Mod 8 Flashcards
Accounts payable
An obligation to pay a short term debt to a company’s creditors or suppliers
Appears in current liabilities section of the balance sheet
Accounts receivable
Money owed to a business by customers for goods or services delivered
Appears in current assets section of the balance sheet
Adverse opinion
Auditor’s opinion that a firm’s financial statements do not accurately reflect its financial performance and health
Assets
Resources owned by a company that will provide future economic benefits
Asymmetric info
Potential lenders, customers, investors, and unions have poorer info about the true economic viability of companies than do the managers
Auditor
A person, typically a certified public account, authorized to review and comment on a company’s accounting system and financial statements
Auditor’s report
A written opinion of an independent external auditor that attests to the fairness of the financial statements and their conformance with generally accepted accounting principles
Balance sheet
A financial statement that reports that assets, liabilities, and stakeholders equity of a business as of a specific date
The sheet reports the cumulative financial impact of the business over the many years it has operated
Basic accounting equation
Assets = liabilities + equity
Certified public accountant
An accountant that has a professional qualification and is licensed to perform audits
Common stock
A balance sheet term used to describe the total amount invested in the company by stockholders in return for shares of the business
Equity
The portion of the balance sheet that represents the owner’s claim to the residual interest in the business (assets - liabilities)
Expenses
Costs that are matched with revenues on the income statement
External users
Individuals or entities that are not directly involved with running the business
Investors, creditors, taxing authorities, customers, labor unions, regulatory agencies
Financial accounting standards board
Primary accounting standard setting body in the US
Financial accounting
Type of accounting concerned with the preparation of financial statements for external users
Must conform with GAAP
Financing activities
Actions a company takes to raise funds to finance its long term investments by issuing stock or debt
Generally accepted accounting principles
A common set of accounting rules, standards, and practices defined by standard setting bodies that public companies must use to compile and report their financial statements
Going concern
A basic accounting assumption that a company will continue operating for a period of time that is sufficient to carry out its objectives and obligations
Income statement
A financial statement that reports the revenues and expenses and the resulting net income or loss of a company for a specific financial reporting period
Intangible assets
Assets that have non physical form such as copyrights, patents, trademarks, and other IP
Internal users
Managers who use info to plan, organize, and run a business
Investing activities
Purchase of long term assets a company needs to operate
Liability
Company’s legal debts or obligations owed to creditors that arise over the course of business operations
Managerial (cost) accounting
Type of accounting used by company management to run ongoing operations
Is company specific and focuses on internal users of financial information
Cost accounting does not have to conform with GAAP
Net income
Revenue - expenses
Net loss
Results when expenses > revenues
Notes to financial statement
Supplemental info added to the end of financial statements to clarify and expand upon info presented in the financial statements
Operating activities
A company’s core business activities such as manufacturing, distributing, marketing, and selling a good or service
Property, plant, and equipment
Long term tangible assets reported on the balance sheet that typically have a life longer than a year
Land, buildings, machinery, office furniture, and vehicles
Qualified opinion
Auditor’s opinion that the financial statements may not be complete or the methods used by the company do not comply with GAAP
Retained earnings
Portion of net income retained by the corporation rather than distributed to shareholders as dividends
Revenue
Increase in assets, usually cash and accounts receivable that results from sale of goods or services during normal course of business
Sarbanes Oxley act
Act passed by congress in 2002 to protect investors from possibility of fraudulent accounting activities by corporations
Statement of cash flows
A financial statement that reports on the cash inflows and outflows due to the operating, financing, and investing activities of a business for a specific financial reporting period
Statement of retained earnings
A financial statement that reports the changes in retained earnings for a specific financial reporting period
Tangible assets
Assets reported on the balance sheet that have a physical form
Tax accounting
Type of accounting that focuses on tax issues faced by corporations
IRS governs accounting
Unqualified opinion
Auditor’s judgment that a company’s financial statement comply with GAAP and that the financial statements give a fair view of the financial position of the company
