Chapter 15

Question 1

Accounting

Answer 1

Measuring, interpreting, and communicating financial information to support internal and external decision-making

Question 2

Financial accounting

Answer 2

The area of accounting concerned with preparing financial information for users outside the organization

Question 3

Management accounting

Answer 3

The area of accounting concerned with preparing data for use by managers within the organization

Question 4

Bookkeeping

Answer 4

Recordkeeping; recording ithe economic activites of a business

Question 5

Private accountants

Answer 5

In-house accountants employed by organizations and businesses other than public accounting firm; also called corporate accountants

Question 6

Controller

Answer 6

The highest-ranking accountant in a company; responsible for overseeing all accounting functions

Question 7

Certified public accountants (CPA)

Answer 7

Professionally licensed accountants who meet certain requirements fro education and experience and who pass a comprehensive examination

Question 8

Public accountants

Answer 8

Professionals who provide accounting services to other businesses and individuals for a fee

Question 9

Audit

Answer 9

Formal evaluation of the fairness and reliability if a client’s financial statements

Question 10

Generally accepted accounting principles

Answer 10

Standards and practices used by publicly held corporations in the U.S. in the preparation of financial statements

Question 11

External auditors

Answer 11

Independent accounting firms that provide auditing services for public companies

Question 12

International financial reporting standards

Answer 12

Accounting standards and practices used in many countries outside the U.S.

Question 13

Sarbanes-Oxley (SOX)

Answer 13

The informal name of comprehensive legislation designed to improve the integrity and accountability of financial information

Question 14

Assets

Answer 14

Any things of value owned or leased by a business

Question 15

Liabilities

Answer 15

Claims against a firm’s assets by creditors

Question 16

Owner’s equity

Answer 16

The portion of a company’s assets that belongs to the owners after obligations to all creditors have been met

Question 17

Accounting equation

Answer 17

The equation stating that assets equal liabilities plus owners’ equity

Question 18

Double-entry bookkeeping

Answer 18

A method of recording financial transactions that requires a debit entry and credit entry for each transaction to ensure that the accounting equation is always kept in balance

Question 19

Matching principle

Answer 19

The fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenue they generate during an accounting period

Question 20

Accrual basis

Answer 20

An accounting method in which revenue is recorded when a sale is made and an expense record when it is incurred

Question 21

Cash basis

Answer 21

An accounting method in which revenue is recorded when payment is received and an expense is recorded when cash is paid

Question 22

Depreciation

Answer 22

An accounting procedure for systematically spreading the cost of tangible asset over its estimated useful life

Question 23

Closing the books

Answer 23

Transferring net revenue and expense account balances to retained earnings for the period

Question 24

Balance sheet

Answer 24

A statement of a firm’s financial position on a particular date; also known as a statement of financial position.

Question 25

calendar year

Answer 25

A 12-month accounting period that begins on January 1 and ends on December 31

Question 26

fiscal year

Answer 26

Any 12 consecutive months used as an accounting period.

Question 27

current assets

Answer 27

Cash and items that can be turned into cash within one year.

Question 28

fixed assets

Answer 28

Assets retained for long-term use, such as land, buildings, machinery, and equipment; also referred to as property, plant, and equipment.

Question 29

current liabilities

Answer 29

Obligations that must be met within a year.

Question 30

long-term liabilities

Answer 30

Obligations that fall due more than a year from the date of the balance sheet.

Question 31

retained earnings

Answer 31

The portion of shareholders’ equity earned by the company but not distributed to its owners in the form of dividends.

Question 32

income statement

Answer 32

A financial record of a company’s revenues, expenses, and profits over a given period of time; also known as a profit-and-loss statement.

Question 33

expenses

Answer 33

Costs created in the process of generating revenues.

Question 34

net income

Answer 34

Profit (or loss) incurred by a firm, determined by subtracting expenses from revenues; casually referred to as the bottom line.

Question 35

cost of goods sold

Answer 35

The cost of producing or acquiring a company’s products for sale during a given period.

Question 36

gross profit

Answer 36

The amount remaining when the cost of goods sold is deducted from net sales; also known as gross margin.

Question 37

operating expenses

Answer 37

All costs of operation that are not included under cost of goods sold.

Question 38

EBITDA

Answer 38

earnings before interest, taxes, depreciation, and amortization.

Question 39

statement of cash flows

Answer 39

A statement of a firm’s cash receipts and cash payments that presents information on its sources and uses of cash.

Question 40

return on sales

Answer 40

The ratio between net income after taxes and net sales; also known as the profit margin.

Question 41

return on equity

Answer 41

The ratio between net income after taxes and total owners’ equity.

Question 42

earnings per share

Answer 42

A measure of a firm’s profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding.

Question 43

working capital

Answer 43

Current assets minus current liabilities.

Question 44

current ratio

Answer 44

A measure of a firm’s short-term liquidity, calculated by dividing current assets by current liabilities.

Question 45

quick ratio

Answer 45

A measure of a firm’s short-term liquidity, calculated by adding cash, marketable securities, and receivables and then dividing that sum by current liabilities; also known as the acid-test ratio.

Question 46

Profitability ratio

Answer 46

Measure firm’s ability to generate profits

Question 47

Leverage ratios

Answer 47

Measure firm’s ability to pay long-term obligations

Question 48

liquidity ratio

Answer 48

Measure firm’s ability to pay short-term debt

Question 49

inventory turnover ratio

Answer 49

A measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period.

Question 50

accounts receivable turnover ratio

Answer 50

A measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period.

Question 51

debt-to-equity ratio

Answer 51

A measure of the extent to which a business is financed by debt as opposed to invested capital, calculated by dividing the company’s total liabilities by owners’ equity.

Question 52

debt-to-assets ratio

Answer 52

A measure of a firm’s ability to carry long-term debt, calculated by dividing total liabilities by total assets.

Question 53

distributed ledger

Answer 53

Method of verifying and recording transactions that replaces the individual ledgers of market participants with a shared ledger that everyone can access.

Question 54

blockchain

Answer 54

a type of distributed ledger in which each new transaction is captured in a “block,” which is then appended to the previous block in a continuous chain.