Understanding Business Chapter 17: Understanding Accounting and Business Information

the 2008 financial crisis lead to the passing of what two acts?

#Dodd-Frank-Wall-Sreet-Act & #Consumer-Protection-Act

financial accounting

#accounting information and analyses prepared for people outside the organizaiton

#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

After distributing the taxes according to plan or allocating for taxes, the ______ is uncovered

#bottom-line

#inventory-turnover-ratio =

#cost-of-goods-sold / average inventory

_____ 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.

#diluted-earnings-per-share-ratio (#diluted-EPS)

the practice of writing every business transaction into two places

#double-entry-bookkeeping

Three of the more important ratios:

#earnings-per-share (#EPS) #return-on-sales #return-on-equity

basic EPS =

#net-income-after-taxes / number of common stock shares outstanding

return on equity =

#net-income-after-taxes / total #owners-equity

After deducting all expenses, the firm's _____ can be determined

#net-income-before-taxes

Three major activities of a firm: 3-6pts

#operations cash transactions associated with running the business #investments cash used in or provided by the firm's investment activities #financing cash raising by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company dividends

return on sales =

#return-on-sales = #net-income / #net-sales

income statement accounts (3-6pts)

#revenues sales revenue, rental revenue, commissions revenue, royalty revenue #cost-of-goods-sold cost of buying goods, cost of storing goods #expenses wages, rent, repaints, taxes, advertising, supplies, licenses, interest, storage, utilities (full list p485)

6 steps in the accounting cycle beginning to end:

(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

Term is to phrase: (1) Accounting (4pts): (2) Bookkeeping: (3) Accounting cycle: (4) Trial balance:

(1) classifying, summarizing, interpreting, and reporting (2) recording (3) series of six steps (4) summary of data in ledgers

An acid test ratio between _#_ and _#_ is usually considered satisfactory but could also be a sign of some cash flow problems.

0.5; 1.0

Three categories of assets: 3-6pts

1, #current-assets - #term items that can or will be converted into cash within one year. include cash, accounts receivable, and inventory 2. #fixed-assets - #term long-term, relatively permanent e.g. land, building, equipment. (on a #balance-sheet they're referred to as property, plant, and equipment) 3. #intangible-assets - #term long0term, no physical form but have value. Patents, trademarks, copryrights, and goodwill

What is the difference between bookkeeping and accounting and accounting? 6pts

Bookkeeping is part of accounting and includes the systematic recording of data. Accounting include classifying, summarizing, interpreting, and reporting data to management.

What is a statement of cash flows? 7pts

Cash flow is the difference between cash receipts (money coming in) and cash disbursements (money going out). The statement of cash flows reports cash receipts and disbursements related to the firm's major activities: operations, investments, and financing.

How do computers help accountants? 7pts

Computers can record and analyze data and provide financial reports. Software can continuously analyze and test accounting systems to be sure they are functioning correctly. Computers can help decision making by providing appropriate information, but they cannot themselves make good financial decisions. Accounting applications and creativity are still human functions.

FASB

Financial Accounting Standards Board; the defines the generally accepted #accounting principles;

How does bookkeeping word or what is the step process?

First: divide all the firm's transactions into meaningful categories such as sales documents, purchasing receipts and shipping documents, being very careful to keep the information organized and manageable Then: record financial data from the orginal transaction documents into a record book or computer program called a #journal

Balance sheets follow the accounting principles/guidelines of ...

GAAP

If Tom and Tony each had a corporation, then what set of rules would prevent them from creating unique formats of information in their financial statements?

GAAP

The principles that accountants must follow in order to assure that a firm's accounting information is accurate are abbreviated as:

GAAP

How do goodwill and balance sheets relate?

Goodwill is included when a firm acquires assets

Who sets the government accounting standards?

Governmental Accounting Standards Board (GASB)

The Balance Sheet, the Statement of Cashflows, and the ___ are three key financial statements.

Income Statement

What are journals and ledgers? 4pts

Journals are the first place bookkeepers record transactions. Bookkeepers then summarize the journal entries by posting them to ledgers. Ledgers are specialized accounting books that arrange the transactions by homogeneous [Uniform in structure or composition throughout] groups (accounts)

accounting scandals make people question what?

accounting firms doing both auditing and consulting

If financial management is the heartbeat of competitive businesses, what keeps that heartbeat stable?

accounting information

managerial accounting

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

A current bill that a company owes to others that is the result of buying merchandise on credit is called:

accounts payable

Term for - not paid for yet

accounts payable

Retained earnings

accumulated earnings not paid out to stockholders

Analyzing a company's _____ ratio is one way in which an investor can tell if the company can pay off its short-term debts if there is a drop in sales revenue

acid-test ratio

the ratios that measure the effectiveness of a firm's management in using the assets that are available are called: (2pts)

activity ratios; performance ratios

tax accountant

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

Certified-internal-auditor (CIA) 2pts

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

what is a public accountant?

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

What is an income statement? 3pts; What are the formulas used to prepare the income statement?

an income statement reports revenues, costs, and expenses for a specific period of time; revenue - cost of goods = gross margin gross margin - operating expenses = net income before taxes net income before taxes - taxes = net income (or net loss)

Accountant Alan Winger has just completed the balance sheet, income statement, and statement of cash flows for his company. The next step in the accounting cycle involves...

analyzing the firm's financial statements to evaluate the financial condition of the firm.

It is mandated that a public firm fully disclose its financial data once a year in their:

annual report

selling expenses

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

equity =

assets (the value of things you own) - liabilities (the amount of money you owe to others)

formula for owners' equity

assets - liabilities = owners' equity

(on a balance sheet) - assets is.... liabilities is.... and equity is....

assets = everything you own; liabilities = money owed; equity = subtracting assets with liabilities.

The balance sheet shows liabilities of $5,000,000 and owners' equity of $5,237,000. According the the fundamental equation....

assets equal $10,237,000

¨Did the business earn or lose money in the specific reporting period?¨ is answered where?

at the bottom line

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

auditing

_____ involves the review and evaluation of the records that are used to prepare the organization's financial statements.

auditing

What is the job of an auditor? 3pts

auditors review and evaluate the standards used to prepare a company's financial statements. An independent audit is conducted by a public accountant and is an evaluation and unbiased opinion about the accuracy of a company's financial statements

Why is being a CMA or managerial accounting important? 3pts

b/c of growing emphasis on global competition, outsourcing, and organizational cost-cutting

____ accounts #assets cash, #accounts-receivable, inventory, investments, equipment, land, buildings, vehicles, goodwill #liabilities #accounts-payable, #notes-payable, #bonds-payable, #taxes-payable #owners-equity capital stock, #retained-earnings, common stock, treasury stock

balance sheet

The key financial statements of a business are: 3pts

balance sheet; income statement; statement of cash flows

In accounting, the fundamental accounting equation must always be _____

balanced/equal

In order to be a certified management accountant a person must: (3pts)

be certified by the Institute of Certified Management Accountants; pass a qualifying exam; meet educational requirement;

What do CPAs find careers doing? 3pts

being a public accountant or private accountant or fill other financial position

the accounting cycle relies on the work of whom? 2pts

bookkeeper; accountant

Summarized, how do cash flow problems start? 2pts

buying goods on credits and the money to pay the credit back is coming on a later date

Although a firm may list a large dollar value of assets, how would a bank evaluate if the company was able to repay a loan?

by analyzing the firm's balance sheet and income statement

Businesses that are not incorporated identify the investment of the sole proprietors thru the ____ account

capital

Term for - what owners' equity is in firms where sole proprietors and partners it means the value of everything owned by the business minus any liabilities of the owner(s), such as bank loans

capital account

The statement of cash flows reports cash receipts and cash disbursements that is not related to,,,,

cash generated thru the cost of goods sold (gross margin)

CPA 2pts

certified public accountant; an accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (#AICPA)

#PCAOB aka #Public-Company-Accounting-Oversight-Board 2pt

charged with overseeing AICPA; created by congress

How does accounting differ from bookkeeping? 7pts

classifying and summarizing financial data provided by bookkeepers, and then interpreting the data and reporting the information to management. Also suggesting strategies for imporving the firm's financial condition and prepare financial analyses and income tax returns

Managerial accounting is concerned with: (3pts)

controlling; measuring production costs; preparing budgets

cost of goods sold is also known as .......

cost of goods manufactured

What term describes the cost of merchandise the firm sells?

cost of goods sold

operating expenses

costs involved in operating a business, such as rent, utilities, and salaries

What does the #Sarbanes-Oxley-Act (#Sarbox) do?

created new govt reporting standards for publicly traded companies.

Measurements of a firm's liquidity, debt, and assets could be created in a(n)...

current ratio

Leverage ratios are used to understand how much the company relies on ______ to fund its operations

debt

What are the main types of financial ratios used in ratio analysis? (4pts)

debt; activity ratios; profitability ratios; liquidity ratios

current liabilities

debts due in one year or less

long-term liabilties

debts not due for a year or more

Other #operating-expenses that appear on an #income-statement are more complex e.g. _______

depreciation

___ is the systematic write-off of the cost of a tangible asset over its estimated useful life

depreciation

An accounting system would not be used for...

determining the most profitable target market segment for the company's new product line

_____ is the accounting practice of recording each transaction in two places in the accounting journal.

double-entry bookkeeping

Costs of goods sold compares how much a business ______ by selling merchandise and how much it _____ to make or buy the merchandise

earned; spent

an important tool for investors used in determining the value of a stock is the amount of net income that belongs to each share of common stock. this is called:

earnings per share (EPS)

assets

economic resources (things of values) owned by a firm, including goodwill

#financial-analysis begins where the #accounting #financial-statements _____

ends

The purpose of a trial balance is to...

ensure that the figures in the account ledgers are correct and balanced

_____ accountants are involved in generating financial information and analysis for the company's creditors, lenders, customers, suppliers, and government agencies, and the general public

financial

a company's ______ statements summarize all of the transactions that have occurred over a particular period or point in time.

financial

#income-statement reports ____ ____ over a period of time.

financial operations

balance sheet 4pts

financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners' equity

statement of cash flows

financial statement that reports cash receipts and disbursements related to a firm's three major activities: operations, investments, and financing.

A company's ________ summarize all of the transactions that have occurred over a particular period or point in time

financial statements

Accounting reports and ____ ____ are critical to understanding the health of a business

financial statements

Buying and selling goods and services, acquiring insurance, paying employees, and using supplies are all examples of:

financial transactions

what are the buying and selling goods and services, acquiring insurance, paying employees, and using supplies?

financial transactions

Converting the firm's inventory to profits is a key _____ of management

function

___ are administrative expenses of the firm such as office salaries, depreciation, insurance, and rent

general expenses

GAAP

generally accepted accounting principles that accountants must follow;

Assets includes _____

goodwill

A company's net sales minus cost of goods sold is called:

gross profit

____ refers to the total of all sales the firm completed

gross sales

net sales

gross sales minus returns, discounts, and allowances

#basic-earnings-per-share-ratios (#basic-EPS)

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

Speeder conversion of cash means _______ liquidity

higher

The more efficiently a firm sells or turns over its inventory, the ___ its revenue

higher

The _____ 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

higher;

gross profit or gross margin 2pts

how much a firm earned by buying (or making) and selling merchandise; #cost-of-goods-sold - #net-sales

#income-statement determines...

if the company is profiting or losing

Questions external users ask like ¨is the organization profitable?¨ or ¨how much debt is owed is answered where?

in the annual report

#double-entry-bookkeeping requires entries where? 2pts

in the journal and the ledger

The _________ shows all of a firm's revenues, costs, and whether it made a profit or loss during a specific period.

income statement

The financial statement that summarizes the revenue and expenses and resulting net income (or loss) over a specified time period is called the .....

income statement

The three key financial statements prepared by accountants are the balance sheet, the statement of cash flows, and the ....

income statement

Which financial statement shows the firm's profit after costs, expenses, and taxes?

income statement

#Dodd-Frank-Wall-Sreet-Act

increased financial regulation affecting accounting by increasing the power of #PCAOB (#Public-Company-Accounting-Oversight-Board) to oversee auditotrs of dealers in securities markets.

An evaluation and unbiased opinion of the accuracy of a firm's financial statements can be obtained after a _____ ____

independent

return on equity

indirectly measures risk by telling us how much a firm earned for each dollar invested by its owners.

What are some benefits of using computers of accounting purposes? (3pts)

information can be posted from journals instantaneously; computers can handle large amounts of financial information; software can help if no strong accounting support is available;

A certified management accountant (CMA) must be certified by the Institute of Certified Management Accountants and provides information to managers _______ the organization

inside

private accountants often perform ___ audits while public accountants also conduct _____ audits

internal; independent

________________ measures the speed with which inventory moves thru the firm and gets converted into sales

inventory turnover ratio

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

investments

account recieveable

is an amount of money owed to the firm that expects to receive within one year

Why are the IRS, stockholders, banks, etc very interested in the financial statement?

it indicated the companys' health

Financial data from transaction documents are first recorded in a(n) _____. The data are then transferred into a(n) _____, so managers can find all the information about a single account in one place.

journal; ledger

A tax accountant has specialized and learned tax _______ and is responsible for preparing tax returns.

law

The primary users of government and not-for-profit accounting information are: (3pts)

legislative bodies; citizens; special interest groups

Debts owed by a business are called _____

liabilities

The part of the business that belongs entirely to the creditors is called:

liabilities

The major accounts on the balance sheet include: (3 pts)

liabilities; owners' equity; assets

accounts receivable are considered a _____ _____ b/c they are easily converted

liquid asset

The measure of how quickly an asset can be converted to cash is referred to as its...

liquidity

____ refers to how quickly an asset can be converted to cash

liquidity

The four key types of ratios that investors monitor are....

liquidity ratios; profitability ratios; leverage ratios; activity ratios

What is the meaning of bonds payable?

long-term liabilities that represent money lent to the firm that must be paid back

bonds payable

long-term liabilities that represent money lent to the firm that must be paid back

Collins Enterprises is building a new manufacturing facility and has taken out a 30-year mortgage with Frontier Financial in the amount of $350,000 to finance his project. This mortgage would be shown as a(n) ______ _______ on the company's balance sheet.

long-term liability

(Lower/higher) than average #inventory-turnover-ratio often indicates obsolete merchandise or poor buying practices

lower

The area of accounting that provides financial information and analysis to managers within the organization to assist them in decision making is called ____ accounting

managerial

Managers need information to make decisions. Which type of information arranges this data in such a way?

managerial accounting

The area of accounting that provides information to managers inside the organization to assist them in decision making is called:

managerial accounting

The five key working areas of accounting:

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

#inventory-turnover-ratio

measures the speed with which inventory moves thru the firm and gets converted into sales

what is managerial account concerned with? 3pts

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 taxes.

A certified management accountant:

must pass a qualifying exam and be certified

_____ income after taxes is the last line on the income statement

net

#net-income-before-taxes is also known as (2pts)

net earnings or net profit

Return on sales is: (equation)

net income divided by net sales

The bottom line is another name for:

net income or loss

If there is no #cost-of-goods-sold then _____ could = #gross-profit (gross margin)

net sales

Where does the information that financial accountants generate go to? (name a few of the 10 examples)

not only company owners, managers, and employees, but also to creditors and lenders, employee unions, customers, suppliers, government agencies, and the general public

what is an auditors job?

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

_____ payable can be either short-term or long-term liabilities that a business promises to repay by a certain date.

notes payable

Rent, salaries, supplies, utilities, and insurance are examples of ______ expenses that are general expenses

operating

What are some things that would be shown on an income statement? (4pts)

operating expenses; revenue; net income; cost of goods sold

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

operations

The major activities of a firm shown on the statement of cash flows include: (3pts)

operations; investments; financing

According to the fundamental equation, the value of assets the firm owns equals the amount of money the firm owes to others plus .....

owners' equity

stockholders' equity or shareholders' equity is also known as

owners-equity

Common financial transactions include: (3pts)

paying employees; acquiring insurance; buying and selling goods

On the statement of cash flows financing activities would include: (3pts)

paying past debt; taking on new debt; paying dividends

Tyler works as an accountant for a mid-sized retail store. He has just completed a successful trial balance. Tyler's next task is likely to be...

preparing the store's balance sheet and other major financial statements

what guarantees that the organization is carrying out proper #accounting procedures and financial reporting?

private accountants

#profitability-ratios relate to ___ which is vital to the growth of a company. Thus #profitability-ratios are such closely watched measurements of company growth and management performance

profit

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

profitability (performance) ratios

_____ measure how effectively a firm's managers are using its various resources to to achieve profits

profitability (performance) ratios

Most of the financial information about an organization is based on information generated from accounting records. The reports and financial statements prepared by accountants... (1pt)

provide information that can be used by decision-makers both inside and outside the organization

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 ing and cash going out of a business

The formula for the costs of goods sold:

purchase price + freight charges + storage costs

Government and not-for-profit accounting involves working for organizations whose purpose is to serve: (2pts)

ratepayers; taxpayers

What is the major value of ratio analysis to the firm?

ratio analysis provides the firm with information about its financial position in key areas for comparison to other firms in its industry and its own past performance.

One of the main duties of bookkeepers is to...

record business transactions in journals

The data are... (3pts)

recorded, classified, and summarized

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

records

balance sheet 2pts

reports the firm's financial condition on a specific date & details what the company owns and owes on a certain day

goodwill

represents the value attached to factors such as reputation, location, and superior products

Government and not for profit accounting is an accounting system ______ by federal, state, and local governments

required

Not paying dividends to your shareholders; These undistributed profits are referred to as...

retained earnings

Term for - the accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends

retained earnings

Examples of profitability ratios include: (3pts)

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

Examples of profitability ratios include: (3pts)

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

net income or net loss

revenue left over after all costs and expenses including taxes are paid.

Although ___ is a part of revenue, one must not confuse them.

sales

the inputs to an accounting system include.... (2 pts)

sales documents; other documents

#operating-expenses can be classified as ___ or ___ expenses

selling or general

What are two examples of inputs to the accounting system?

shipping documents; sales documents

notes payable

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

What are 2 advantages of the using of computers to maintain and compile accounting information? (2pts)

speed; handle large amounts of data

Why is there more in an annual report now than ever?

stakeholders demand it

trial balance

step in the #accounting-cycle; a summary of all the financial data in the account #ledger s that ensures the figures are correct and balanced

assets are = to or balanced with the liabilities and owners' or _______ equity

stockholders'

income-statement 2pts

summarized revenues, cost of goods, and expenses (including taxes) for a specific period and highlights the total profit or loss the firm experienced during that period & shows the revenue a firm earned selling its products compared to its selling costs (profit or loss) over a specific period of time

Cole is an accountant with a large public company. As an account, his responsibilities include... (2pts)

summarizing and interpreting financial information needed by his firm's managers

Then, they're put into ____ ____ ____ such as the ______, _______, & _______.

summary financial statements; income statement; balance sheet; statement of cash flows

The key working areas of accounting include: (5pts)

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

Why is the job of being a tax accountant always challenging?

tax policies are always changing

activity ratios

tell us how effectively management is turning over inventory

return on sales

tells us whether the firm is doing as well as its competitors in generating income from sales

bottom line

the #net-income or #net-loss the firm incurred from revenue minus sales returns, costs, expenses, and taxes over a period of time.

owners equity 2pts

the amount of the business that belongs to the owners minus any liabilities owed by the business; aka stockholders' equity

cash flow

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

liquidity

the ease with which an asset can be converted into cash

How does it contrast managerial accounting?

the financial information and analyses it generates are for people primarily outside the organization

income statement 2pts

the financial statement that shows a firm's profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm (expenses), and the resulting net income or net loss.

What are the four key categories of ratios?

the four key categories of ratios are liquidity ratios, leverage (debt) ratios, profitability (performance) ratios, and activity ratios

Which ration is the cost of goods divided by the average inventory?

the inventory turnover ratio

auditing

the job of reviewing and evaluating the information used to prepare a company's financial statement

accounting system

the method used to record and summarize accounting data into reports;

The #owners-equity account records...

the owners' claims to funds they have invested in the firm (such as stock) and retained earnings

The cost of goods includes: 2pts

the purchase price + - any freight charges paid to transport goods - any costs associated with storing the goods

journal

the record book or computer program where #accounting data are first entered; a days transactions

bookkeeping

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

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

stockholders' equity or shareholders' equity

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

What are the purposes of accounting? (2pts + 9 such as pts)

to help managers make well-informed decisions; 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)

Why do not-for-profit accountants need to hire accountants?

to show contributors how their money is spent

True or false: the govt stepped in and put in place new rules about #auditing and #consulting to ensure the integrity of the #auditing process. 2pts

true... Sarbanes Oxley Act (Sarbox)

liabilities

what the business owes to others (debts)

Can a business increase sales and profits and still suffer cash flow problems?

yes

what is the language of business?

accounting

Common liability accounts recorded on a #balance-sheet : 3-6pts

1. #accounts-payable (current liabilities or bills the company owes to others for merchandise or services purchased on credit but not yet paid for) 2. #notes-payable (short-term or long-term liabilities that a business promises to repay by a certain date) 3. #bonds-payable (long-term liabilities that represent money lent to the firm that must be paid back)

Six steps of the accounting cycle & identify whether it is accounting or bookkeeping

1. Analyze source documents (BK) 2. Record transactions in journals (BK) 3. transfer journal entries to ledger (BK) 4. take a trial balance (BK) 5. prepare financial statements (A) 6. Analyze financial statements (A)

statement of cash flows includes: 3pts

1. Cash receipts from sales, commissions, fees, interest, and dividends. Cash payments for salaries, inventories, operating expenses , interest, and taxes. 2. Includes cash flows that are generated thru a company's purchase or sale long-term operational assets, investments in other companies, and its lending activities. 3. Cash inflows and outflows associated with the company's own equity transactions or its borrowing activities

How do assets, liabilities, and equity pertain to a balance sheet or how are they expressed on a balance sheet? 7-14pts

1. Current assets items that can be converted to cash within one year 2. Fixed assets items such as land, buildings, and equipment that are relatively permanent 3. Intangible assets items of value such as patents and copyrights that don't have a physical form 4. Current liabilities payments that are due in one year or less 5. Long-term liabilities payments not due for one year or longer 6. Owner's equity the value of what stockholders own in a firm (aka stockholder's equity)

#2 (accounting system) 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

What does an income statement include? (5-10pts)

1. Revenue: value of what's received from goods sold, services rendered, and other financial sources 2. Cost of goods sold: cost of merchandise sold or cost of raw materials or parts used for producing itmes for resale 3. Gross profit: how much the firm earned by buying or selling merchandise 4. Operating expenses: cost incurred in operating a business 5. Net income after taxes: profit or loss over a specific period after subtracted all costs and expenses, including taxes

anything over __% return on equity is a reasonable return

15%

AICPA 2pt

American Institute of Certified Public Accountants (#AICPA); established examinations for potential CPAs

What's the fundamental accounting equation?

Assets = Liabilities + Owners' equity

fundamental-accounting-equation

Assets = Liabilities + Owners' equity'this is the basis for the #balance-sheet

What are the major accounts of the balance sheet? (3 terms + a brief definition + equation... 7pts)

Assets are economic resources owned by the firm, such as building and machinery. Liabilities are amounts the firm owes to creditors, bondholders, and others. Owners' equity is the value of everything the firm owns -- its assets minus any liabilities; thus, Owners' equity = Assets - liabilities

#3 (accounting system) Outputs: Financial statements (5pts)

Balance sheet, income sheet, statement of cash flows, other reports, (e.g. annual reports)

Major provisions of Sarbox 6pt

Prohibits #accounting firms from providing certain non-auditing work (such as consulting services) to companies they audit Strengthens the protection for whistle-blowers who report wrongful actions of company officers; Requires company CEOs and CFOs to certify the accuracy of financial reports and imparts strict penalties for any violation of securities reporting (e.g. earnings misstatements); Prohibits corporate loans to directors and executives of the company; Establishes the five-member #Public-Company-Accounting-Oversight-Board (#PCAOB) under the #Securities-and-Exchange-Commission (#SEC) to oversee the #accounting industry; Stipulates that altering or destroying key audit documents will result in felony charges and significant criminal penalties

#1 (accounting system) Inputs: Accounting documents (name a few of the 7 examples)

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

What caused Sarbanes-Oxley-Act (#Sarbox) to pass?

Scrutiny (close surveillance) in the #accounting industry being intensified leads Congress to pass this

What does Assets = Liabilities + Owners' equity mean?

Your assets are now equal to what you owe plus what you own

What is a balance sheet?

a balance sheet reports the financial position of a firm on a particular day. The fundamental accounting equation used to prepare the balance sheet is Assets = Liabilities + Owners' equity

What is a CMA? 2pts

a certified management accountant; a professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants.

cost of goods sold

a measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale

EPS (earnings per share)

a revealing ratio bc earnings help stimulate the firm's growth and provide for stockholders' dividends.

accounting cycle

a six-step procedure that results in the preparation and analysis of the major financial statements.

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 transactions that have occurred over a particular period

annual report

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