Understanding Business Chapter 17

Question 1

Accounting

Answer 1

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.

Question 2

Managerial Accounting

Answer 2

Accounting used to provide information and analyses to managers inside the organization to assist them in decision making.

Question 3

Certified Management Accountant (CMA)

Answer 3

A professional accountant who has met certain educational and experience requirements. passed a qualifying exam. and been certified by the Institute of Certified Management Accountants.

Question 4

Financial Accountant

Answer 4

Accounting information and analyses prepared for people outside the organization.

Question 5

Annual Report

Answer 5

A yearly statement of the financial condition. progress. and expectations of an organization.

Question 6

Private Accountant

Answer 6

An accountant who works for a single firm. government agency. or nonprofit organization

Question 7

Public Accountant

Answer 7

An accountant who provides accounting services to individuals or business on a fee basis.

Question 8

Certified Public Accountant (CPA)

Answer 8

An accountant who passes a series of examinations established by the American Institute of Ceritified Public Accountants (AICPA).

Question 9

Auditing

Answer 9

The job of reviewing and evaluating the information used to prepare a company’s financial statements.

Question 10

Independent Audit

Answer 10

An evaluation and unbiased opinion about the accuracy of a company’s financial statements.

Question 11

Certified Internal Auditor (CIA)

Answer 11

An accountant who has a bachelor’s degree and two years of experience in internal auditing. and who has passed an exam administered by the Instituted of Internal Auditors.

Question 12

Tax Accountant

Answer 12

An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.

Question 13

Government and Not-for-Profit Accounting

Answer 13

Accounting system for organizations whose purpose is not generating a profit but serving ratepayers. taxpayers and others according to a duly approved budget.

Question 14

Accounting Cycle

Answer 14

A six-step procedure that results in the preparation and analysis of the major financial statements.

Question 15

Bookkeeping

Answer 15

The recording of business transactions.

Question 16

Journal

Answer 16

The record book or computer program where accounting data are first entered.

Question 17

Double-Entry Bookkeeping

Answer 17

The practice of writing every business transaction in two places.

Question 18

Ledger

Answer 18

A 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.

Question 19

Trial Balance

Answer 19

A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.

Question 20

Financial Statement

Answer 20

A summary of all the transactions that have occurred over a particular period.

Question 21

Fundamental Accounting Equation

Answer 21

Assets=Liabilities + Owners’ Equity. this is the basis for the balance sheet.

Question 22

Balance Sheet

Answer 22

Financial statement that reports a firm’s financial condition at a specific time and is composed of three major account: assets. liabilities. and owners’ equity.

Question 23

Assets

Answer 23

Economic resources (things of value) owned by a firm.

Question 24

Liquidity

Answer 24

The ease with which an asset can be converted into cash.

Question 25

Current Assets

Answer 25

Items that can or will be converted into cash within one year.

Question 26

Fixed Assets

Answer 26

Assets that are relatively permanent. such as land. buildings and equipment.

Question 27

Intangible Assets

Answer 27

Long-term assets (e.g. patents. trademarks. copyrights) that have no real physical form but do have value.

Question 28

Liabilities

Answer 28

What the business owes to others (debts).

Question 29

Accounts Payable

Answer 29

Current liabilities are bills the company owes to others for merchandise or services purchased on credit but not yet paid for.

Question 30

Notes Payable

Answer 30

Short-term or long-term liabilities that a business promises to repay by a certain date.

Question 31

Bonds Payable

Answer 31

Long-term liabilites that represent money lent to the firm that must be paid back.

Question 32

Owners' Equity

Answer 32

The amount of the business that belongs to the owners minus any liabilities owed by the business.

Question 33

Retained Earnings

Answer 33

The accumulated earning from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.

Question 34

Income Statement

Answer 34

The financial statement that shows a firm's profit after costs. expenses. and taxes. it summarizes all of the resources that have come into the firm (revenue). all the resources that have left the firm (expenses). and the resulting net income or net loss.

Question 35

Net Income or Net Loss

Answer 35

Revenue left over after all costs and expenses. including taxes. are paid.

Question 36

Cost of Good Sold (or cost of goods manufactured)

Answer 36

A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing tiems for resale.

Question 37

Gross Profit (or gross margin)

Answer 37

How much a firm earned by buying (or making) and selling merchandise.

Question 38

Operating Expenses

Answer 38

Costs involved in operating a business. such as rent. utilities. and salaries.

Question 39

Depreciation

Answer 39

The systematic write-off of the cost of a tangible asset over its estimated useful life.

Question 40

Statement of Cash Flows

Answer 40

Financial statement that reports cash receipts and disbursements related to a firm's three major activities: operations. investments. and financing.

Question 41

Cash Flow

Answer 41

The difference between cash coming in and cash going out of a business.

Question 42

Ratio Analysis

Answer 42

The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements.