called __________.

A

accounting

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3
Q

___________ accounting provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.

A

managerial accounting

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4
Q

___________ accounting focuses on preparing external financial reports that are used by outsiders such as lenders, suppliers, investors, and government agencies to assess the financial strength of a business.

A

financial accounting

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5
Q

The financial accounting standards followed by accountants in the United States when preparing financial statements is the __________________.

A

generally accepted accounting principles (GAAP)

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6
Q

The private organization that is responsible for establishing financial accounting standards in the United States is __________________.

A

Financial Accounting Standards Board (FASB)

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7
Q

The ________ is a yearly document that describes a firm’s financial status and usually discusses the firm’s activities during the past year and its prospects for the future.

A

annual report

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8
Q

_________ is the process of reviewing the records used to prepare financial statements and issuing a formal auditor’s opinion indicating whether the statements have been prepared in accordance with accepted accounting rules.

A

auditing

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9
Q

An accountant who has completed an approved bachelor’s degree program, passed a test prepared by the American Institute of CPAs, and met state requirements is called a(n) _______________. Only they can issue an auditor’s opinion on a firm’s financial statements.

A

certified public accountant (CPA)

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10
Q

_________________ accountants are employed to serve one particular organization.

A

private accountants

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11
Q

A managerial accountant who has completed a professional certification program, including passing an examination is called a(n) _______________.

A

certified management accountant (CMA)

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12
Q

_________ accountants independently serve organizations and individuals on a fee basis.

A

public accountants

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13
Q

The ____________, passed in 2002, set new standards for auditor independence, financial disclosure and reporting, and internal controls. It established an independent oversight board and restricts the types of non-audit services auditors can provide audit clients.

A

Sarbanes-Oxley Act

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14
Q

_______ are things of value owned by a firm.

A

assets

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15
Q

_____________, also called debts, are what a firm owes to its creditors.

A

liabilities

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16
Q

The total amount of investment in the firm minus any liabilities is called __________ or net worth.

A

owners’ equity

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17
Q

___________ is a method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.

A

double-entry bookkeeping

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18
Q

A financial statement that summarizes a firm’s financial position at a specific point in time is the ____________.

A

balance sheet

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19
Q

_________ is the speed with which an asset can be converted to cash.

A

liquidity

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20
Q

Assets that can or will be converted to cash within the next 12 months are ______ assets.

A

current assets

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21
Q

Long-term assets used by a firm for more than a year such as land, buildings, and machinery are _______ assets.

A

fixed assets

22
Q

The allocation of an asset’s original cost to the years in which it is expected to produce revenues is called __________.

A

depreciation

23
Q

Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill are ____________ assets.

A

intangible assets

24
Q

Short-term claims that are due within a year of the date of the balance sheet are _____________.

A

current liabilities

25
Q

Claims that come due more than one year after the date of the balance sheet are ___________ liabilities.

A

long-term liabilities

26
Q

The amounts left over from profitable operations since the firm’s beginning are the __________. These are equal to total profits minus all dividends paid to stockholders.

A

retained earnings

27
Q

A financial statement that summarizes a firm’s revenues and expenses and shows its total profit or loss over a period of time is a _________ statement.

A

income statement

28
Q

The dollar amount of a firm’s sales plus any other income it received from sources such as interest, dividends, and rents is ______________.

A

revenues

29
Q

The total dollar amount of a company’s sales is the _______________.

A

gross sales

30
Q

The amount left after deducting sales discounts and returns and allowances from gross sales is the _______________.

A

net sales

31
Q

The costs of generating revenues are called __________.

A

expenses

32
Q

_______________ is the total expense of buying or producing a firm’s goods or services.

A

cost of goods sold

33
Q

_________ is the amount a company earns after paying to produce or buy its products but before deducting operating expenses.

A

gross profit

34
Q

__________________ are those expenses of running a business that are not directly related to producing or buying its products.

A

operating expenses

35
Q

The amount obtained by subtracting all of a firm’s expenses from its revenues when the revenues are more than the expenses is the ______________.

A

net profit (net income)

36
Q

The amount obtained by subtracting all of a firm’s expenses from its revenues when the expenses are more than the revenues is the ______________.

A

net loss

37
Q

A financial statement that provides a summary of the money flowing into and out of a firm during a certain period, typically one year is the ___________________.

A

statement of cash flows

38
Q

The calculation and interpretation of financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance is called ____________.

A

ratio analysis

39
Q

Ratios that measure a firm’s ability to pay its short-term debts as they come due are __________ ratios.

A

liquidity ratios

40
Q

The ratio of total current assets to total current liabilities and is used to measure a firm’s liquidity is the _______ ratio.

A

current ratio

41
Q

The ratio of total current assets excluding inventory to total current liabilities and used to measure a firm’s liquidity is the __________ ratio.

A

acid-test (quick) ratio

42
Q

The amount obtained by subtracting total current liabilities from total current assets is the _________ and can be used to measure a firm’s liquidity.

A

net working capital

43
Q

Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed are ____________ ratios.

A

profitability ratios

44
Q

The ratio of net profit to net sales is called ________________ or return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.

A

net profit margin

45
Q

The ratio of net profit to total owners’ equity is the ___________ which measures the return that owners receive on their investment in the firm.

A

return on equity (ROE)

46
Q

The ratio of net profit to the number of shares of common stock outstanding is the __________. It measures the number of dollars earned by each share of stock.

A

earnings per share (EPS)

47
Q

Ratios that measure how well a firm uses its assets are __________ ratios.

A

activity ratios

48
Q

The ratio of cost of goods sold to average inventory is the ____________ ratio. It measures the speed with which inventory moves through a firm and is turned into sales.

A

inventory turnover ratio

49
Q

Ratios that measure the degree and effect of a firm’s use of borrowed funds (debt) to finance its operations are ________ ratios.

A

debt ratios

50
Q

The ratio of total liabilities to owners’ equity is the ___________ ratio. It measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner’s funds).

A

debt-to-equity ratio