Chapter 17 Flashcards
The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.
Accounting
What are the three parts to an accounting system
Inputs
Processing
Outputs
A six-step procedure that results in the preparation and analysis of the major financial statements.
Accounting Cycle
The recording of business transactions.
Bookkeeping
how do accountants and bookkeepers work together
Accountants clarify and summarize financial data provided by bookkeepers
What are the six steps to the accounting cycle
Analyze source documents Record transactions to journal Transfer journal entries to ledger Take trial balance Prepare financial statements Analyze statements
The record book or computer program where accounting data is first entered
Journal
The practice of writing every business transaction in two places.
Double-entry bookkeeping
A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.
Ledger
A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
Trial Balance
A summary of all the transactions that have occurred over a particular period.
Financial Statement
What are the three key financial statements
Balance Sheet
Income sheet
Statement of cashflow
Assets = Liabilities + Owners’ equity; this is the basis for the balance sheet.
Fundamental accounting equation
Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity.
Balance Sheet
Economic resources (things of value) owned by a firm.
Assets
The ease with which an asset can be converted into cash.
Liquidity
Items that can or will be converted into cash within one year.
Current Assets
Assets that are relatively permanent, such as land, buildings, and equipment.
Fixed Assests
Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.
Intangible Assets
What the business owes to others (debts).
Liabilities:
Current debts are do in 1 year or less
Long term are not do for 1 or more years
Current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for.
Accounts payable
Short-term or long-term liabilities that a business promises to repay by a certain date
Notes Payable
Long-term liabilities that represent money lent to the firm that must be paid back.
Bonds payable
The amount of the business that belongs to the owners minus any liabilities owed by the business.
Owners equity
The accumulated earnings from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
Retained earnings
The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expenses, and the resulting net income or net loss.
Income Statement
Revenue left over after all costs and expenses, including taxes, are paid.
Net income or net loss
A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
Cost of Goods Sold
The monetary value of what a firm received for goods sold, services rendered, and other payments
Revenue
How much a firm earned by buying (or making) and selling merchandise.
Gross profit or gross margin
Costs involved in operating a business, such as rent, utilities, and salaries.
Operating expenses
Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations, investments, and financing.
Statement of cash flows
The assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements.
Ratio Analysis
Ratios that measure a company’s ability to turn assets into cash to pay its short-term debts
Liquidity ratios
Ratios that measure the degree to which a firm relies on borrowed funds in its operations.
Leverage ratios
indirectly measures risk by telling us how much a firm earned for each dollar invested by it’s owners.
Return on equity
Tells how effectively management is turning inventory into profit
Activity ratios
The five areas accounting is divided into
Financial managerial audition tax governmental/non-profit
Accounting information and analyses prepared for people outside the organization.
Financial Accounting
Accounting used to provide information and analyses to managers within the organization to assist them in decision making.
Managerial accounting
The job of reviewing and evaluating the information used to prepare a company’s financial statements
Auditing
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
Tax accountant
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
Government and not-for-profit accounting
