Chapters 15-18 Flashcards
The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions
Accounting
Accounting used to provide information and analyses to managers inside the organization to assist them in decision making
Managerial accounting
A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been verified by the Institute of Certified Management Accountants.
Certified management accountant (CMA)
Accounting information and analyses prepared for people outside the organization.
Financial accounting
Yearly statement of the financial condition, progress, and expectations of an organization.
Annual report
Accountant who works for a single firm, government agency, or nonprofit organization.
Private accountant
Accountant who provides accounting services to individuals or businesses on a fee basis
Public accountant
Accountant who passes a series of examinations established by the American Institute of Certified Public Accountants ( AICPA)
Certified public accountant
Job of reviewing and evaluation the information used to prepare a company’s financial statements
Auditing
An evaluation and unbiased opinion about the accuracy of a company’s financial statements
Independent audit
An accountant who has a bachelors degree and two years of experience in internal auditing, and who has passed an exam administered by the Institute of Internal Auditors.
Certified internal auditor (CIA)
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies
Tax accountant
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
Government and not for profit accounting
Six step procedure that results in the preparation and analysis of the major financial statements.
Accounting cycle
Recording of business transactions
Bookkeeping
Record book or computer program where accounting data are first entered.
Journal
Practice is writing every business transaction in two places
Double entry bookkeeping
Specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place
Ledger
Summary of all the financial data in the account ledgers that ensures the figures are correct and balanced
Trial balance
Summary of all the financial transactions that have occurred over a particular period.
Financial statement
Assets equal liabilities plus owners equity; this is the basis for the balance sheet
Fundamental accounting equation
Financial statement that reports a firm’s financial condition at a specific time and is composed of the major accounts: asserts, liabilities, and owners equity.
Balance sheet
Economic resources (things of value) owned by a firm
Assets
Ease with which an asset can be can converted into cash
Liquidity
Items that can or will be converted into cash within one year
Current assets
Assets that are relatively permanent, such as land, buildings, and equipment
Fixed assets
Long term assets that have no real physical form but do have value
Intangible assets
What the business owes to others (debts)
Liabilities
Current liabilities or bills the company owes to others for merchandise or services purchases on credit but not yet paid for
Accounts payable
Short term or long term liabilities that a business promises to repay by a certain date
Notes payable
Long term liabilities that represent t money lent to the firm that must be paid back.
Bonds payable
Amount of the business that belongs to the owners minus any liabilities owed by the business
Owners equity
Accumulated earning from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends
Retained earnings
Financial statement that shows a firm’s profit after costs, expenses, and taxes: it summarizes all the resources that have come into the firm(revenue), all the resources that have left the firm(expenses), and the resulting net income of net loss
Income statement
Revenue left over or depleted after all costs and expenses, including taxes, are paid
Net income/net loss
Measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale
Cost of goods sold ( cost of goods manufactured
How much a firm earned by buying and selling merchandise
Gross profit or gross margin
Cost involved in operating a business, such as rent, utilities, and salaries
Operating expenses
Systematic write off of the cost of a tangible asset over its estimated useful life
Depreciation
Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations, investments, and financing
Statement of cash flows
Difference between cash coming in and cash going out of business
Cash flow
Assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements
Ratio analysis
Function in a business that acquires funds for the firm and manages those funds within the firm
Finance
Job of managing a firm’s resources so it can meets its goals and objectives
Financial management
Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
Financial managers
Forecast that predicts revenues, costs, and expenses for a period of one year or less
Short term forecast
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters
Cash flow forecast
Forecast that predicts revenues, costs, and expenses for a period longer that one year, and sometimes as far as five or ten years into the future
Long term forecast
Financial plan that sets forth managements expectations and, on the basis of those expectations, allocated the use of specific resources throughout the firm
Budget
Budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money
Capital budget
Budget that estimates cash inflows and outflows during a particular period like a month or a quarter
Cash budget
Budget that ties together the firm’s other budgets and summarizes its proposed financial activities
Operating or master budget
Process in which a firm periodically compares its actual revenues, costs, and expenses with its budget
Financial control
Major investments in either tangible long term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights
Capital expenditures
Funds raised through various forms of borrowing that must be repaid
Debt financing
Money raised from within the firm, from operations or through the sale of ownership in the firm
Equity financing
Funds needed for a year or less
Short term financing
Funds needed for more than a year usually 2-10 years
Long term financing
Practice of buying goods and services now and paying for them later
Trade credit
Written contract with a promised to pay a supplier a specific sum of money at a definite time
Promissory note
Loan backed by collateral, something valuable as property
Secured loan
Loan that doesn’t require any collateral
Unsecured loan
Given amount of unsecured short term funds a bank will lend to a business, provided the funds are readily available
Line of credit
Line of credit that’s guaranteed but usually comes with a fee
Revolving credit agreement
Organizations that make short term loans to borrowers who offer tangible assets as collateral
Commercial finance companies
Process of selling accounts receivable for cash
Factoring
Unsecured promissory notes of $100,000 and up that mature in 270 days or less
Commercial paper
Promissory note that requires the borrower to repay the loan in specific installments
Term loan agreement
Principal that the greater the risk a lender takes in making a loan, the higher the interest rate required
Risk/return trade off
Terms of agreement in a bond issue
Indenture terms
Bond issued with some form of collateral
Secured bond
Bond backed only by the reputation of the issuer also called a debenture bond
Unsecured bond
Money that is invested in new or emerging companies that are perceived as having great profit potential
Venture capital
Raising needed funds through borrowing to increase a firm’s rate of return
Leverage
Rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders
Cost of capital
First public offering of a corporations stock
Initial public offering (IPO)
Specialists who assist in the issue and the sale of new securities
Investment bankers
Large organizations such as pension funds, mutual funds, and insurance companies that invest their own funds or the funds of others
Institutional investors
Organization whose members can buy and sell securities for companies and individual investors
Stock exchange
Exchange that provides a means to trade stocks not listed in the national exchanges
Over the counter market
Nationwide electronic system that links dealers across the nation so that they can buy and sell securities electronically
NASDAQ (National Association of Securities Dealers Automated Quotations)
Federal agency that has responsibilities for regulating the various stock exchanges
Securities and Exchange Commission SEC
Condensed version of economic and financial information that a company must file with the SEC before issuing stock (the prospectus must be sent to prospective investors)
Prospectus
Shares of ownership in a company
Stocks
Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued
Stock certificate
Part of a firm’s profits that the firm may distribute to stockholders as either cash payments or additional shares of stocks
Dividends
Most basic form of ownership in a firm; it confers voting rights and the right to share in firm’s profits through dividends, if approved by the firm’s board of directors
Common stock
Stock that gives its owners preference in the payment of dividend and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold
Preferred stock
A corporate certificate indicating that a person has lent money to a firm or a government
Bond
Exact date the issuer of a bond must pay the principal to the bond holder
Maturity date
Payment the issuer if the bond makes to the bond holders for use of the borrowed money
Interest
Bonds that are unsecured and not backed by any collateral such as equipment
Debenture bonds
Reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to the maturity so that enough capital will be accumulated by the maturity date to pay off the bond
Sinking fund
Registered representative who works as a market intermediary to buy and sell securities for clients
Stockbroker
Using several different investment alternatives to spread the risk of investing
Diversification
Positive difference between the purchase price of a stock and it’s sale price
Capital gains
Action by a company that gives stockholders two or more shares of stock for each one they own
Stock splits
Purchasing stocks by borrowing some of the purchase cost from the brokerage firm
Buying stock on margin
High risk high interest bonds
Junk bonds
Organization that buys stocks and bonds and other investments, then sells shares in those securities to the public
Mutual fund
Collection of stocks, bonds, and other investments that are traded on exchanges but are traded more like individual stocks that like mutual funds
Exchange traded funds
Average cost of 30 selected industrial stocks used to give an indication of the direction of the stock market over time
Dow Jones industrial average
Giving instructions to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses
Program trading
Anything that people generally accept as payment for goods and services
Money
Direct trading of goods and services for other good or services
Barter
Amount of money the Federal Reserve Band makes available for people to buy goods and services
Money supply
Money that can be accessed quickly and easily
M-1
Money including the M-1 plus money that may take a little more time to obtain.
M-2
M-2 plus big deposits like institutional money market funds
M-3
How many federal reserve banks are there?
12
Percentage of commercial banks checking and savings accounts that must be physically kept in the banks
Reserve requirement
Buying and selling of US government bonds by the Fed with the goal of regulating the money supply
Open market operations
Interest rate that the fed charges for loans to member banks
Discount rate
Profit seeking organization that receive deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans
Commercial bank
Technical name for a checking account the money in a demand deposit can be withdrawn anytime on demand from the depositor
Demand deposit
Technical name for a savings account the bank can require prior notice before the owner withdraws money from a time deposit
Time deposit
Time deposit account that earns interest to be delivered at the end of the certificates maturity date
Certificate of deposit
Financial institution that accepts both savings and checking deposits and provides home mortgage loans
Savings and loan association
Nonprofit member owned financial cooperatives that offer the full variety of banking servicing to their members
Credit unions
Financial organizations that accept no deposits but offer many of the services provided by regular banks (pensions, insurance companies, commercial finance companies, consumer finance companies, and brokerage houses
Nonbanks
Amounts of money put aside by corporations, nonprofit organizations, or unions to cover part of the financial needs of members when they retire
Pension funds
Independent agency of the US government that insures bank deposits
Federal Deposit Insurance Corporation (FDIC)
Part of the FDIC that insures holders of accounts in savings and loan Associations
Savings association Insurance Fund (SAIF)
Computerized system that electronically performs financial transactions such as making purchases, paying bills, and receiving paychecks
Electronic funds transfer system (EFF)
Electronic funds transfer tool that serves the same function as checks: it withdraws funds from a checking account
Debit card
Electronic funds transfer tool that is a combination credit card, debit card, phone card, drivers license card, and more
Smart card
Promise by the bank to pay the seller a given amount if certain. Conditions are met
Letter of credit
Promise that the bank will pay some specified amount at a particular time
Bankers acceptance
Bank primarily responsible for financing economic development also known as the international bank for reconstruction and development
World bank
Organization that assist the smooth flow of money among nations
International monetary fund (IMF)
