Chapter 17: Using Accounting and Financial Information Flashcards
is the largest financial language of business
accounting
when someone talks about _____ they are talking about the information that is provided to managers and decision makers within the organization
managerial accounting
the process of collecting, analyzing, and reporting financial information
accounting
provides info for managers WITHIN an organization to make decisions about a company’s financing, investing, marketing and operating activities
managerial accounting
provides info for people OUTSIDE an organization through the generation of standardized financial statements
financial accounting
used to ensure accuracy and consistency in the way financial information was reported (old)
generally accepted accounting principles (GAAP)
- a set of globally accepted accounting standards
- to provide consistency in financial reporting internationally and replace the GAAP
international financial reporting standard (IFRS)
accounting is broken down into 2 broad categories:
financial and managerial accounting
3 types of financial statements
balance sheet, income statement, statement of cash flows
accounting standards similar to the former Canadian GAAP for private companies
Accounting Standards for Private Enterprises (ASPE)
a financial statement that provides a snapshot of a company’s financial position by stating assets, liabilities and owner’s equity
balance sheet
a f.s that provides a summary of how much a company earned over a period of time; revenue, expenses and net income
income statement
a f.s that illustrates how the company’s operating, investing and financing activities affect cash over a period of time
statement of cash flows
- often run at the end of accounting periods (monthly, quarterly, or annually)
- assets - liabilities = owner’s equity
balance sheet
is the portion of company assets that belong to the owners after all the debts are paid
owner’s equity
the easier it is to convert an asset to cash, the more
liquid it is
having assets that are more ______ places owners in a stronger financial position
liquid
assets that can be converted quickly into cash (accounts receivable, cash and short-term investments and inventory)
current assets
aren’t easily converted into cash or will be held for longer than a year (equpiment, fixed assets and intangible assets)
long-term assets
money it owes to suppliers for purchases that were made using credits
accounts payable
has liabilities related to upcoming salary and tax payments and do not need to be paid just yet
accrued expenses
assets and liabilities are categorized as:
current or long-term
assets that can be converted to cash or used in 1 year or less
current assets
debts that will be repaid in 1 year or less
current liabilities
assets that will be used for longer than 1 year
long-term assets
debts that need not to be repaid for at least one year
long-term liabilities
records how much the company earns from selling goods/services with the “bottom line” showing the company’s profit or loss for the period
income statement
the cost of producing or purchasing products for sale
cost of goods sold (COGS)
ongoing business expenses such as rent, salaries, utilities, and marketing expenses
operating expense
provides some insight into the timing of the investment and financing activities over a period of time along with cash flows generated from the company’s primary operating activity, selling products, or providing services to customers
cash flow statements
2 common methods of analysis
- compare the company’s current performance to past performance
- compare the company’s current performance to the competitor’s performance
rather than compare actual numbers or $ amounts analysts use
financial ratios
3 common ratios that measure the
profitability, liquidity and leverage of a company
- how good the company is at generating revenue and controlling its costs
- higher ratio = better profit margins
profitability ratios
- company’s ability to meet short-term obligations
- higher ratio = company can easily pay short-term debt obligations
- ratio varies greatly by industry
liquidity ratio
- how much a company is financed using dept
- a ratio over 1 = company has more debt than equity
- higher ratio = higher level of debt
leverage ratio
when we calculate, 3 common financial ratios
return on sales, current ratio and debt-to-equity ratio
measures how effectively a company controls its costs
return to sales
measures a company’s ability to convert short-term assets to cash in order to pay its short-term debt
current ratio
measures leverage or how much debt a company has in comparison to owner’s equity
dept-to equity ratio
the more dept a company has the more _________ it is
leveraged
