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.