Chapter 16

Question 1

accounting

Answer 1

the process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activites

Question 2

managerial accounting

Answer 2

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

Question 3

financial accounting

Answer 3

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

Question 4

generally accepted accounting principles (GAAP)

Answer 4

the financial accounting rules, standards, and usual practices followed by accountants in Canada when preparing financial statements ,until January 2011

Question 5

International Financial Reporting Standards (IFRS)

Answer 5

a set of globally accepted accounting standards adopted in Canada on January 1, 2011, for public companies and those private companies that chose to adopt them

Question 6

Accounting Standards for Private Enterprises (ASPE)

Answer 6

the accounting framework designed to replace Canadian GAAP for private companies

Question 7

annual report

Answer 7

a yearly document that describes a company’s financial status and usually discusses the company’s activities during the past year and its prospects for the future

Question 8

chartered accountant (CA)

Answer 8

an accountant who typically provides tax, audit, and management services

Question 9

certified management accountant (CMA)

Answer 9

an accountant who works primarily in industry and focuses on internal management accounting

Question 10

certified general accountant (CGA)

Answer 10

an accountant who focuses primarily on external financial reporting

Question 11

chartered professional accountant (CPA)

Answer 11

an accounting designation that unites the various accounting designations in Canada

Question 12

assets

Answer 12

things of value owned by a company

Question 13

liabilities

Answer 13

what a company owes to its creditors; also called debts

Question 14

owners’ equity

Answer 14

the total amount of investment in the company minus and liabilities; also called net worth

Question 15

accounting equation

Answer 15

assets = owners equity + liabilities

Question 16

double-entry bookkeeping

Answer 16

a method of accounting in which each transaction is recorded as at least two entries, so that the accounts or records are changed

Question 17

T-account

Answer 17

an account that is often used to analyze financial transactions; T-accounts are named as such because they resemble the letter T

Question 18

trial balance

Answer 18

a list of each account and its net balance

Question 19

balance sheet (statement of financial position)

Answer 19

a financial statement that summarizes a company’s financial position at a specific point in time

Question 20

current assets

Answer 20

assets that can or will be converted into cash within the next 12 months

Question 21

liquidity

Answer 21

the speed with which an asset can be converted to cash

Question 22

capital assets

Answer 22

long-term assets used by a company for more than a year, such as land, buildings, and machinery, also referred to as fixed assets or property, plant, and equipment (PPE)

Question 23

amortization (depreciation)

Answer 23

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

Question 24

intangible assets

Answer 24

long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill

Question 25

goodwill

Answer 25

the value that has been paid for a company that exceeds the value of its net tangible assets

Question 26

current liabilities

Answer 26

short-term claims that are due within a year of the date of the balance sheet

Question 27

long-term liabilities

Answer 27

claims that come due more than one year after the date of the balance sheet

Question 28

retained earnings

Answer 28

the amounts left over from profitable operations since the company’s beginning; equal to total profits minus all dividends paid to shareholders

Question 29

income statement (statement of comprehensive income)

Answer 29

a financial statement that summarizes a company’s revenues and expenses, and shows its total profit or loss over a period of time. Also known as the statement of comprehensive income, statement of earnings, and the profit and loss statement

Question 30

revenues (also called sales and income)

Answer 30

the dollar amount of a company’s sales plus any other income it received from sources such as interest, dividends, and rents

Question 31

gross sales

Answer 31

the total dollar amount of a company’s sales

Question 32

net sales

Answer 32

the amount left after deducting sales discounts and returns and allowances from gross sales

Question 33

expenses

Answer 33

the costs of generating revenues

Question 34

cost of goods sold (COGS)

Answer 34

the total expense of buying or producing a company’s goods or services

Question 35

gross profit

Answer 35

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

Question 36

operating expenses

Answer 36

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

Question 37

net profit (net income)

Answer 37

the amount obtained by subtracting all of a company’s expenses from its revenues, when the revenues are more than the expenses

Question 38

net loss

Answer 38

the amount obtained by subtracting all of a company’s expenses from its revenues, when the expenses are more than the revenues

Question 39

statement of cash flows

Answer 39

a financial statement that provides a summary of the money flowing into and out of a company during a certain period, typically one year

Question 40

ratio analysis

Answer 40

the calculation and interpretation of financial ratios using data taken from the company’s financial statements to assess its condition and performance

Question 41

liquidity ratios

Answer 41

ratios that measure a company’s ability to pay its short-term debts as they come due

Question 42

current ratio

Answer 42

the ratio of total current assets to total current liabilities; used to measure a company’s liquidity

Question 43

acid-test (quick) ratio

Answer 43

the ratio of total current assets excluding inventory to total current liabilities; used to measure a company’s liquidity

Question 44

net working capital

Answer 44

the amount obtained by subtracting total current liabilities from total current assets; used to measure a company’s liquidity

Question 45

profitability ratios

Answer 45

ratios that measure how well a company is using its resources to generate profit and how efficiently it is being managed

Question 46

net profit margin

Answer 46

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

Question 47

return on equity (ROE)

Answer 47

the ratio of net profit to total owners’ equity; measures the return that owners receive on their investment in the company

Question 48

earnings per share (EPS)

Answer 48

the ratio of net profit to the number common shares outstanding; measures the number of dollars earned by each share

Question 49

activity ratios

Answer 49

ratios that measure how well a company uses its assets

Question 50

inventory turnover ratio

Answer 50

the ratio of costs of goods sold to average inventory; measures the speed with which inventory moves through a company and is turned into sales

Question 51

debt ratios

Answer 51

ratios that measure the degree and effect of a company’s use of borrowed funds (debt) to finance its operations

Question 52

debt-to-equity ratio

Answer 52

the ratio of total liabilities to owners’ equity; measures the relationship between the amount of debt financing and the amount of equity financing (owners’ funds)