Financial Accounting Ch. 5

Sarbanes-Oxley Act

A law which strengthens U.S. financial reporting and corporate governance regulations

Press Release

A written public news announcement normally distributed to major news services

Material Amounts

Amounts that are large enough to influence a user's decisions

Unqualified (Clean) Audit Option

An auditor's statement that the financial statements are fair presentations in all material respects in conformity with GAAP

Board of Directors

Elected by stockholders to represent their interests; its audit committee is responsible for maintaining the integrity of the company's financial reports

Operating Income

Equals net sales less cost of goods sold and other operating expenses

Gross Profit Percentage Ratio

Gross Profit/Net Sales

Private Investors

Individuals who purchase shares in companies

Institutional Investors

Managers of pension, mutual, endowments, and other funds that invest on the behalf of others

Return on Assets

Net Income/Average Total Assets (beginning total assets+ending total assets/2)

Net Profit Margin

Net Income/Net Sales

Total Asset Turnover

Net Sales/ Average Total Assets

Gross Profit (Gross Margin)

Net sales less cost of goods sold

Earnings Forecast

Predictions of earnings for future accounting periods, prepared by financial analysts

Cash Flows from Operating Activities

Reports cash flows associated with earning income

Cash Flows from Financing Activities

Reports cash flows associated with financing the business through borrowing and repaying loans from financial institutions, stock (equity) issuance and repurchases, and dividend payments

Cash Flows from Investing Activities

Reports cash flows associated with the purchase/sale of (1) productive assets (other than inventory) and (2) investments in other companies

Cost Effectiveness

Requires that the benefits of accounting for reporting information outweigh the costs

Income Before Income Taxes

Revenues minus all expenses except income tax expense

Lenders (Creditors)

Suppliers and financial institutions that lend money to companies

Securities and Exchange Commission (SEC)

The U.S government agency that determines the financial statements that public companies must provide to stockholders and the measurement rules that they must use in producing those statements

Form 10-K

The annual report that publicly traded companies must file with the SEC

Public Company Accounting Oversight Board (PCAOB)

The private sector body given the primary responsibility to issue detailed auditing standards

Financial Accounting Standards Board (FASB)

The private sector body given the primary responsibility to work out the detailed rules that become generally accepted accounting principles

Form 10-Q

The quarterly report that publicly traded companies must file with the SEC

Form 8-K

Used by publicly traded companies to disclose any material event not previously reported that is important to investors (i.e. auditor changes, mergers, etc)