Chapter 8: Accounting and Financial Information Flashcards
Accounting equation
The relationship among assets, liabilities, and owners equity. expressed as assets = liabilities + owners equity.
Current ratio
A liquidity ratio that measures whether an organization has a resource resources available to meet at short term debt. Formula: current assets / current liabilities.
Debt to asset ratio
A leverage ratio that measures the percentage of an organization that is financed by debt and by equity. it is calculated by dividing total liabilities / total assets.
Dividends per share (DPS)
Earnings paid to stockholders by the corporation from earnings after taxes for each shared owned. It is calculated by dividing dividends paid / by the number of shares outstanding.
Earnings per share (EPS)
Measures the wealth of stockholders and is calculated by dividing net income / by the number of stock shares outstanding.
Inventory turnover
An activity ratio that measures how efficiently managers are turning over inventory to minimize the cost of carrying excess inventory. It is calculated by dividing the cost of goods sold (net sales) / by inventory.
Owners equity
The sum of all mone y invested and earned in a business that does not have to be repaid. expressed as owners equity equals net of assets minus liabilities.
Profit margin
A profitability ratio that measures the overall percentage of profits earned by an organization from sales and is computed by dividing net income / by sales. also called operating margin.
Quick ratio
A liquidity ratio that measures whether an organization can pay it short term debts without liquidating its inventory the least liquid current asset. it is calculated by dividing current assets less inventory / by current liabilities.
Receivables turnover
In activity ratio that measures how quickly an organization collects its accounts receivable, (outstanding credit sales) and is calculated by dividing sales / by accounts receivables.
Return on investment (ROI)
A profitability ratio that measures the overall percentage of profits earned for every dollar invested in assets. It is computed by dividing net income / by total assets. also called return on assets.
Times covered ratio
A leverage ratio that measures the safety margin an organization has with respect to the interest that is owed on debt and is calculated by dividing earnings (income) before interest in taxes / by total interest charges.
Accounting
The recording classifying measuring and interpreting a financial transactions and events to provide management with information for decision-making
Annual report
A yearly summary of the financial health, progress and future projections of an organization
Assets
Resources or items of value owned or controlled by an organization
Auditing
A type of accounting that involves reviewing and evaluating the financial information that is used to prepare an organizations financial statements
Balance sheet
A financial report that shows a snapshot of an organizations cumulative financial condition as of a specific date
Book value
The cost of an asset less any accumulated depreciation
Bookkeeping
The routine daily categorization an recording of financial transactions
Breakeven analysis
The unit volume at which gross sales equals total expenditures
Budget
An internal financial plan to forecast income and expenses over a set period of time
Cost of goods sold
The cost expended to buy or produce a product or service
Current assets
Short term assets, that can be converted to cash within a year
Current liabilities
Financial obligations with repayment terms, less than one year
Depreciation
An accounting procedure that expenses the cost of a tangible asset over its useful life rather than in the year of acquisition or purchase and has both tax and accounting implications
Direct cost
The cost used directly in production like labor and materials
Financial accounting
A type of accounting that provides financial information to individuals inside and organization, as well as stakeholders outside the organizationI
Financial statements
Reports that summarize the financial transactions that have occurred within an organization over a period of time to indicate an organizations financial health and stability
Fixed assets
Long-term assets that are relatively permanent
Generally accepted accounting principles GAAP
Rule standards and practices used by the US accounting industry to prepare and standardized financial reports and statements .
