Chapter 17: Using Accounting and Financial Information

Question 1

is the largest financial language of business

Answer 1

accounting

Question 2

when someone talks about _____ they are talking about the information that is provided to managers and decision makers within the organization

Answer 2

managerial accounting

Question 3

the process of collecting, analyzing, and reporting financial information

Answer 3

accounting

Question 4

provides info for managers WITHIN an organization to make decisions about a company’s financing, investing, marketing and operating activities

Answer 4

managerial accounting

Question 5

provides info for people OUTSIDE an organization through the generation of standardized financial statements

Answer 5

financial accounting

Question 6

used to ensure accuracy and consistency in the way financial information was reported (old)

Answer 6

generally accepted accounting principles (GAAP)

Question 7

• a set of globally accepted accounting standards

- to provide consistency in financial reporting internationally and replace the GAAP

Answer 7

international financial reporting standard (IFRS)

Question 8

accounting is broken down into 2 broad categories:

Answer 8

financial and managerial accounting

Question 9

3 types of financial statements

Answer 9

balance sheet, income statement, statement of cash flows

Question 10

accounting standards similar to the former Canadian GAAP for private companies

Answer 10

Accounting Standards for Private Enterprises (ASPE)

Question 11

a financial statement that provides a snapshot of a company’s financial position by stating assets, liabilities and owner’s equity

Answer 11

balance sheet

Question 12

a f.s that provides a summary of how much a company earned over a period of time; revenue, expenses and net income

Answer 12

income statement

Question 13

a f.s that illustrates how the company’s operating, investing and financing activities affect cash over a period of time

Answer 13

statement of cash flows

Question 14

• often run at the end of accounting periods (monthly, quarterly, or annually)
• assets - liabilities = owner’s equity

Answer 14

balance sheet

Question 15

is the portion of company assets that belong to the owners after all the debts are paid

Answer 15

owner’s equity

Question 16

the easier it is to convert an asset to cash, the more

Answer 16

liquid it is

Question 17

having assets that are more ______ places owners in a stronger financial position

Answer 17

liquid

Question 18

assets that can be converted quickly into cash (accounts receivable, cash and short-term investments and inventory)

Answer 18

current assets

Question 19

aren’t easily converted into cash or will be held for longer than a year (equpiment, fixed assets and intangible assets)

Answer 19

long-term assets

Question 20

money it owes to suppliers for purchases that were made using credits

Answer 20

accounts payable

Question 21

has liabilities related to upcoming salary and tax payments and do not need to be paid just yet

Answer 21

accrued expenses

Question 22

assets and liabilities are categorized as:

Answer 22

current or long-term

Question 23

assets that can be converted to cash or used in 1 year or less

Answer 23

current assets

Question 24

debts that will be repaid in 1 year or less

Answer 24

current liabilities

Question 25

assets that will be used for longer than 1 year

Answer 25

long-term assets

Question 26

debts that need not to be repaid for at least one year

Answer 26

long-term liabilities

Question 27

records how much the company earns from selling goods/services with the “bottom line” showing the company’s profit or loss for the period

Answer 27

income statement

Question 28

the cost of producing or purchasing products for sale

Answer 28

cost of goods sold (COGS)

Question 29

ongoing business expenses such as rent, salaries, utilities, and marketing expenses

Answer 29

operating expense

Question 30

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

Answer 30

cash flow statements

Question 31

2 common methods of analysis

Answer 31

1. compare the company’s current performance to past performance
2. compare the company’s current performance to the competitor’s performance

Question 32

rather than compare actual numbers or $ amounts analysts use

Answer 32

financial ratios

Question 33

3 common ratios that measure the

Answer 33

profitability, liquidity and leverage of a company

Question 34

• how good the company is at generating revenue and controlling its costs
• higher ratio = better profit margins

Answer 34

profitability ratios

Question 35

• company’s ability to meet short-term obligations
• higher ratio = company can easily pay short-term debt obligations
• ratio varies greatly by industry

Answer 35

liquidity ratio

Question 36

• how much a company is financed using dept
• a ratio over 1 = company has more debt than equity
• higher ratio = higher level of debt

Answer 36

leverage ratio

Question 37

when we calculate, 3 common financial ratios

Answer 37

return on sales, current ratio and debt-to-equity ratio

Question 38

measures how effectively a company controls its costs

Answer 38

return to sales

Question 39

measures a company’s ability to convert short-term assets to cash in order to pay its short-term debt

Answer 39

current ratio

Question 40

measures leverage or how much debt a company has in comparison to owner’s equity

Answer 40

dept-to equity ratio

Question 41

the more dept a company has the more _________ it is

Answer 41

leveraged