Chapter 14 BIZ

Why are accountants so important to a corporation? What function do they perform?

Accountants are important because they analyze and interpret financial information to determine if the organization is using its funds efficiently and to make plans for increasing profits. Accountants develop systems that summarize all transactions into comprehensive financial statements.

Certified Public Accountant

An individual who has been state certified to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records

Why are debt ratios important in assessing the risk of the firm?

Debt utilization ratios are critical to assessing the risk of the firm because a high debt level and interest obligations can threaten the existence of the firm. The more assets are financed by debt, the higher the risk level of the firm.

The income statements of all corporations are in the same format. True or false? Discuss.

False. Different types of firms (service, manufacturing, financial, etc.) use their own accounting principles, for which the profession has agreed. These are called generally accepted accounting principles (GAAP). One way in which the format differs is in the slightly different terminology used in the financial statements.

in accounting assets are equal to

Liabilities + owner's equity

Describe the accounting process and cycle.

The accounting process involves the accounting equation and double‑entry bookkeeping. The accounting equation is Assets = Liabilities + Owners' equity. Double-entry bookkeeping is a system of recording and classifying business transactions in accounts that maintain the balance of the accounting equation.

balance sheet

a snapshot of an organizations financial position at a given moment

Income statement

all earning and expenses in a timeframe

ratio analysis

calculates organizations financial health

book keepipng

day to day recording of business transactions

Earnings per share formula

net income or profit of stock holders shares outstanding, used by investors to compare companies

profitability ratios

ratios measuring the amount of operating income or net income an organization is able to gain.

Accounting

recording, measurement, and interpretation of financial information. The Financial Accounting Standards Board has been setting principles standards since 1973. Its mission is to establish and improve standards of financial accounting and reporting