Exam 3 business ch.17 & 18

CPA (Certified Public Accountant)

an accountant who passes a series of examinations established by the American Institute of Certified Public Accountants

private accountant

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

operating budget

an aggregate of the firms other budgets and summarizes its proposed financial activities

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

The three key financial statements prepared by accountants are the

balance sheet, the statement of cash flows, and the income statement

financial accounting

buying and selling goods and services, acquiring insurance, paying employees, and using supplies.

A firm's spending plans for major purchases, such as manufacturing equipment or buildings, is detailed in the _______ budget.

capital

A firm that purchases a long-term asset such as a manufacturing facility is making a(n)

capital expenditures

3 types of budgets

capital, cash, and operating

A(n) _______ is an estimate of the timing and amounts of cash inflows and outflows over a period of time so that financial managers can determine if the firm needs to borrow funds, how much it needs to borrow, and when—and how—it can repay the loan.

cash flow forecast

Tristan is the financial manager of a small company. While sales are steady, customers are taking longer to pay, and he has had increasing difficulty obtaining short-term loans to finance the day-to-day operations of the company. Tristan's company is facing a(n)

cash flow problem

financing

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

operations

cash transactions associated with running the business

Unsecured promissory notes of $100,000 and up that mature in 270 days or less are called

commercial paper

A firm's _______ is the rate of return it must earn in order to meet the demands of its lenders and expectations of its equity holders

cost of capital

Accounts Payable

current liabilities owed for purchasing on credit

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

debt

Two primary forms of financing are equity financing and

debt financing

assets

economic resources owned by a firm

The purpose of a trial balance is to

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

Peter wants to open a new manufacturing facility in Western Canada. Instead of securing bank loans to finance this venture, he sells shares of stock in his company. This is known as

equity financing

Patrick's lawn care business needs quick cash to purchase a new commercial lawn mower. Instead of getting a loan, he sells his accounts receivable for cash. This type of financing is known as

factoring

The business function that is responsible for acquiring funds for the firm and managing funds within the firm is called

finance

are used to assess the health of a business

financial statements

short-term forecast

forecast that predicts revenues, costs, and expenses for a period of one year or less

debt financing

funds raised through various forms of borrowing that must be repaid

Activity ratios measure

how effective a company is in turning over inventory

what are the 4 types of ratios?

liquidity, leverage debt, profitability/performance, activity

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

difference between managerial and financial accouting

managerial provides info for people inside the company, financial info is intended for people outside of the organization

When financial managers refer to the "time value of money," they mean that

money earning interest increases in value over time

equity financing

money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital)

gross profit

net sales - cost of goods sold

Although Naomi's business is small, she knows that she still needs to develop an accurate estimate of the costs and expenses needed to run the business. In order to do this, Naomi develops a(n)

operating budget

Accounting Cycle Steps

1. Analyze source documents 2. record transactions in a journal 3. transfer journal entries to ledger 4. Prepare a trial balance 5. prepare financial statements 6. analyze financial statements

financial plan steps

1. forecast short term and long term needs 2.develop budgets to meet needs 3. establish financial controls to see whether the company achieves its goals

Longterm financing questions

1. what are the long term goals 2. what funds do you need to achieve goals 3. what sources of long term funding are available

The "IOU" that is issued by a corporation or government to raise needed funds, promising to repay the principal amount by a certain date along with a certain rate of interest, is called

a bond

unsecure loan

a loan that is not backed by collateral

financial control

a process in which a firm periodically compares its actual revenues, costs, and expenses with its budget

promissory note

a written agreement with a promise to pay a supplier a specific sum of money at a definite time

annual report

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

The discipline that is involved in the recording, classifying, summarizing, and interpreting of financial events and transactions in an organization in order to provide management and other interested parties with the information they need to make good decisions is referred to as

accounting

government and nonprofit accounting

accounting system for organizations whose purpose is not generating a profit but serving rate payers, tax payers, and others according to a duly approved budget

operating expenses

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

cash budget

Estimates cash inflows and outflows during a particular period like a month or quarter.

Which of the following best describes the role of financial managers?

Financial managers are proactive; they budget where funds are supposed to be ahead of time.

fixed assets

Long-term or relatively permanent tangible assets such as equipment, land, and buildings that are used in the normal business operations and that depreciate over time.

Stockholders' Equity/ owners equity

the amount that belongs to owners minus any liabilities

generally the higher the risk in an activity..

the higher the rate of return expected by investors

Financial Management

the job of managing a firm's resources so it can meet its goals and objectives

auditing

Reviewing and evaluating the information used to prepare a company's financial statements.

budget

Sets forth management's expectations for revenues and allocates the use of specific resources throughout the firm.

liquidity

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

commercial banks

how much you borrow depends on the kind of business and how quickly it can generate funds

The most common financial problems faced by organizations include

inadequate expense control. undercapitalization. poor cash flow control

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.

An evaluation and unbiased opinion of the accuracy of a firm's financial statements can be obtained after a(n) ______ audit.

independent

Janice owns a firm that provides accounting services to a number of small businesses in the area. Her firm processes payroll, prepares quarterly payroll tax returns, and provides tax consulting services. Janice is a(n) _______ accountant.

public

Long term capital is needed for

purchasing expensive assets, developing new products, and financing expansion

leverage

raising needed funds through borrowing to increase a firm's rate of return

credit cards

readily available lines of credit when businesses are rejected by loans

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

record business transactions in journals

important provisions of the Sarbanes-Oxley Act

require the CEO and CFO of corporations to certify the accuracy of financial reports.

net income or net loss

revenue left over or depleted after all costs and expenses, including taxes, are paid

A loan backed by collateral is called a

secured loan

revenue

the monetary value of what a firm received for goods sold, services rendered, and other payments

Depreciation

The systematic write-off of the cost of a tangible asset over its estimated useful life.

term-loan agreement

a promissory note that requires the borrower to repay the loan in specified installments

Trial Balance

a summary of all the financial data in the account ledgers that ensures the figures are correct and balanced

financial statement

a summary of all the financial transactions that have occurred over a particular period

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

when borrowing from family and friends you must...

agree to specific loan terms, put the agreement in writing , and arrange for repayment

tax accountant

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

Most of the customers in Maleki's printing business pay him at the end of the month. However, his paper supplier demands payment upon delivery. In order to make sure that he has funds available to pay his supplier, Maleki should develop a

cash budget

investments

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

The two primary types of long-term financing are

debt financing and equity financing.

FASB

defines generally accepted accounting principles that accountants must follow

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.

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

financial

ledger

information is transferred to specific categories so information for one account is in the same place.

current assets

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

financial ratios that reflect the degree to which a firm relies on borrowed funds are called

leverage ratios

If a firm is financially sound and has a long-standing relationship with a bank, the bank may extend unsecured short-term loans to the firm. This type of arrangement is called a(n)

line of credit

Intangible assets

long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value

Bonds Payable

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

Used as a basis for a company's strategic plans, a(n) _______ allows top management to envision where income is coming from as well as its future profit potential.

longterm forecasts (over 1 year)

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 the project. This mortgage would be shown as a(n) _______ on the company's balance sheet.

longterm liability

Anton works in the accounting department for a well-known textbook publishing firm. He assists managers with the preparation of budgets and estimation of production costs. Anton works as a(n)

managerial accountant.

Venture capitalists provide financing to new or emerging companies with high profit potential, but in exchange for this financing, venture capitalists expect

partial ownership

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

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

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

An accounting system would be used for

recording and summarizing financial events and transactions. evaluating different business scenarios in order to make sound business decisions. assessing the financial condition of a company before making a decision to purchase its stock.

Even while the economy experienced a relatively harsh recession, TEVECOM reported $130 million in net income. At the company's board of directors meeting it was decided that TEVECOM would distribute $50 million in dividends to its stockholders. The remaining $80 million became

retained earnings

for years Microsoft did not pay dividends to its shareholders. Instead it held back these profits to be used for future growth or expansion. These undistributed profits are referred to as

retained earnings

balance sheet

shows the company's assets and its liabilities at a specific point in time. based off of A=L+OE

statement of Cash Flows

summarizes money going in and out. Tracks receipts and cash payments

Cole is an accountant with a large public company. As an accountant, his responsibilities include

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

ratio analysis

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

cost of goods sold/ costs of goods manufactured

the cost of merchandise the firm sells or the cost of raw materials and supplies it used in producing items for resale

trade credit

the practice of buying goods and services now and paying for them later

double entry book keeping

the practice of writing every business transaction in two places

risk-return trade-off

the principle that the greater the risk a lender takes in making a loan, the higher the interest rate required

journal

the record book or computer program where accounting data is first entered

When a company has a long-standing relationship with its suppliers and purchases large quantities, it usually has 30-45 days to pay for the purchase. This arrangement is called

trade credit

liabilities

what a company owes