Chapter 17 VOCAB

Question 1

measuring, interpreting, and communicating financial information to support internal and external decision making

Answer 1

accounting

Question 2

area of accounting concerned with preparing financial information for users outside the organization

Answer 2

financial accounting

Question 3

area of accounting concerned with preparing data for use by managers within the organization

Answer 3

management accounting

Question 4

recordkeeping; the clerical aspect of accounting

Answer 4

bookkeeping

Question 5

in-house accountants employed by organizations and businesses other than a public accounting firm

Answer 5

private accountants; also called corporate accountants

Question 6

highest-ranking accountant in a company, responsible for overseeing all accounting functions

Answer 6

controller

Question 7

professionally licensed accountants who meet certain requirements for education and experience and who pass a comprehensive examination

Answer 7

certified public accountants (CPAs)

Question 8

professionals who provide accounting services to to other businesses and individuals for a fee

Answer 8

public accountants

Question 9

formal evaluation of the fairness and reliability of a client’s financial statements

Answer 9

audit

Question 10

U.S. standards and practices used by accountants in the preparation of financial statements

Answer 10

generally accepted accounting principles (GAAP)

Question 11

independent accounting firms that provide auditing services for public companies

Answer 11

external auditors

Question 12

accounting standards and practices used in many countries outside the United States

Answer 12

international financial reporting standards (IFRS)

Question 13

informal name of comprehensive legislation designed to improve integrity and accountability of financial information

Answer 13

Sarbanes-Oxley

Question 14

any things of value owned or leased by a business

Answer 14

assets

Question 15

claims against a firm’s assets by creditors

Answer 15

liabilities

Question 16

portion of a company’s assets that belongs to the owners after obligations to all creditors have been met

Answer 16

owner’s equity

Question 17

basic accounting equation stating that assets equal liabilities plus owner’s equity

Answer 17

accounting equation

Question 18

method of recording financial transactions requiring two offsetting entries for every transaction to ensure that the accounting equation is always kept in balance

Answer 18

double-entry bookkeeping

Question 19

fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period

Answer 19

matching principle

Question 20

accounting method in which revenue is recorded when a sale is made and expense is recorded when it is incurred

Answer 20

accrual basis

Question 21

accounitng method in which revenue is recorded when payment is received and expense is recorded when cash is paid

Answer 21

cash basis

Question 22

accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life

Answer 22

depreciation

Question 23

transferring net revenue and expense account balances to retained earnings for the period

Answer 23

closing the books

Question 24

statement of a firm’s financial position on a particular date

Answer 24

balance sheet; also known as a statement of financial position

Question 25

twelve-month accounting period that begins on January 1 and ends on December 31

Answer 25

calendar year

Question 26

any 12 consecutive months used as an accounting period

Answer 26

fiscal year

Question 27

cash and items that can be turned into cash within one year

Answer 27

current assets

Question 28

assets retained for long-term use, such as land, buildings, machinery, and equipment

Answer 28

fixed assets; also referred to as property, plant, and equipment

Question 29

obligations that must be met within a year

Answer 29

current liabilities

Question 30

obligations that fall due more than a year from the date of the balance sheet

Answer 30

long-term liabilities

Question 31

the portion of shareholders’ equity earned by the company but not distributed to its owners in the form of dividends

Answer 31

retained earnings

Question 32

financial record of a company’s revenues, expenses, and profits over a given period of time

Answer 32

income statement; also known as profit-and-loss statement

Question 33

costs created in the process of generating revenues

Answer 33

expenses

Question 34

profit earned or loss incurred by a firm, determined by subtracting expenses from revenues

Answer 34

net income; causally referred to as the bottom line

Question 35

cost of producing or acquiring a company’s products for sale during a given period

Answer 35

cost of goods sold

Question 36

amount remaining when the cost of goods sold is deducted from net sales

Answer 36

gross profit; also known as gross margin

Question 37

all costs of operation that are not included under cost of goods sold

Answer 37

operating expenses

Question 38

earnings before interest, taxes, depreciation, and amortization; a simpler and more direct measure of income

Answer 38

EBITDA

Question 39

statement of a firm’s cash receipts and cash payments that presents information on its sources and uses of cash

Answer 39

statement of cash flow

Question 40

ratio between net income after taxes and net sales

Answer 40

return on sales; also known as profit margin

Question 41

ratio between net income after taxes and total owners’ equity

Answer 41

return on equity

Question 42

measure of a firm’s profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding

Answer 42

earnings per share

Question 43

current assets minus current liabilities

Answer 43

working capital

Question 44

measure of a firm’s short-term liquidity, calculated by dividing current assets by current liabilities

Answer 44

current ratio

Question 45

measure of a firm’s short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities

Answer 45

quick ratio; also known as acid-test ratio

Question 46

measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period

Answer 46

inventory turnover ratio

Question 47

measure of time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period

Answer 47

accounts receivable turnover ratio

Question 48

measure of the extent to which a business is financed by debt as opposed to invested in capital, calculated by dividing the company’s total liabilities by owner’s equity

Answer 48

debt-to-equity ratio

Question 49

measure of a firm’s ability to carry long-term debt, calculated by dividing total liabilities by total assets

Answer 49

debt-to-assets ratio