Chapter 17 Flashcards
Accounting
The recording, classifying, summarizing, and interpreting of financial events and transactions provide management and other interested the information they need to make good decisions.
The language of business.
Accounting Cycle
a six-step procedure that results in the preparation and analysis of the major financial statements.
Bookkeeping
the recording of business transactions. Bookkeepers divide a firm’s transactions into meaningful categories and then posting them into a record book or computer program which is called a Journal.
Financial Statement
a summary of all the transactions that have occurred over a particular period of time (3 months; 6 months; 12 months).
Balance Sheet
reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity.
Income Statement
shows a firm’s profit after costs, expenses, and taxes it; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expense, and the resulting net income or net loss.
Statement of Cash flows
reports cash recipients and disbursements related toa f firm’s three major activities.
Fundamental accounting equation
- Assets = liabilities + owner’s equity
Assets
economic resources (things of value) owned by a firm; items can be tangible or intangible.
Liquidity
the ease with which an asset can be converted into cash.
Current Assets
items that can or will be converted into cash within one year.
Fixed assets
assets that are relatively permanent, such as land, buildings, and equipment.
Intangible assets
long term assets, trademarks, copyrights, that have no physical form but do have value.
Liabilities
what the business owes to others (debts).
Accounts payable
current liabilities involving money owed to others for merchandise or services purchase on credit but not yet paid for.
Owners’ equity
the amount of the business that belongs to the owners minus any liabilities owed by the business.
Retained earnings
the accumulated earnings from a firm’s profitable operations that were invested in the business and not paid out to stockholders in dividends.
Net income or net loss
revenue left over after all costs and expenses, including taxes, are paid, if none exists, then the firm has suffered a loss.
Income statement formula:
Revenue – CGS – Gross profit – operating expenses = net income before taxes – taxes = net income or net loss.
Revenue
the monetary value a firm received for goods sold, services rendered, or other payments.
Cost of goods sold (or manufactured)
a measures of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
Gross profit or gross margin
how much a firm earned by buying or making and selling merchandise.
Operating Expense
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.
Cash Flows
the difference between cash coming in and cash going out of a business. Managing cash flow is a key consideration of a business, especially a small business.
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, government agency, or nonprofit organization.
Public accountant
an accountant who provides accounting services to individuals or businesses on a fee basis.
Certified Public Accountant (CPA)
an accountant who passes a series of examinations established by the American institute of certified public accountants (AICPA).
Managerial accounting
accounting used to provide information and analyses to managers within the organization to assist them in decision making.
Auditing
the job of reviewing and evaluating the information used to prepare a company’s financial statements.
Tax Accountants
an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
