BUS 101: Ch. 3

What aspects of Eggs4U, an online free-range egg supply company, would be considered a liability?

Money owed for purchased chicken feed

True or false: Each share of stock in a corporation represents a claim on the organization.

True

True or false: People both inside and outside of an organization use accounting tools to evaluate organizational operations.

True

The _____ format balance sheet is newer and gaining wide acceptance. It shows assets on the top followed by liabilities and owners' equity.

Vertical

What are the two formats of balance sheets?

Vertical and traditional

The current ratio is a(n) _____ ratio.

liquidity

Revenue is defined as ______.

sales plus other money coming into the firm

Marietta Masks Inc. supplies surgical masks to hundreds of hospitals across the United States. They ship orders for the masks out on the first of each month and customers are expected to pay the cost of the shipment by the end of the month. The money that Marietta Masks Inc. receives by the end of the month is an example of ______.

Accounts receivable

Jillian is an accountant at Shipyard Supply House. At the end of the year, she consolidated all the unpaid financial obligations of the company into one account. What is this account called?

Accrued expenses

Selling expenses =

Advertising and sales salaries

Accrued expenses represent ______.

All unpaid financial obligations of a firm

Terry's Tire shop has replaced the tires on ten delivery trucks for one of his best clients—Deliveries 4U. Terry is allowing Deliveries 4U to pay for the tires over a period of time. The money owed to Terry by Deliveries 4U is considered ______.

An accounts receivable

A summary of a firm's financial information, products, and growth plans is found in a(n) _____.

Annual report

Receivables turnover is a type of _____ ratio.

Asset utilization

To be most effective, liquidity ratios should be examined in conjunction with ______.

Asset utilization ratios

Refrigerated display cases, commercial meat slicers, and walk-in cold storage units are _____ of Julie's Deli in downtown Portland.

Assets

Cost of goods sold is calculated by using ______.

Beginning inventory, interim purchases, and ending inventory

Managers of most firms tend to keep debt-to-asset levels ______.

Below 50%

Heather works at Big City Bus Corp. It is her job to record the day-to-day financial transactions of the company, including paying utilities and accepting bill payments. Heather works as a _____.

Bookkeeper

A(n) _____ is an internal financial plan that forecasts income and expenses of an organization for a set period of time.

Budget

What are 2 examples of a company's current assets?

Cash and inventory

Of utmost importance to management is _____, which is the movement of money through a firm on a daily, weekly, monthly, or yearly basis.

Cash flow

Forensic accountants would most likely become certified as ______.

Certified fraud examiners

A private accountant that has passed a rigorous examination by the Institute of Management Accountants may become certified as a(n) ______.

Certified management accountant (CMA)

An individual who has been certified by the state in which he or she practices and has the right to express, officially, an unbiased opinion regarding the accuracy of a client's financial statements works as a(n) _____.

Certified public accountant (CPA)

A company would rely on ratio analysis to calculate the organization's ______.

Financial health.

There are more than 85,000 certified _____ examiners across the United States who work to root out evidence of "cooked books" in firms.

Fraud

Depreciation is considered a type of ______.

General and administrative expense

_____ is an intangible asset that reflects an organization's positive reputation.

Goodwill

Which two characteristics are especially important in accounting practices?

(1) Transparency (2) Accuracy

Earnings per share are the ratio of net income, or profit, to ______.

Shares of outstanding stock

The ______ explains how the company's cash changed from the beginning of the accounting period to the end.

Statement of cash flows

The definition of accounts payable is ______.

The amount a company owes to suppliers for goods and services purchased with credit

General and administrative expenses =

The costs of owning and maintaining the general office

How many times a firm collects its accounts receivable in one year is measured by ______.

The receivables turnover

Accountants who follow ethical practices demonstrate integrity and are respected for their work. What characteristic would be evident in ethical accounting practices?

Transparency

A ratio analysis combines information from which two reports?

(1) Balance sheet (2) Income statement

Which two groups represent external users of a company's accounting information?

(1) Creditors (2) Government agencies

Which two categories would accountants generally divide profits into?

(1) Earnings before taxes and interest (2) Operating income

What are the four steps in the accounting cycle?

(1) Examine source documents (2) Record transactions (3) Post transactions (4) Prepare financial statements

What three things can characterize a certified public accountant?

(1) May file tax returns (2) May complete audits of corporate financial records (3) May provide opinions regarding the accuracy of financial statements

Which two terms are synonymous with "income statement"?

(1) Profit and loss statement (2) Operating statement

What are two impacts of the Sarbanes-Oxley Act passed in the early 2000s?

(1) Punishment of corporate executives with potential jail sentences (2) Required accounting firms to separate consulting and auditing business

Cash from operating activities is calculated by combining the changes in what four accounts?

(1) Revenue accounts (2) Expense accounts (3) Current liability accounts (4) Current asset accounts

Research and development expenses include the costs of what four things?

(1) Scientific Personnel (2) Engineering Personnel (3) Marketing Personnel (4) Equipment used to design prototypes

What are two ways managers and business owners use financial statements?

(1) To aid in internal planning and control (2) For reporting information to the IRS

What are the three types of asset utilization ratios?

(1) Total asset turnover (2) Receivables turnover (3) Inventory turnover

Gross income or profit equals revenues minus the ______ required to generate the revenue.

Cost of goods sold

The amount of money a firm spent to buy or produce the products it sold during the accounting period is ______.

Costs of goods sold

_____ liabilities must be repaid within one year.

Current

Assets that can or will be converted into cash within one year are termed ______.

Current assets

Which financial obligation must be repaid within one year?

Current liabilities

The _____ ratio indicates how much of an organization is financed by debt and how much by owners' equity.

Debt to total assets

A ratio indicating how much of the firm is financed by debt and how much by owners' equity is the definition of ______.

Debt to total assets ratio

Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity are ______ ratios.

Debt utilization

The process of spreading the cost of a tangible asset over its estimated useful life is referred to as ______.

Depreciation

Interest expenses =

Direct costs of borrowing money

How does a business calculate the current ratio?

Divide current assets by current liabilities

How is a company's profit margin calculated?

Divide net income by sales

Which ratio is important in determining a company's overall stock price?

Earnings per share ratio

The first step in the accounting cycle is to ______.

Examine source documents

The costs incurred in the day-to-day operations of an organization are known as ______.

Expenses

True or false: CPAs pass and obtain their certification through the federal government.

False (because certification is through the state, not federal.)

True or false: Organizational budgets are always prepared on a monthly basis.

False (because daily, weekly, and yearly budgets are also used in organizations.)

True or false: An expense account provides an explanation of how the company's cash changed from the beginning of the accounting period to the end.

False (because it describes a statement of cash flows)

True or false: All financial statements follow the exact same format under government regulations.

False (because not all financial statements follow precisely the same format.)

The internal use of accounting statements by managers in planning and directing the organization's activities is referred to as ______.

Managerial accounting

Revenue minus the cost of goods sold is called gross ______ or ______.

Income or profit

A firm's profit margin is based solely on data found on the ______.

Income statement

By its very design, the ______ offers one of the clearest possible pictures of the company's overall revenues and the costs incurred in generating those revenues.

Income statement

Sales divided by total inventory is called ______ turnover and this calculation indicates how many times a firm sells and replaces its inventory over the course of a year.

Inventory

What does it mean to say that an annual report has been audited?

It bears the signature of a CPA attesting that the document is an accurate reflection of the financial condition of the firm.

After source documents are examined, each financial transaction is recorded in _______.

Journal

Which scenario most warrants an organization using a "bottom-up" budget?

Larger, fast-growing organizations

What type of ratio measures the speed with which a company can turn its assets into cash in order to meet its debts?

Liquidity Ratio

The goal of double-entry bookkeeping is to ______.

Maintain the balance of the accounting equation

If an accountant were to take a firm's total revenue and deduct all expenses (including taxes), the result would be the company's ______.

Net income (or loss)

Cash from ______ activities is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.

Operating

In the context of managerial accounting, wages, material costs, and taxes are examples of...?

Operating Expenses

Owners' contributions to the organization in combination with income earned and retained to grow and develop the firm represent ______.

Owner's equity

Data used by investors to compare the performance of one company with another on an equal, per share basis is the definition of ______.

Per share data

What type of accountant would most likely include a title of controller or internal auditor?

Private accountant

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

Profitability

Sales divided by accounts receivable is the definition of ______.

Receivables turnover

Net income divided by assets is the definition of ______.

Return on assets

Which report shows how much income the firm produces for every dollar it invests in assets?

Return on assets

Inventory turnover is defined as ______.

Sales divided by total inventory

Investors may use per _______ data to compare the performance of one company with another on an equal, or per share, basis.

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