Chapter 17 - Understanding Accounting and Financial Information

what are stakeholders of a business

-management -employees -supplier

a certified public accountant

-must follow GAAP in the united states -must pass a seris of exams

the systematic write-off of the cost of an asset to expense over its useful life is called

depreciation

a bookkeeper's first task is to

divide all the firm's transactions into meaningful categories, such as sales documents, purchasing recipes, and shipping documents, being very careful to keep the information organized and manageable.

the practice of writing every transaction in two places is called

double-entry bookkeeping -it requires two entries in the journal and in the leaders for each transaction

assets are

economic resources ( things of value) owned by a firm. -assets include productive, tangible items such as equipment, buildings, land, furniture, and motor vehicles that help generate income, as well as intangible items with a value like patents, trademarks, copyrights, and goodwill

ratio analysis

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

the formula for the costs of goods sold is:

purchase price + freight charges + storage costs

an example of an accounting software package is:

quickbooks

the key financial statements of a business are: 1) the balance sheet,

which reports the firm's financial condition on a specific date

in the fundamental accounting equation, the value of things you own ( assets) minus the amount of money you owe others ( liabilities) is called

equity

the statement of cash flows reports cash receipts and cash disbursements related to the three majority activities of a firm -financing

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

it's critical for firms to keep accurate financial information -for a fee, a pubic accountant

provides accounting services to individuals or businesses -such services include designing an accounting system, helping select the correct software to run the system, and analyzing an organization's financial performance

a financial statement is a

summary of all the financial transactions that have occurred over a particular period -finial statements indicate a firm's financial health and stability and are key factors in management decision making. That's why stockholders ( the owners of the firm), bondholders and banks ( people and institutions that lend money to the firm), labor unions, employees, and the internet revenue service are all interested in a firm's final statements

cash flow analysis shows

that a business's relationship with its lenders is critical to preventing cash flow problems -accountants can provide valuable insight and advice to businesses in managing cash flow, suggesting whether they need cash and how much

the downfall of Arthur Andersen was related to which scandal?

the Enron scandal

a current ratio of 2 means that the business has $2 of current assets for every:

$1 of current liabilities

major accounting scandals in the early 2000s involved companies such as

-WorldCom -Tyco -Enron

common financial transactions include

-acquiring insurance -buying and selling goods -paying employees

examples of profitability ratios include

-basic earnings per share -return on sales -return on equity

managerial accounting is concerned with

-controlling -preparing budgets -measuring production costs

what are the main types of financial ratios used in ratio analysis?

-debt ratios ( leverage) -liquidity ratios -activity ratios -profitability ratios

what are considered disciplines within the accounting profession:

-financial accounting -managerial accounting -tax accounting

the key working areas of accounting include

-government and not-for-profit accounting -auditing -tax accounting -managerial accounting -financial accounting

the statement of cash flwos answers such questions as:

-how much cash came into the business from current operations, such as buying and selling goods and services? -did the firm use cash to buy stocks, bonds, or other investments? -did it sell some investments that brought in cash? -how much money did the firm take in from issuing stock?

on a balance sheet, assets may include:

-intangible resources -tangible resources

the major activities of a firm shown on the statement of cash flows include:

-investments -fiancing -operations

external users are interested in questions like:

-is the organization profitable? -is it able to pay its bills? -how much debt do we owe? these questions and others are answered in the company's annual report.

the primary users of government and not for profit accounting information are

-legislative bodies -taxpayers -special interest groups

how do cash flow problems start?

-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 ( usually a bank) to pay its immediate bills -if a firm had reached its credit limit and can borrow no more, it has a severe cash flow problem -it has cash coming in at a later date, but no cash to pay current expenses. that problem could, unfortunately, force the firm into bankruptcy, even though sales may be strong - all because no cash was available when it was most needed

what would be shown on an income statment:

-operating expenses -revenue -net income

what are the major categories on the balance sheet

-owners' equity -assets -liabilities

government and not-for-profit accounting involves working for organizations whose purpose is to serve

-ratepayers -taxpayers

revenue is the monetary value of what a firm received for:

-services rendered -goods sold -interest earned

not-for profit organizations need accounting professionals to

-show that their funds are well managed -shows donors that money is spent for the designated cause -show that their money is being spent properly

what are the advantages of using computers to maintain and compile accounting information:

-speed -handle large amounts of data

operating expenses include what

-supplies -utilities -rent

the differences among the financial statements can best be summarized this way:

-the balance sheet details what the company owns and owns on a certain day -the income statements show the revenue a firm earned selling its products compared to its selling costs ( profit or loss) over a special period of time -statement of cash flows highlights the difference between cash coming in and cash going out of the business -to fully understand this important financial information, you need to know the purpose of an organization's financial statements.

who are considered users of managerial accounting information

-the chief financial officer -department managers

what are some government agencies that offer career possibilities to accountants seeking to work in government accounting

-the federal bureau of investigation -the internal revenue service -the missouri department of natural resources -cook county department of revenue

the steps in the accounting cycle

1- analyze source documents 2-record transactions in journals 3-transfer journal entries to a ledger 4-take a trial balance 5-prepare financial statements 6-analyze financial statements

fundamental accounting equation

Assets = Liabilities + Owner's Equity -is the basic for the balance sheet

liquidity ratios measure

a company's ability to turn assets into cash to pay its short term debts ( liabilities that must be repaid within one year) -these short term debts are of particular importance to the firm's lenders who expect to be paid on time

they can be turned into cash: 3) intangible assets

are long term assets that have no physical form but do have value. -patents, trademarks, copyrights, and goodwill are intangible assets

they can be turned into cash: 2) fixed assets

are long-term assets that are relatively permanent such as land, buildings, and equipment. -( on the balance sheet we can also refer to these as property, plant, and equipment).

common liability accounts recorded on a balance sheet 3) Bonds payable

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

operating expenses are either selling or general expenses -selling expenses

are related to the marketing and distribution of the firm's goods or services, such as advertising, salespeople's salaries, and supplies

Sarbanes Oxley prohibits accounting firms from providing consulting services to companies that they

audit

reviewing and evaluating records used to prepare a company's financial statements is referred to as:

auditing

of the 3 major activities of a firm, cash raised from the issuance of new debt is known as

fiancing

it's the partnership of technology and an accountant's specialized knowledge that helps a

firm make the right financial decisions

the income statement reports the

firm's financial operations over a particular period of time, usually a year, a quarter of a year, or a month. -it's the financial statement that reveals whether the business is actually earning a profit or losing money. -the income statement includes valuable financial information for stockholders, lenders, potential investors, employees, and of course, the government.

the firm's financial statements - its balance sheet, income statement,, and statement of cash flows - form the basis

for financial analyses performed by accountants inside and outside the firm

the owners' equity account will differ according to the type of organization -for sole proprietors and partners,

owners' equity means the value of everything owned by the business minus any liabilities of the owners( s), such as bank loans. -others' equity in these firms is called the capital account

the accounting cycle is a 6 step procedure that results in the

preparation and analysis of the major financial statements. -it relies on the work of both a bookkeeper and an accountant

the purpose of the sarbanes oxley act was to:

provide greater scrutiny of the accounting industry

Financial transactions include

the buying and selling of goods and services, acquiring insurance, paying employees, and using supplies -usually we group all purchases together, and all sales transactions together,

two key liquidity ratios are the current ratio and acid-test ratio -acid test or quick ratio measures

the cahs, marketable securities ( such as stocks and bonds), and receivables of a firm, compared to its current liabilities -this information is one a firm's balance sheet -this ratio is partially important to firms with difficult covering inventory into quick cash -it helps answer questions as to what if sales drop off and we can't sell our inventory? Can we still pay our short term debt? -though ratios vary among industries, an acid test ratio between 0.50 and 1.0 usually considered satisfactory, but bordering on cash flow problems

the cost of goods sold ( or cost of goods manufactured) measures

the cost of merchandise the firm sells or the cost of raw materials and supplies it used in producing items for resale. -the cost of goods sold includes the purchase price pls nay freight changes paid to transport goods, plus any costs associated with storing the goods

leverage ( debt ) ratios measures

the degree to which a firm relies on borrowed funds in its operations -a firm that takes on too much debt could experience problems repaying lenders or meeting pormiss make to stockholders

liabilities are

what the business owes to others - its debts. -current liabilities are debts due in one year or less. -long term liabilities are debts not due for one year or more

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 -if your rent and utilities exceed your earnings, you know you're in trouble. If you need money, you may need to sell some of the things you own to meet your expenses

the key financial statements of a business are: 3) the statement of cash flows,

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

the key financial statements of a business are: 2) the income statement,

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

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -another reliable indicator of performance is return on sales,

which tells us whether the firm is doing as well as its competitors in generating income sales -we calculate it by net income to total sales

it's critical for firms to keep accurate financial information -therefore, many organizations employ a private accountant

who works for a single firm, government agency, or nonprofit organization

journal

the record book or computer program where the day's transactions are kept

net sales

are gross sales minus returns, discounts, and allowances.

assets are divided into 3 categories, according to how quickly they can be turned into cash: 1) current assets

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

gross profit is:

net sales minus cost of goods sold

in doing their job, auditors examine

not only the financial health of an organization but also its operational efficiencies and effectiveness

the method we use to record and summarize accounting data into reports is an

accounting system

acid test ratio =

cash + accounts receivable + marketable securities / current liabilities ( add over divide)

_____ are cahs used in or provided by the firm's investment activities

investments

gross sales

The total of all sales for a given period of time. -the total of all sales the firm completed

the next step in the accounting cycle is to prepare a trial balance,

a summary of all the financial data in the account ledgers that ensures the figures are correct and balanced -if the information in the account ledgers is not accurate, the accountant must correct it before preparing the firm's statements -using the correct information, the accountant then prepares the firm's financial statements - including a balance sheet, an income statement, and a statement of cash flows - according to generally accepted accounting principles ( GAAP)

annual report

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

accounting goes far beyond the mere recording of financial information

accountants classify and summarize financial data provided by bookkeepers, and then interpret the data and report the information to management. -they also suggest strategies for improving the firm's financial condition and prepare financial analyses and income tax returns

financial management is the heartbeat of competitive businesses and accounting information help keep the heartbeat stable.

accounting reports and financial statements reveal as much about a business's health as pulse and blood pressure readings tell us about a person's health

computerized accounting programs are particularly helpful to small business owners, who don't often have the variety of accounting personnel within their companies that larger firms enjoy

accounting software - such as Intuit's Quickbooks - addresses the specific needs of small businesses that are often significantly different from the needs of a major cooperation -small business owners, however, need to understand exactly which programs are best suited for their particular company needs. -that's one reason why entrepreneurs planning to start a business should either hire or consult with a trained accountant to identify the particular needs of their firm. They can then develop a specific accounting system that works with the accounting software they've chosen

what are retained earnings

accumulated earnings not paid out to stockholders

accounting, often called the language of business,

allows us to report finial information about nonprofit organizations such as churches, schools, hospitals, fraternities, and government agencies

after deducting all expenses, we can determine the firm's net income before taxes,

also referred to as net earnings or net profit

government accounting standards are set by

an organization called the governmental accounting standards board

operating expenses are either selling or general expenses -general expenses

are administrative expenses of the firm such as office salaries, insurance, and rent -accountants are trained to help you record all applicable expenses and find other relevant expenses you can deduct from your taxable income as a part of doing business

the statement of cash flows reports cash receipts and cash disbursements related to the three majority activities of a firm -operations

are cash transactions associated with running the business

the statement of cash flows reports cash receipts and cash disbursements related to the three majority activities of a firm -investments

are cash used in or provided by the firm's investment activities

common liability accounts recorded on a balance sheet 1) account payable

are current liabilities or bills the company owns others for merchandise or services it purchased on credit but has not yet paid for

reviewing and evaluating the information used to prepare a company's financial statements is referred to as

auditing -private accounts within an organization often perform internal audits to guarantee that the organization is carrying out proper accounting procedures and financial reporting -public accountants also conduct independent audits of accounting information and related records

after the accounting scandals of the early 2000s, the Sarbanes Oxley Act put in place new rules about

auditing and consulting to ensure the integrity of the auditing process -auditing procedures, however, came under fire in 2011, causing many to call for stricter controls over auditing procedures after analyzing the failure of lehman brothers in 2008 and the financial crisis that followed

an accounting year is either a calendar or fiscal year. -fiscal year can

begin at any data designated by the business

an accounting year is either a calendar or fiscal year. -a calendar year

begins January 1 and ends december 31

the accounting profession understands that to be effective, accountants must be considered as professional

besides completing 150 hours of college coursework and a rigorous exams, CPAs on average take 20-40 hours of continuing education training a year, are subject to certification, undergo ethics training requirements and must pass an ethics exam

common liability accounts recorded on a balance sheet 2) notes payable

can be short-term liabilities ( like loans from banks) that a business promises to repay by a certain date

users of financial statements are interested in how a firm handles the flow of cash coming into a business and the cash flowing out of the business

cash flow problems can plaque both businesses and individuals

the statement of cash flows reports

cash receipts and cash disbursements related to the three majority activities of a firm -operations -investments -financing

an accountant who passes a series of examinations established by the American Institute of Certified Public Accountants ( AIPCA) and meets the state's requirements for education and experience is recognized as a

certified public accountant ( CPA) -CPAs find careers as private or public accountants and are often sought to fill other financial positions within organizations

not-for-profit organizations also require accounting professionals to ensure their financial results are correct and the organization is being well managed financially

charities like the Salvation Army, red Cross, museums, and hospitals all hire accountants to show contributors to how their money is spent and that it is being spent properly -this became partially important during the Great Recession when many businesses and individuals cut back on donations, making it more important than ever to account for every dollar contributed

current ratio =

current assets/ current liabilities ( divide )

in financial reporting, it doesn't matter when a firm places a particular item in its inventory, but it does matter how an accountant records the cost of the item when the firm sells it

generally accepted accounting principles ( GAAP) sometimes permit an accountant to use different methods of accounting for a firm's inventory. -two of the most popular treatments are called FIFO and LIFO. Each inventory method used makes a difference in the profit margin

accountants know its vital for users of a firm's accounting information to be assured the information is accurate. -the Independent financial accounting standards board ( FASB) defines the

generally accepted accounting principles ( GAAP) that accountants must follow. -if accounting reports are prepared in accordance with GAAP, users can expect the information to meet standards upon which accounting professionals have agreed.

financial accounting

generates financial information and analyses for people primarily outside the organization -the information goes not only to company owners, managers, and employees, but also to creditors and lenders, employee unions, customers, suppliers, government agencies, and the general public

taxes enable

governments to fund roads, parks, schools, police protection, the military, and other functions -federal, state, and local governments require individuals and organizations to file tax returns at specific times and in a preside format

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -the financial accounting standards board requires companies to report their quarterly EPS in two ways: basic and diluted. the basic earnings per share ( basic EPS) ratio

helps determine the amount of profit a company earned for each share of outstanding common stock

profitability ( performance) ratios meausre

how effectively a firm's managers are using its various resources to achieve profits -three of the more important ratios are earning per share ( EPS), return on sales, and return on equity.

converting the firm's inventory to profits is a kye function of management. Activity ratios

how effectively management is turning over inventory

small and large businesses often survive or fail according to

how well they handle financial procedures.

the financial statement that shows a firm's bottom line- that is, its profit ( or loss) after costs, expenses, and taxes is the

income statement -the income statement summarizes all the resources, called revenue, that have come into the firm from operating activities, money resources the firm used up, expenses it incurred in doing business, and resources it has left after paying all costs and expenses, including taxes. -the resources ( revenue) leftover or depleted are referred to as net income or net loss

the financial crisis beginning in 2008 led congress to pass the Dodd-Frank Wall Street Reform and COnsumer PRotection Act

increased financial regulation affecting accounting by increasing the power of the PCAOB to oversee auditors of brokers and dealers in securities markets

managerial accounting provides

information and analysis to managers inside the organization to assist them in decision making -managerial accounting is concerned with measuring and reporting costs of production, marketing, and other functions; preparing budgets (planning); checking whether or not units are staying within their budgets (controlling); and designing strategies to minimize

an independent audit

is an evaluation and unbiased opinion about the accuracy of a company's financial statements -annual reports often include an auditor's unbiased written opinion

when we subtract the cost of goods sold from net sales, we get the firm's gross profit or gross margin. -gross profit ( or gross margin)

is how much a business earned y buying ( or making) and selling merchandise -in a service firm, there may be no cost of goods sold; therefore, gross profit could equal net sales -gross profit, however, does not tell you everything you need to know about the firm's financial performance. To get that, you must also subtract the business's expenses.

Profitability ( performance) ratios: three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -EPS

is revealing ratio because earnings help stimulate the firm's growth and provide for stockholders' dividends -the financial accounting standards board requires companies to report their quarterly EPS in two ways: basic and diluted.

cash flow

is simply the difference between cash coming in and chas going out of a business -poor cash flow constitutes a major operating problem that many companies face

a balance sheet

is the financial statement that reports a firm's financial condition at a specific time -assets are equal to or balanced with, the libraries and owners' ( or stockholders) equity -first add up everything you own ( cash) those are the assets -subtract from that the money you own others ( credit card debt) those are the liabilities -the resulting figure is your net worth or equity. This is fundamentally what companies do in preparing a balance sheet: they follow the procedures set in the fundamental accounting equation. -in that preparation , any company that is publicly traded is required by the securities and exchange commission to follow GAAP

two key liquidity ratios are the current ratio and acid-test ratio -current ratio

is the ratio of a firm's current assets to its current liabilities -this appears on the firm's balance sheet -usually a company with a current ratio of 2.0 or better is considered a safe risk for lenders granting short-term credit, since it appears to be performing in line with market expectations

in selling goods or services, a business incurs certain operating expenses such as rent, salaries, supplies, utilities, and insurance. Other operating expenses that appear on an income statement, like depreciation, are a bit more complex -depreciation

is the systematic write off of the cost of a tangible asset over its estimated useful life -under accounting rules set by GAAP and the internal revenue service, companies are permitted to recapture the costs of these assets ( cars, computers, office and electronic equipment) over time by using depreciation as an operating expense

a tax accountant

is trained in tax law and is responsible for preparing tax returns, or developing tax strategies -since governments often change tax policies according to specific needs or objectives, the job of the tax accountant is always challenging. -as the burden of taxes grow in the economy, the role of the tax accountant becomes increasingly valuable to the organization, individual, or entrepreneur

financial ratios are especially useful in comparing the company's performance to its financial objectives and to the performance of other firms in its industry -financial ratios provide

key insights into how a firm compares to other firms in its industry on liquidity, amount of debt profitability, and overall business activity -understanding and interpreting business ratios are important to sound financial analysis

bookkeepers use a specialized accounting book or a computer program called a

ledger -in the ledger, they transfer ( or post) information from accounting journals into specific categories so managers can find all the information about a single account, like office suppliers or cash, in one place

accountants list assets on the firm's balance sheet in order of their

liquidity, or the ease with which they can convert them to cash. -speedier conversion means higher liquidity. For example, an account receivable is an amount of money owed to the firm that it expects to receive within one year. It is considered a liquid asset because it can quickly converted to cash. -land, however, is not considered a liquid asset because it takes time, effort, and paperwork to convert it to cash. It is considered as a fixed or long-term asset.

fixed assets are

long term assets like land, buildings, and equipment

we analyze cash of flow questions and other financial transactions to see their effect on the firm's position

managing cash flow can mean success or failure of any business

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -the financial accounting standards board requires companies to report their quarterly EPS in two ways: basic and diluted. the diluted earnings per share ( diluted EPS) ratio

measures the amount of profit earned for each share of outstanding common stock, but also considers stock options, warrants, preferred stock, and convertible debt securities the firm can convert into common stock

revenue is the

monetary value of what a firm received for goods sold, services rendered, and other payments ( such as rents received, money paid to the firm for use of its patents, interest earned, ect.)

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -return on sales =

net income / net sales ( divide)

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -return on equidty =

net income after tax / total owners' equity ( divide)

the bottom line is another for

net income after taxes

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -basic earnings per share =

net income after taxes / number of common stock shares outstanding ( divide)

return on sales is net income divided by

net sales

it's quite possible to make a mistake when recording financial transactions. -that's why bookkeepers

record all transactions in two places, so they can check one list of transactions against the other to make sure both add up to the same amount. -if the amounts are not equal, the bookkeeper knows there is a mistake. ( double entry bookkeeping)

a bookkeeper's second step: bookkeepers then

record financial data from the original transaction documents ( sales slips and so forth) into a record book or computer program called a journal

accounting is the

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

three of the more important ratios are earning per share ( EPS), return on sales, and return on equity. -return on equity indirectly measures

risk by telling us how much a firm earned for each dollar invested by its owners -we calculate it by comparing a company's net income to its total owners' equity -the higher the risk of failure or loss in an industry, the higher the return investors expect on their investment; they expect to be well compensated for shouldering such odds

what is the meaning of notes payable

short term or long term liabilities that a business promises to repay by a certain date

the value of what stockholders own in a firm ( minus liabilities) is called

stockholders' equity or shareholders' equity. -because stockholders are the owners of a firm, we also call stockholders' equity "owners equity", or the amount of the business that belongs to the owners, minus any liabilities the business owes. -the formula for owners' equity, then is assets minus liabilities

government and not-for-profit accounting

supports organizations whose purpose is not generating a profit, but serving ratepayers, tax papers, and others according to a duly approved budget. -federal, state, and local governments require an accounting system that helps taxpayers, special interest groups, legislative bodies, and creditors ensure that the government is fulfilling its obligations, and making proper use of taxpayers' money

debt to owners' equity ratio ( leverage [debt] ratios ) measures

the degree to which the company is financed by borrowed funds that it must repay -anything about 100 % shows a firm has more debt than equity -however, again, it's important to compare a firm's debt ratios to those of other firms in its industry, because debt financing is more acceptable in some industries than in others. -comparisons with the same firm's past debt ratios can also identify possible trends within the firm or industry

what ratio is the cost of goods sold divided by the average inventory

the inventory turnover ratio

the owners' equity account will differ according to the type of organization -for operations

the owners' equity account records the owners' claims to funds they have invested in the firm ( such as stock), as well as retained earnings -retained earnings are 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.

bookkeeping

the recording of business transactions, -is a basic part of financial reporting.

converting the firm's inventory to profits is a key function of management. Activity ratios -the inventory turnover ratio measure

the speed with which inventory moves through the firm and gets converted into sales -the more efficiently a firm sells or turns over its inventory, the higher its revenue -a lower than average inventory turnover ratio often indicates obsolete merchandise on hand or poor buying practices -managers need to be aware of proper inventory control and anticipated inventory turnover to endure proper performance

statement of cash flows: accountants analyze all changes in the firm's cash that have occurred from operating, investing, and financing in order to determine the firm's net cash position

the statement of cash flows also gives the firm some insight into how to handle cash better so that no cash flow problems occur - such as having no cash on hand for immediate expenses

even though intangible assets such as brand names ( Coca-Cola) can be among the firm's most valuable resources

they are not listed on a company's balance sheet if they were developed within the company

scrutiny of the accounting industry intensified, however, and resulted in the US congress's passage of the Sarbanes - Oxley Act ( called Sarbox)

this legislation created new government reporting standards for publicly traded companies -it also created the public company accounting board ( PCAOB) , which oversees the AICPA

a major purpose of accounting is

to help managers make well-informed decisions. -another is to report financial information about the firm to interested stakeholders, such as employees, owners, creditors, suppliers, unions, community activists, investors, and the government ( for tax purposes).

liquidity refers

to how fast an asset can be converted to cash

toward the end of the 20th century, technology simplified the accounting process considerably

today, computerized accounting programs can post information from journals instaneouly from remote locations to encrypted laptops or cell phones, making financial information available whenever the organization needs it. -the company's sensitive financial information is safe and secure but is in the accountant's hands when needed. -such assistance frees accountants' time for more important tasks such as financial analysis and financial forecasting

debt to owners' equity ratio =

total liabilities / owners' equity ( divide)