BUSN101 - Chapter 17
Certified management accountant (CMA)
A professional accountant who has met certain educational and experienced requirements, passed a qualifying exam, and has been certified by the Institute of Certified Management Accountants.
Debt to Owners Equity Ratio
The degree to which the company is financed by debt. Anything above 100% shows that a firm has more debt than equity.
Auditing
The job of reviewing and evaluating the information used to prepare a company's financial statements.
Depreciation
The systematic write-off of the cost of a tangible asset over its estimated useful life.
Auditors opinion
give opinions on accuracy. Giant summary of everything we think
Financial Statement
A summary of all the financial transactions that have occurred over a particular period.
Annual report
A yearly statement of the financial condition, progress, and expectations of an organization.
Financial accounting
Accounting information and analyses prepared for people outside the organization. "Is the organization profitable? Is it able to pay its bills? "how much debt does it owe? Through financial accounting we figure out whats going on within organization.
Balance sheet
Reports the firm's financial condition on a specific date. Assets are listed in a separate column from liabilities and owners' (or stockholders') equity. The assets are equal to, or balanced with, the liabilities and owners' (or stockholders') equity. ALOE The ____ ____ details what the company owns and owes on a certain day.
Fixed assets
long term assets that are relatively permanent such as land, buildings, and equipment (also referred to as property, plant, and equipment).
Intangible assets
long term assets that have no physical form but do have value (Patents, trademarks, copyrights, and goodwill)
Intangible Assets
long term assets that have no physical form but do have value such as patents, trademarks, and goodwill
Bonds payable
long-term liabilities that represent money lent to the firm that must be paid back.
Current assets
items that can or will be converted into cash within ONE YEAR.
Notes payable
short-term or long-term liabilities that a business promises to repay by a certain date.
Debt ratios
show how much debt a firm uses relative to other funding sources
Profitability Ratios
show how much net income a firm makes relative to assets, owner's equity, and sales.
Gross profit (or gross margin)
Costs involved in operating a business, such as rent, utilities and salaries. - In a service firm, there may be no cost of goods sold; therefore, gross profit could equal net sales.
Balance sheet
assets: econ resources owned by a firm. Equipment, property, patents or trademarks, cash
FUNDAMENTAL ACCOUNTING EQUATION: BASIS FOR THE BALANCE SHEET
Assets = Liabilities + owners equity ALOE
Liquidity
The ease with which an asset can be converted into cash. Accountants list assets on the firm's balance sheet in order of their liquidity. Speedier conversion = higher liquidity.
Double entry bookkeeping
The practice of writing every business transaction in two places.
Bookkeeping
The recording of business transactions. Accountants classify and summarize financial data provided by bookkeepers, and then interpret the data and report information to management.
Operating expenses
costs involved in operating a business, such as rent, utilities, and salaries.
Accounts payable
current liabilities or bills the company owes to others for merchandise or services purchases on credit but not yet paid for.
Current liabilities
debts due in one year or less
Liquidity:
ease with which assets can be converted into cash.
Activity Ratios
how how well a firm uses its assets to generate sales (efficiency)
Liquidity ratios
measure a company's ability to turn assets into cash to pay its short-term debts
Basic Earnings per Share
measures the amount of profit a company earned for each share of outstanding common stock.
Selling expenses
related to the marketing and distribution of the firm's goods or services such as advertising, salespeople's salaries, and supplies.
Managerial accounting
the accounting used to provide information and analyses to managers inside the organizations to assist them in decision making. Helps managers INSIDE organization. Helps us decide what we must do next. "How much are we spending in this category of business?" Involved with: cost of production, cost of marketing, preparation and control of budgets, minimizing tax liabilities.
Retained earnings
the accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
Ratio analysis
the assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements.
General expenses
administrative expenses of the firm such as office salaries, depreciation, insurance and rent.
Revenue vs. Sales
- Most revenue the firm earns does come from sales, but companies can also have other sources of revenue. - Gross sales - the total of all sales the firm completed - Net sales - gross sales minus returns, discounts, and allowances
Liabilities
What the business owes to others (debts).
Journal
the record book or computer program where accounting data are first entered.
Cost of goods sold (or cost of goods manufactured)
A measure of the cost of merchandise sold or cost of raw materials and supplies used from producing items for resale. The cost of goods sold includes the purchase price plus any freight charges paid to transport goods, plus any costs associated with storing the goods.
The Accounting Cycle
A six-step procedure that results in the preparation and analysis of the major financial statements.
Trial balance
A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
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 duty approved budget.
Tax accountant
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
Certified internal auditor (CIA)
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 institute of internal Auditors.
Certified public accountant (CPA)
An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA)
Public accountant
An accountant who provides accounting services to individuals or businesses on a fee basis.
Private accountant
An accountant who works for a single firm, government agency, or nonprofit organization.
Independent audit
An evaluation and unbiased opinion about the accuracy of a company's financial statements.
Assets
Economic resources (things of value) owned by a firm. They are divided into three categories, according to how quickly they can be turned into cash
Statement of Cash Flows
Financial statement that reports cash receipts and disbursements related to a firm's three major activates: - Operations - cash transactions associated with running the business - Investments - cash used in or provided by the firm's investment activities - Financing - cash raised by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company dividends
Acid test ratio
For every $1.00 of current liabilities, the company has $X of current assets to cover them, without resorting to selling off inventory.
Current ratio
For every $1.00 of current liabilities, the company has $X of current assets to cover them.
Current assets:
Items that can or will be converted to cash within one year.
Fixed assets
Long term assets that are relatively permanent such as land, buildings, or equipment.
Long-term liabilities
Long-term liabilities
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. highlights the difference between cash coming in and cash going out of a business.
Net income or net loss
Revenue left over or depleted after all costs and expenses, including taxes, are paid Revenue — Cost of goods sold — Gross profit (gross margin) Operating expenses — Net income before taxes — Taxes — Net income or loss After allocating for taxes, we get to the bottom line, which is the net income (or perhaps net loss) the firm incurred from revenue minus sales returns, costs, expenses, and taxes over a period of time.
Inventory Turnover
Shows how many times inventory is sold and replace in one year.
Return on Equity
Shows how much income is generated for every $1.00 owners have invested in the firm.
Return on Sales (Profit Margin)
Shows overall % of profits earned for every $1.00 of sales.
Income statement
Statement of cash flows finding majority of information, summary of all the financial transactions that have occurred over a particular period. The income statement shows the revenue a firm earned selling its products compare to its selling costs (profit or loss) over a specific period of time. Revenue-expenses=net income
Owners' equity
The amount of the business that belongs to the owners minus any liabilities owed by the business. The value of what stockholders own in a firm (minus liabilities) is called stockholders' equity or shareholders' equity. Assets - Liabilities = ______ ______
Cash flow
the difference between cash coming in and cash going out of a business Often in order to meet the growing demands of customers, a business buys goods on credit (using no cash). If it then sells a large number of goods on credit (getting no cash), the company needs more credit from a lender to pay its immediate bills. If a firm has reached its credit limit and can borrow no more, it has a cash flow problem (having cash coming in at a later date, but no cash to pay current expenses)
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; often called the language of business.
