Chapter 8: Accounting and Financial Information

Question 1

Accounting equation

Answer 1

The relationship among assets, liabilities, and owners equity. expressed as assets = liabilities + owners equity.

Question 2

Current ratio

Answer 2

A liquidity ratio that measures whether an organization has a resource resources available to meet at short term debt. Formula: current assets / current liabilities.

Question 3

Debt to asset ratio

Answer 3

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.

Question 4

Dividends per share (DPS)

Answer 4

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.

Question 5

Earnings per share (EPS)

Answer 5

Measures the wealth of stockholders and is calculated by dividing net income / by the number of stock shares outstanding.

Question 6

Inventory turnover

Answer 6

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.

Question 7

Owners equity

Answer 7

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.

Question 8

Profit margin

Answer 8

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.

Question 9

Quick ratio

Answer 9

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.

Question 10

Receivables turnover

Answer 10

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.

Question 11

Return on investment (ROI)

Answer 11

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.

Question 12

Times covered ratio

Answer 12

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.

Question 13

Accounting

Answer 13

The recording classifying measuring and interpreting a financial transactions and events to provide management with information for decision-making

Question 14

Annual report

Answer 14

A yearly summary of the financial health, progress and future projections of an organization

Question 15

Assets

Answer 15

Resources or items of value owned or controlled by an organization

Question 16

Auditing

Answer 16

A type of accounting that involves reviewing and evaluating the financial information that is used to prepare an organizations financial statements

Question 17

Balance sheet

Answer 17

A financial report that shows a snapshot of an organizations cumulative financial condition as of a specific date

Question 18

Book value

Answer 18

The cost of an asset less any accumulated depreciation

Question 19

Bookkeeping

Answer 19

The routine daily categorization an recording of financial transactions

Question 20

Breakeven analysis

Answer 20

The unit volume at which gross sales equals total expenditures

Question 21

Budget

Answer 21

An internal financial plan to forecast income and expenses over a set period of time

Question 22

Cost of goods sold

Answer 22

The cost expended to buy or produce a product or service

Question 23

Current assets

Answer 23

Short term assets, that can be converted to cash within a year

Question 24

Current liabilities

Answer 24

Financial obligations with repayment terms, less than one year

Question 25

Depreciation

Answer 25

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

Question 26

Direct cost

Answer 26

The cost used directly in production like labor and materials

Question 27

Financial accounting

Answer 27

A type of accounting that provides financial information to individuals inside and organization, as well as stakeholders outside the organizationI

Question 28

Financial statements

Answer 28

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

Question 29

Fixed assets

Answer 29

Long-term assets that are relatively permanent

Question 30

Generally accepted accounting principles GAAP

Answer 30

Rule standards and practices used by the US accounting industry to prepare and standardized financial reports and statements .