Chapter 17: Understanding Accounting and Financial Information Flashcards
accounting
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 cycle
A six-step procedure that results in the preparation and analysis of the major financial statements.
accounts payable
Current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for.
annual report
A yearly statement of the financial condition, progress, and expectations of an organization.
assets
Economic resources (things of value) owned by a firm.
auditing
The job of reviewing and evaluating the information used to prepare a company’s financial statements.
balance sheet
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.
bonds payable
Long-term liabilities that represent money lent to the firm that must be paid back.
bookkeeping
The recording of business transactions.
cash flow
The difference between cash coming in and cash going out of a business.
certified public accountant (CPA)
An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA).
cost of goods sold (or cost of goods manufactured)
A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
current assets
Items that can or will be converted into cash within one year.
depreciation
The systematic write-off of the cost of a tangible asset over its estimated useful life.
double-entry bookkeeping
The practice of writing every business transaction in two places.
financial accounting
Accounting information and analyses prepared for people outside the organization.
financial statement
A summary of all the transactions that have occurred over a particular period.
fixed assets
Assets that are relatively permanent, such as land, buildings, and equipment.
fundamental accounting equation
Assets = Liabilities + Owners’ equity; this is the basis for the balance sheet.
government and not-for-profit accounting
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
gross profit (or gross margin)
How much a firm earned by buying (or making) and selling merchandise.
income statement
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.
independent audit
An evaluation and unbiased opinion about the accuracy of a company’s financial statements.
intangible assets
Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.
journal
The record book or computer program where accounting data is first entered.
ledger
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.
liabilities
What the business owes to others (debts).
liquidity
The ease with which an asset can be converted into cash.
managerial accounting
Accounting used to provide information and analyses to managers within the organization to assist them in decision making.
net income or net loss
Revenue left over after all costs and expenses, including taxes, are paid.
notes payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
operating expenses
Costs involved in operating a business, such as rent, utilities, and salaries.
owners’ equity
The amount of the business that belongs to the owners minus any liabilities owed by the business.
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.
ratio analysis
The assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements.
retained earnings
The accumulated earnings from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
statement of cash flows
Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations, investments, and financing.
tax accountant
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
trial balance
A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
