BA 101 Chapter 17
Investments
cash used in or provided by the firms investment activities
Financial Accounting Standards Board (FASB)
defines the generally accepted accounting principles (GAAP)
Earnings per share can be either basic earnings per share or _______ earnings per share
diluted
Fixed Assets
long-term assets that are relatively permanent such as land, buildings and equipment
A major purpose of accounting is to help _____ make well-informed decisions
managers
The cost of goods sold
measures the cost of merchandise the firm sells or the cost of the raw materials and supplies it used in producing items for resale.
What type of ratios measure how effectively a firm is using its various resources to achieve profits?
profitability
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
Accounting Cycle Step #3
Transfer (post) journal entries to ledger
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 financial transactions that have occurred over a particular period; indicate a firms financial health and stability.
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
Managerial accounting
accounting used to provide information and analyses to managers inside the organization to assist them in decision making
The accounting cycle
a 6 step procedure that results in the preparation and analysis of the major financial statements. Relies on the work of both a bookkeeper and an accountant.
The ratios that measure the effectiveness of a firms management in using the assets that are available are called:
activity ratios
Net profit
after deducting all expenses, we can determine the firms net income before taxes.
Tax accountant
an accountant trained in tax law and responsible for preparing tax returns or developing tax strategies
The _____ line is another name for net income after taxes
bottom
Financing
cash raised by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company diviends
Operations
cash transactions associated with running the business
Assets
economic resources owned by a firm
Bonds payable
long term liabilities; money lent to the firm by bondholders that it must pay back
Intangible Assets
long-term assets that have no physical form but do have value, such as patents, trademarks, copyright, and goodwill
Cash Flow
simply the difference between cash coming in and cash going out of a business. `
Cash receipts and disbursements related to operations, investments and financing are reported on the:
statement of cash flows
Annual report
a yearly statement of the financial condition, progress and expectations of an organization
Retained Earnings
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.
public accountant
an accountant who provides accounting services to individuals or businesses on a fee basis
Gross profit
how much a business earned by buying (or making) and selling merchandise
Current Assets
items that can or will be converted into cash within one year. They include cash, accounts receivable and inventory
Depreciation
systematic write off of the cost of a tangible asset over its estimated useful life.
Bookkeeping
the recording of business transactions
Two main purposes of accounting
to help managers make well informed decisions and to report financial information about the firm to stakeholders.
Income statement
summarizes revenues, cost of goods sold, and expenses (including taxes)for a specific period and highlights the total profit or loss the firm experiences during that period
Trial Balance
a summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
Accounting Cycle Step #1
analyze source documents (sales, slips, travel records, etc.)
Leverage (debt) ratios
measure the degree to which a firm relies on borrowed funds in its operations
fundemental accounting equation
the basis for the balance sheet.
Accounting
the recording, classifying, summarizing, and interpreting of financial events and transactions in an organization to provide management and other interested parties the information they need to make good decisions
Net income or loss
the revenue left over or depleted
______ ratios measure a company's ability to turn assets into cash to pay its short term debt
Liquidity
Liquidity
the ease at which as asset can be converted to cash.
double-entry bookkeeping
the practice of writing every transaction in two places
Journal
the record book or computer program where accounting data are first entered
Liabilities
what the business owes to others, its debts
The ______ ________ summarizes revenues, costs and expenses over a specific period, which may be a week, a month or a year
Income Statement
Balance Sheet
the financial statement that reports a firms financial condition at a specific time.
what else is accounting called?
the language of business
Accounting System
the method used to record and summarize accounting data into reports
Revenue
the monetary value of what a firm received for goods sold, services rendered and other payments
_____ ratio is the ratio of cash, accounts receivable, and marketable securities to current liabilities
Acid test
Certified Public Accountant (CPA)
An individual who has met certain criteria and is thus allowed to perform audits of corporations.
Accounting Cycle Step #6
Analyze financial statements
Accounting Cycle Step #2
Record transactions in journals
What is the term for all the resources that come into the firm from operating activities?
Revenue
Auditing
Reviewing and evaluating the information used to prepare a company's financial statements.
Inputs (accounting documents)
Sales documents, purchasing documents, shipping documents, payroll records, bank records, travel records, entertainment records
Accounting Cycle Step #4
Take a trial balance
Examples of probability ratios include
return on sales, return on equity and basic earnings per share
financial transactions
include buying and selling goods and services, acquiring insurance, paying employees, and using supplies.
Which financial statement shows the firms profit after costs, expenses, and taxes
income statement
Which of the following is considered to be a part of accounting?
interpreting, classifying and recording financial transactions
cost of goods sold equation
purchase price + freight charges + storage costs
Gross profit is:
net sales minus cost of goods sold
The statement of cash flows reports cash receipts and disbursements related to _____, investments and financing
operations
Examples of assets
tangible: equipment, buildings, land, furniture, and motor vehicles. intangible: patents, trademarks, copyrights and goodwill
Owners equity
the amount of the business that belongs to the owners, minus any liabilities the business owes.
Ratio analysis
the assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements
Accounting Cycle Step #5
Prepare financial documents
Independent audit
an evaluation and unbiased opinion about the accuracy of a company's financial statements
Which of the following summarizes revenues, costs and expenses for a specific period?
Income statement
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
bookkeeping involves the _____ recording of business transactions, whereas ______ classify and summarize financial data provided by bookkeepers
recording; accounts
Operating expenses
rent, salaries, supplies, utilities, and insurance
Statement of cash flows
reports cash receipts and cash disbursements related to the three major activities of a firm
Balance sheet
reports the firms financial condition on a specific date