Chapter 4 Vocabulary

Question 1

The language used by companies to communicate their financial performance to the public

Answer 1

Financial accounting

Question 2

Reports the financial positions of a company at a specific date in time. It distinguishes the amount of assets, liabilities and equity at the date of the financial statement

Answer 2

Balance sheet

Question 3

Reports the revenues, expenses, and net income (or loss) over a specific period of time

Answer 3

Income statement

Question 4

Reports the sources and the uses of cash throughout the period

Answer 4

Statement of cash flows

Question 5

Reports the changes in an organization’s accumulated earnings for the reported period

Answer 5

Statement of retained earnings

Question 6

Broad guidelines, conventions, rules, and procedures of accounting that are gathered from various accounting standards and other authoritative organizations

Answer 6

GAAP

Question 7

Economic resources owned by a firm that are measurable and likely to produce future economic benefits. Reported on the balance sheet

Answer 7

Assets

Question 8

Probably future obligations of a firm. Reported on the balance sheet

Answer 8

Liabilities

Question 9

Owners residual interest in assets of a business entity. Reported on the balance sheet

Answer 9

Equity

Question 10

Inflows of assets or settlements of liabilities during a particular accounting period

Answer 10

Revenue

Question 11

Outflows of assets of incurrence of liabilities during a particular accounting period

Answer 11

Expenses

Question 12

Represents the excess of revenues over all related expenses

Answer 12

Net income (loss)

Question 13

Review of the financial statement by independent third party. Provide a professional opinion as to whether the financial statements fairly present the results of the operations of the company

Answer 13

Auditing

Question 14

Annual company report, including all financial information, management discussion, and synopsis of operations

Answer 14

10-K

Question 15

Quarterly company report, including all financial information, management discussion and synopsis of operations

Answer 15

10-Q

Question 16

Recognizes revenue/loss caused by an economic event and records it in the period in which the event occurred. Accepted by GAAP

Answer 16

Accrual accounting

Question 17

Records revenue/loss in the period when physical cash changes hands. NOT GAAP

Answer 17

Cash accounting

Question 18

Includes cash and other assets that are expected to be realized in cash or be sold or consumed during the normal operating cycle of the business or within one year from the balance sheet date, whichever is longer

Answer 18

Current assets

Question 19

A company’s merchandise, raw materials, and finished and unfinished products which have not yet been sold

Answer 19

Inventory

Question 20

Money that is owed to a company by a customer for products and services provided on credit

Answer 20

Accounts receivable

Question 21

Includes obligations of a firm expected to be liquidated using current assets or refinanced by other short term liabilities within the normal operating cycle of the business or within one year from the balance sheet date, whichever is longer

Answer 21

Current liabilities

Question 22

Assets that are not completely used up in a single operating cycle and management plans to retain for more than one year from balance sheet date

Answer 22

Long term assets

Question 23

An intangible asset that provides a competitive advantage, such as a strong brand, reputation, or high employee morale

Answer 23

Goodwill

Question 24

Obligations that do not require the use of current assets for payment during the next operating cycle or within the next reporting year

Answer 24

Long term liabilities

Question 25

Accounts and financial instruments that are not recorded on the balance sheet

Answer 25

Off-Balance Sheet Activities

Question 26

Measure the direct cost of goods sold or cost of services provided in generating the recorded revenues for the period

Answer 26

COGS

Question 27

The difference between revenues and COGS

Answer 27

Gross margin

Question 28

Expenses incurred by the company in its efforts of generating revenues. It included marketing costs, costs of delivering goods, and overhead associated with the selling process

Answer 28

Selling expenses

Question 29

Expenses related to personnel, accounting and finance activities, the operating costs of organization overhead, and associated terms

Answer 29

General and administrative expenses

Question 30

All expenses related incurred during normal operations. Besides SGA expenses, it includes research and development, depreciation and amortization

Answer 30

Operating expenses

Question 31

The portion of federal and state taxes applicable to the income recognized during the reported accounting period

Answer 31

Income tax expenses

Question 32

Net income after taxes scaled to a single share of outstanding common stock

Answer 32

Earnings per share

Question 33

Reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock that then shared in the earnings of the entity

Answer 33

EPS dilution

Question 34

Relates to the normal operating process required to generate cash from operations. (Includes interest payments)

Answer 34

Operating activities

Question 35

Relates primarily to the changes in non-current assets. This includes cash flows associated with investing and disposal of plant assets, certain securities, making and collecting loans, and other strategic activities

Answer 35

Investing activities

Question 36

Relates to the changes in borrowing and stockholders equity. (Includes payment of dividends)

Answer 36

Financing activities

Question 37

Used to indicate the ability of a company to pay its bills on time

Answer 37

Liquidity ratios

Question 38

Current ratio

Answer 38

Current assets/current liabilities

Question 39

Used to asses the effectiveness with which a firm is managing assets and liabilities to generate sales

Answer 39

Activity/efficiency ratios

Question 40

Indicates the extent to which a firm has financed its assets with non-owner sources of capital (debt financing)

Answer 40

Leverage ratios

Question 41

A requirement in a loan agreement requiring the firm to maintain a minimum financial ratio to prevent the loan from being called

Answer 41

Debt covenant