Chapter 16 Flashcards
accounting
the process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activites
managerial accounting
accounting that provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations
financial accounting
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
generally accepted accounting principles (GAAP)
the financial accounting rules, standards, and usual practices followed by accountants in Canada when preparing financial statements ,until January 2011
International Financial Reporting Standards (IFRS)
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
Accounting Standards for Private Enterprises (ASPE)
the accounting framework designed to replace Canadian GAAP for private companies
annual report
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
chartered accountant (CA)
an accountant who typically provides tax, audit, and management services
certified management accountant (CMA)
an accountant who works primarily in industry and focuses on internal management accounting
certified general accountant (CGA)
an accountant who focuses primarily on external financial reporting
chartered professional accountant (CPA)
an accounting designation that unites the various accounting designations in Canada
assets
things of value owned by a company
liabilities
what a company owes to its creditors; also called debts
owners’ equity
the total amount of investment in the company minus and liabilities; also called net worth
accounting equation
assets = owners equity + liabilities
double-entry bookkeeping
a method of accounting in which each transaction is recorded as at least two entries, so that the accounts or records are changed
T-account
an account that is often used to analyze financial transactions; T-accounts are named as such because they resemble the letter T
trial balance
a list of each account and its net balance
balance sheet (statement of financial position)
a financial statement that summarizes a company’s financial position at a specific point in time
current assets
assets that can or will be converted into cash within the next 12 months
liquidity
the speed with which an asset can be converted to cash
capital assets
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)
amortization (depreciation)
the allocation of an asset’s original cost to the years in which it is expected to produce revenues
intangible assets
long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill
goodwill
the value that has been paid for a company that exceeds the value of its net tangible assets
current liabilities
short-term claims that are due within a year of the date of the balance sheet
long-term liabilities
claims that come due more than one year after the date of the balance sheet
retained earnings
the amounts left over from profitable operations since the company’s beginning; equal to total profits minus all dividends paid to shareholders
income statement (statement of comprehensive income)
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
revenues (also called sales and income)
the dollar amount of a company’s sales plus any other income it received from sources such as interest, dividends, and rents
gross sales
the total dollar amount of a company’s sales
net sales
the amount left after deducting sales discounts and returns and allowances from gross sales
expenses
the costs of generating revenues
cost of goods sold (COGS)
the total expense of buying or producing a company’s goods or services
gross profit
the amount a company earns after paying to produce or buy its products but before deducting operating expenses
operating expenses
the expenses of running a business that are not directly related to producing or buying its products
net profit (net income)
the amount obtained by subtracting all of a company’s expenses from its revenues, when the revenues are more than the expenses
net loss
the amount obtained by subtracting all of a company’s expenses from its revenues, when the expenses are more than the revenues
statement of cash flows
a financial statement that provides a summary of the money flowing into and out of a company during a certain period, typically one year
ratio analysis
the calculation and interpretation of financial ratios using data taken from the company’s financial statements to assess its condition and performance
liquidity ratios
ratios that measure a company’s ability to pay its short-term debts as they come due
current ratio
the ratio of total current assets to total current liabilities; used to measure a company’s liquidity
acid-test (quick) ratio
the ratio of total current assets excluding inventory to total current liabilities; used to measure a company’s liquidity
net working capital
the amount obtained by subtracting total current liabilities from total current assets; used to measure a company’s liquidity
profitability ratios
ratios that measure how well a company is using its resources to generate profit and how efficiently it is being managed
net profit margin
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
return on equity (ROE)
the ratio of net profit to total owners’ equity; measures the return that owners receive on their investment in the company
earnings per share (EPS)
the ratio of net profit to the number common shares outstanding; measures the number of dollars earned by each share
activity ratios
ratios that measure how well a company uses its assets
inventory turnover ratio
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
debt ratios
ratios that measure the degree and effect of a company’s use of borrowed funds (debt) to finance its operations
debt-to-equity ratio
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)
