Chapter 16: Understanding Accounting And Finanical Information Flashcards
Accounting
The recording, classifying, and interpreting of financial events and transactions to provide management the information they need to make good decisions
Accounting professions working areas (5)
Managerial accounting Financial accounting Auditing Tax accounting Government and not-for-profit accounting
Managerial accounting
Accounting used to provide information and analyses to managers inside the organization to assist them in deification making
Financial accounting
Accounting information and analyses prepared for people outside the organization
Annual report
A yearly statement of the financial condition, progress, and expectations of an organization
Private accountant
An accountant who works for a single firm, governor agency, or not for profit organization
Public accountant
An accountant who provides his or her accounting services to individuals or businesses on a few basis
International financial reporting standards (IFRS)
The common set of accounting principles, standards, and procedures that accountants use to compile financial statements
Auditing
The job or reviewing and evaluating the records used to prepare a company’s financial statement
Independent audit
An evaluation and unbiased opinion about the accuracy of a company’s financial statement
Forensic accounting
Relatively new area of accounting that focuses its attention on fraudulent activity
Tax accountant
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies
Government and not for profit accounting
Accounting system for organizations whose purpose is not generating a profit but rather serving ratepayers, taxpayers, and others according to a duly approved budget
Canada has 3 legacy professional accounting designations. What are they?
Chartered accountant
Certified management accountant
Certified general accountant
Chartered professional accountant designation
The internationally recognized Canadian accounting designation
Accounting cycle
Six step procedure that results in the preparation and analysis of the major financial statements
Bookkeeping
Recording of business transactions
Journal
Record book where accounting data are first entered
Double entry bookkeeping
Have records in two known spots
Spanny with math marks
Ledger
Specialized accounting book in which information from accounting journals is accumulated into accounts and posted so the managers can find all of the information about a specific account in one place
Trial balence
Summary of all the data in the account ledger to show whether the figures are correct and balenced
Financial statement
Summary of all of the transactions that have occurred over a particular period
3 key business statements
Balence sheet
Income statement
Statements of cash flow
Fundemental accounting equation
Assets = liabilities + owners equity
This is the basis for all balence sheets
Accounts
Different types of assets, liabilities, and owners equity
Balance sheet (AKA financial position)
The financial statement that reports a firms financial condition at a specific time and is composed of three major types of accounts:
Assets, liabilities, and owners equity
Assets
Economic resources (things of value) owned by a firm
Equipment, buildings, land
Liquidity
The ease with which an asset can be converted into cash
3 types of assets
Current assets
Fixed assets
Intangible assets
Current assets
Items that can or will be converted into cash within one year
Fixed assets
Assets that are relatively permanent, such as land, building, and equipment
Liabilities
What the business owes to others (debts)
Common liability accounts (3)
Accounts payable
Notes payable
Bonds payable
Accounts payable
Current liabilities or bills a company owes others for merchandise or services purchased on credit but not yet paid for
Notes payable
Short term or long term liabilities that a business promises to repay by a certain date
Bonds payable
Long term liabilities that represent money lent to a firm that must be paid back
Owners equity
The amount of the business that belongs to the owners minus any liabilities owed by the business
Retained earnings
Accumulated earnings form a firms profitable operations that remain in the business and age not paid out to shareholders as dividends
Income statement (statement of earnings)
The financial statement that shows a firms profit after cost, expenses, and taxes
Net income / net loss
Revenue left over after all costs and expenses, including taxes, are paid
Cost of goods sold (cost of goods manufactured)
Measure of the cost of merchandise sold or cost or raw material and suppliers used for producing items for resale
Gross profit (gross margin)
How much a firm earned by buying (or making) and selling merchandise
Operating expenses
Costs involved in operating a business, such as rent, utilities, and salaries
Depreciation
The systematic write off of the cost of a tangible asset over its estimated useful life
Statements of cash flow (cash flow statements)
Financial statement that reports cash receipts and cash disbursements related to a firms three major activities (operations, investing, and financing
Cash flow
The difference between cash coming in and going out of a business
Ratio analyses
The assessment of a firms financial condition using calculations and interpretations of financial ratios developed from the firms financial statements
Liquidity ratio
Measure a company’s ability to turn assets in cash to pay short term debts
5 main areas of accounting
GO FIN(D) A TAX MAN Government, financial, auditing, tax, managerial
Accounting equation (and describe it with 100$)
Assets = liabilities + owners equity
Assets is the total money you have.
Liabilities is the 40$ your friend gave you (that you need to pay back one day) and owners equity is the money you started with, so the $60 in your wallet
