Chapter 14 Using Financial Information and Accounting Flashcards
Key terms used in Chapter 14 of Openstax Introduction to business
Questions
Answers
The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities is called __________.
accounting
___________ accounting provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.
managerial accounting
___________ 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.
financial accounting
The financial accounting standards followed by accountants in the United States when preparing financial statements is the __________________.
generally accepted accounting principles (GAAP)
The private organization that is responsible for establishing financial accounting standards in the United States is __________________.
Financial Accounting Standards Board (FASB)
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.
annual report
_________ 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.
auditing
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.
certified public accountant (CPA)
_________________ accountants are employed to serve one particular organization.
private accountants
A managerial accountant who has completed a professional certification program, including passing an examination is called a(n) _______________.
certified management accountant (CMA)
_________ accountants independently serve organizations and individuals on a fee basis.
public accountants
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.
Sarbanes-Oxley Act
_______ are things of value owned by a firm.
assets
_____________, also called debts, are what a firm owes to its creditors.
liabilities
The total amount of investment in the firm minus any liabilities is called __________ or net worth.
owners’ equity
___________ is a method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.
double-entry bookkeeping
A financial statement that summarizes a firm’s financial position at a specific point in time is the ____________.
balance sheet
_________ is the speed with which an asset can be converted to cash.
liquidity
Assets that can or will be converted to cash within the next 12 months are ______ assets.
current assets
Long-term assets used by a firm for more than a year such as land, buildings, and machinery are _______ assets.
fixed assets
The allocation of an asset’s original cost to the years in which it is expected to produce revenues is called __________.
depreciation
Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill are ____________ assets.
intangible assets
Short-term claims that are due within a year of the date of the balance sheet are _____________.
current liabilities
Claims that come due more than one year after the date of the balance sheet are ___________ liabilities.
long-term liabilities
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.
retained earnings
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.
income statement
The dollar amount of a firm’s sales plus any other income it received from sources such as interest, dividends, and rents is ______________.
revenues
The total dollar amount of a company’s sales is the _______________.
gross sales
The amount left after deducting sales discounts and returns and allowances from gross sales is the _______________.
net sales
The costs of generating revenues are called __________.
expenses
_______________ is the total expense of buying or producing a firm’s goods or services.
cost of goods sold
_________ is the amount a company earns after paying to produce or buy its products but before deducting operating expenses.
gross profit
__________________ are those expenses of running a business that are not directly related to producing or buying its products.
operating expenses
The amount obtained by subtracting all of a firm’s expenses from its revenues when the revenues are more than the expenses is the ______________.
net profit (net income)
The amount obtained by subtracting all of a firm’s expenses from its revenues when the expenses are more than the revenues is the ______________.
net loss
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 ___________________.
statement of cash flows
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 ____________.
ratio analysis
Ratios that measure a firm’s ability to pay its short-term debts as they come due are __________ ratios.
liquidity ratios
The ratio of total current assets to total current liabilities and is used to measure a firm’s liquidity is the _______ ratio.
current ratio
The ratio of total current assets excluding inventory to total current liabilities and used to measure a firm’s liquidity is the __________ ratio.
acid-test (quick) ratio
The amount obtained by subtracting total current liabilities from total current assets is the _________ and can be used to measure a firm’s liquidity.
net working capital
Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed are ____________ ratios.
profitability ratios
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.
net profit margin
The ratio of net profit to total owners’ equity is the ___________ which measures the return that owners receive on their investment in the firm.
return on equity (ROE)
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.
earnings per share (EPS)
Ratios that measure how well a firm uses its assets are __________ ratios.
activity ratios
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.
inventory turnover ratio
Ratios that measure the degree and effect of a firm’s use of borrowed funds (debt) to finance its operations are ________ ratios.
debt ratios
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).
debt-to-equity ratio
