Test 4 Flashcards
Accounting
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 cycle
A six-step procedure that results in the preparation and analysis of the major financial statements.
Finance
The function in a business that acquires and manages funds within the firm.
3 most common reasons a firm fails
- Undercapitalization
- Poor control over cash flow
- Inadequate expense control
3 steps of financial planning
- Forecasting the firm’s short-term and long-term financial needs
- Developing budgets to meet those needs
- Establishing financial controls to see whether the company is achieving its goals
short-term forecast
Predicts revenue, costs, and expenses for a period of one year or less
Budget
A financial plan that sets forth management’s expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm.
Financial control
A process in which a firm periodically compares its revenues, costs, and expenses with its budget.
Trade Credit
The practice of buying goods and services now and paying for them later.
Different forms of short term loans
Secured loan
Unsecured loan
line of credit
factoring
Factoring
The process of selling accounts receivable for cash.
Debt financing
Borrowing money, the company has a legal obligation to repay
Bond
A corporate certificate indicating that an investor has lent money to a firm or government.
Stock
Shares of ownership in a company
Money
Anything that people generally accept as payment for goods and services.
Barter
The direct trading of goods or services for other goods or services.
Five standards of money
Portability, Divisibility, Stability, Durability, Uniqueness
Money Supply
The amount of money the Federal Reserve makes available for people to buy goods and services.
M-1
Money that can be accessed quickly and easily (coins and paper money, checks, traveler’s checks, etc.).
M-2
Money included in M-1 plus money that may take a little more time to obtain (savings accounts, money market accounts, mutual funds, certificates of deposit, etc.).
M-3
M-2 plus big deposits like institutional money market funds.
Federal Reserve system five parts
- Board of governors
2 Federal Open Market Comittee (FOMC) - 12 Federal reserve Banks
- Three advisory councils
5.Members of the bank
3 tools of the FED
Discount rate, Open-market operations, Reserve requirement
Reserve requirement
A percentage of commercial banks’ checking and savings accounts that must be physically kept in the bank.
Open-market operations
The buying and selling of U.S. government bonds by the Fed with the goal of regulating the money supply.
Discount rate
The interest rate that the Fed charges for loans to member banks.
Statement of Cash flows
Reports cash receipts and cash disbursements related to operations, investing, financing
Income Statement
Reports an organizations financial operation over a particular period of time
Ratio Analysis
Assessment of an organization’s financial conditions
Leverage ratios
Measure the degree to which a company relies on borrowed funds
Financial Statement
A summary of all the financial transactions that have occurred over a particular period
Balance Sheet
Reports an organization financial conditions at a specific time
