BA 101 Chapter 17

Investments

cash used in or provided by the firms investment activities

Financial Accounting Standards Board (FASB)

defines the generally accepted accounting principles (GAAP)

Earnings per share can be either basic earnings per share or _______ earnings per share

diluted

Fixed Assets

long-term assets that are relatively permanent such as land, buildings and equipment

A major purpose of accounting is to help _____ make well-informed decisions

managers

The cost of goods sold

measures the cost of merchandise the firm sells or the cost of the raw materials and supplies it used in producing items for resale.

What type of ratios measure how effectively a firm is using its various resources to achieve profits?

profitability

Processing

1. entries are made into journals: recording 2. The effects of these journal entries are transferred or posted into ledgers: classifying 3. All accounts are summarized

Accounting Cycle Step #3

Transfer (post) journal entries to ledger

Ledger

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.

Financial Statement

a summary of all the financial transactions that have occurred over a particular period; indicate a firms financial health and stability.

government and not-for-profit accounting

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

Managerial accounting

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

The accounting cycle

a 6 step procedure that results in the preparation and analysis of the major financial statements. Relies on the work of both a bookkeeper and an accountant.

The ratios that measure the effectiveness of a firms management in using the assets that are available are called:

activity ratios

Net profit

after deducting all expenses, we can determine the firms net income before taxes.

Tax accountant

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

The _____ line is another name for net income after taxes

bottom

Financing

cash raised by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company diviends

Operations

cash transactions associated with running the business

Assets

economic resources owned by a firm

Bonds payable

long term liabilities; money lent to the firm by bondholders that it must pay back

Intangible Assets

long-term assets that have no physical form but do have value, such as patents, trademarks, copyright, and goodwill

Cash Flow

simply the difference between cash coming in and cash going out of a business. `

Cash receipts and disbursements related to operations, investments and financing are reported on the:

statement of cash flows

Annual report

a yearly statement of the financial condition, progress and expectations of an organization

Retained Earnings

accumulated earnings from the firm's profitable operations that are reinvested in the business and not paid out to stockholders in distributions of company profits.

public accountant

an accountant who provides accounting services to individuals or businesses on a fee basis

Gross profit

how much a business earned by buying (or making) and selling merchandise

Current Assets

items that can or will be converted into cash within one year. They include cash, accounts receivable and inventory

Depreciation

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

Bookkeeping

the recording of business transactions

Two main purposes of accounting

to help managers make well informed decisions and to report financial information about the firm to stakeholders.

Income statement

summarizes revenues, cost of goods sold, and expenses (including taxes)for a specific period and highlights the total profit or loss the firm experiences during that period

Trial Balance

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

Accounting Cycle Step #1

analyze source documents (sales, slips, travel records, etc.)

Leverage (debt) ratios

measure the degree to which a firm relies on borrowed funds in its operations

fundemental accounting equation

the basis for the balance sheet.

Accounting

the recording, classifying, summarizing, and interpreting of financial events and transactions in an organization to provide management and other interested parties the information they need to make good decisions

Net income or loss

the revenue left over or depleted

______ ratios measure a company's ability to turn assets into cash to pay its short term debt

Liquidity

Liquidity

the ease at which as asset can be converted to cash.

double-entry bookkeeping

the practice of writing every transaction in two places

Journal

the record book or computer program where accounting data are first entered

Liabilities

what the business owes to others, its debts

The ______ ________ summarizes revenues, costs and expenses over a specific period, which may be a week, a month or a year

Income Statement

Balance Sheet

the financial statement that reports a firms financial condition at a specific time.

what else is accounting called?

the language of business

Accounting System

the method used to record and summarize accounting data into reports

Revenue

the monetary value of what a firm received for goods sold, services rendered and other payments

_____ ratio is the ratio of cash, accounts receivable, and marketable securities to current liabilities

Acid test

Certified Public Accountant (CPA)

An individual who has met certain criteria and is thus allowed to perform audits of corporations.

Accounting Cycle Step #6

Analyze financial statements

Accounting Cycle Step #2

Record transactions in journals

What is the term for all the resources that come into the firm from operating activities?

Revenue

Auditing

Reviewing and evaluating the information used to prepare a company's financial statements.

Inputs (accounting documents)

Sales documents, purchasing documents, shipping documents, payroll records, bank records, travel records, entertainment records

Accounting Cycle Step #4

Take a trial balance

Examples of probability ratios include

return on sales, return on equity and basic earnings per share

financial transactions

include buying and selling goods and services, acquiring insurance, paying employees, and using supplies.

Which financial statement shows the firms profit after costs, expenses, and taxes

income statement

Which of the following is considered to be a part of accounting?

interpreting, classifying and recording financial transactions

cost of goods sold equation

purchase price + freight charges + storage costs

Gross profit is:

net sales minus cost of goods sold

The statement of cash flows reports cash receipts and disbursements related to _____, investments and financing

operations

Examples of assets

tangible: equipment, buildings, land, furniture, and motor vehicles. intangible: patents, trademarks, copyrights and goodwill

Owners equity

the amount of the business that belongs to the owners, minus any liabilities the business owes.

Ratio analysis

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

Accounting Cycle Step #5

Prepare financial documents

Independent audit

an evaluation and unbiased opinion about the accuracy of a company's financial statements

Which of the following summarizes revenues, costs and expenses for a specific period?

Income statement

Statement of cash flows

provides a summary of money coming into and going out of the firm. It tracks a company's cash receipts and cash payments

bookkeeping involves the _____ recording of business transactions, whereas ______ classify and summarize financial data provided by bookkeepers

recording; accounts

Operating expenses

rent, salaries, supplies, utilities, and insurance

Statement of cash flows

reports cash receipts and cash disbursements related to the three major activities of a firm

Balance sheet

reports the firms financial condition on a specific date