Accounting Exam #1

Acid Test Ratio

(Cash + Accounts receivable) / Current liabilities

account

A record in which transactions affecting individual assets, liabilities, stockholder's equity, revenues, and expenses are recorded.

Accounting Equation

Assets = Liabilities + Owner's Equity

transactions

Economic interchanges between entities that are accounted for and reflected in financial statements.

Operating Income - Interest Expense = Earnings before Taxes - Income Tax Expense =

Net Income =

Liquidity

Refers to a firm's ability to meet its current financial obligations

Current Assets

cash and other assets expected to be exchanged for cash or consumed within a year

trend analysis

constructing and applying statistical models that predict labor demand for the next year, given relatively objective statistics from the previous year

Financial statements are primarily oriented toward the ____________ user and are primarily concerned with ____________ information.

external; past

Managerial accounting and cost accounting when compared to financial accounting:

have primarily an internal orientation, and the data is most likely to be used in a future-oriented way.

Return on Investment (ROI)

= Margin * Turnover = (Net income / Sales) * (Sales / Average total assets)

Return on Equity

= Net income / Average stockholders' equity

Financial Accounting

Accounting that focuses on reporting an entity's financial position at a point in time and/or its results of operations and cash flows for a period of time.

Managerial Accounting

Accounting that is concerned with the internal use of economic and financial information to plan and control many of the activities of an entity and to support the management decision-making process.

Accrual Accounting

Accounting that recognizes revenues and expenses as they occur, even though the cash receipt from the revenue or the cash disbursement related to the expense may occur before or after the event that causes revenue or expense recognition.

Accounting

The process of planning, recording, analyzing, and interpreting financial information.

GAAP (Generally Accepted Accounting Principles)

The standards and rules that accountants follow while recording and reporting financial activities.

Stockholder's Equity

The stockholder's claim in the assets of the entity. Sometimes called owner's equity or net assets; the difference between assets and liabilities.

Working Capital

current assets - current liabilities

current ratio

current assets divided by current liabilities

Current Liabilities

liabilities due within a short time, usually within a year

noncurrent assets

long-term investments, plant assets, intangible assets

profit margin

net income/net sales

Noncurrent Liabilities

obligations that a company does not expect to pay within one year

Financial Accounting Standards Board (FASB)

the private board that establishes the generally accepted accounting principles used in the practice of financial accounting

objective of financial reporting

to provide financial information about the reporting entity that is useful to present and potential equity investors, lenders, and other creditors in decisions about providing resources to the entity

Net Sales - COGS = Gross Profit or Loss +Service Revenue - Expenses =

Operating Income =

Assets

Probable future economic benefits obtained or controlled by an entity as a result of past transactions or events.

Liabilities

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.