BUSI 1301: CH. 14 Concepts
Dividends per share are paid from _____ by a corporation to stockholders.
earnings after taxes
Owners' _______ includes all the money that has ever been contributed to a company that never has to be repaid.
equity
The first step in the accounting cycle is to ______.
examine source documents
The cost incurred in the day-to-day operations of an organization is known as ______.
expenses
The costs incurred in the day-to-day operations of an organization are called _______.
expenses
The accounting specialty that analyzes financial documents in search of fraudulent entries or financial misconduct and, therefore, is fit for legal review is ______ accounting.
forensic
The accounting cycle is most known as being a _____-step process.
four
Cash from financing activities is calculated _______.
from changes in the long term liability accounts and the contributed capital accounts in owners' equity
Generally, accountants divide profits into individual sections such as (select all that apply)
✅ Earnings before taxes and interest ✅ Operating income
In different types of businesses as well as different countries, different accounting terms may be used for the same concept. For example, revenue is equivalent to which of the following terms? (pick two answers)
✅ Goods or services sold ✅ Sales
Select the three terms that are equivalent to the term operating income.
✅ Income before interest and taxes ✅ Earnings before interest and taxes ✅ operating profit
What are the three types of asset utilization ratios?
✅ Inventory turnover ✅ Receivables turnover ✅ Total asset turnover
The process of spreading the cost of a tangible asset over its estimated useful life is referred to as ______.
depreciation
Forensic accountants act much like ______.
detectives
Which of the following is a liability of Eggs4U, an online free-range egg supply company?
Money owed for purchased chicken feed
True or false: Each share of stock in a corporation represents a claim on the organization.
True
A private accountant that has passed a rigorous examination by the Institute of Management Accountants may become certified as a(n) ______.
certified management accountant (CMA)
Long-lived assets like buildings and equipment are called _______ assets.
fixed
Return on equity is also called return on _______ and is calculated by dividing net income by owners' equity.
investment
Debts that a firm owes to others are called _______.
liabilities
The current ratio is known as a(n) _____ ratio.
liquidity
Cash from investing activities is calculated from changes in ______.
long-term assets
A budget that covers the entire firm and not just individual departments is called a(n) _____ budget.
master
If an accountant were to take a firm's total revenue and deduct all expenses (including taxes), the result would be ______.
net income (or loss)
The difference between revenue and expenses is called _____.
net income or loss
The ______ explains how the company's cash changed from the beginning of the accounting period to the end.
statement of cash flows
In any accounting system, financial data typically pass through a four-step procedure sometimes called _______.
the accounting cycle
How many times a firm collects its accounts receivable in one year is measured by ______.
the receivables turnover
Sales divided by total assets is the definition of ______.
total asset turnover
Total asset _______, measures how well as organization uses all of its assets in creating sales.
turnover
Which of the following is an accurate statement regarding the role of an accountant?
Accounting usually requires coursework beyond a college accounting degree.
Like its name suggests, double-entry bookkeeping requires that business transactions be recorded in _______ separate accounts.
2
List the steps in the accounting cycle from beginning to end. (Note: the first step in the process should be at the top of your list)
I. Examine source documents II. Record transactions III. Post transactions IV. Prepare financial statements
Accounting scandals have prompted the federal government to increase its role in making rules, requirements, and policies for accounting firms and businesses. This is done through the Public Company Accounting Oversight Board--which is part of the ______.
Securities and Exchange Commission
True or false: People both inside as well as outside of an organization use accounting tools to evaluate organizational operations.
True
Organizations evaluate their operations through the recording, measurement, and interpretation of financial information. This process is known as _____.
accounting Bookkeepers record information, but accountants have the necessary training that allows them to understand and interpret financial data.
Amounts owed to suppliers for goods and services purchased with credit are called ____.
accounts payable
This is an account representing all unpaid financial obligations incurred by the organization.
accrued expenses
The quick ratio is also known as the _______ _______.
acid test
Accrued expenses represent ______.
all unpaid financial obligations of a firm
Receivables turnover is a type of _____ ratio.
asset utilization
Ratios that measure how well a firm uses its assets to generate each $1 of sales are ______.
asset utilization ratios
Economic resources owned by a firm are called _______.
assets
An individual who has been certified by the state in which he or she practices and has the right to express, officially, an unbiased opinion regarding accuracy of a client's financial statements works as a(n) _____.
certified public accountant (CPA)
When a CPA has certified that an organization followed generally accepted accounting principles and all statements have been completed, it can be said that the organization's books are "_______." (one blank/one word)
closed
A system of recording and classifying business transactions in separate accounts is called _______-_______ bookkeeping.
double entry
There are more than 75,000 certified _____ examiners across the United States who work to root out evidence of "cooked books" in firms.
fraud
All assets on a balance sheet are listed in descending order of _____.
liquidity
The goal of double-entry accounting is to ______.
maintain the balance of the accounting equation
All of the following are assets of an organization EXCEPT ______.
money owed to creditors
If the amount after calculating cash from financing activities is ______, the company is likely paying off long-term debt or returning contributed capital to investors.
negative
Return on equity is ______ divided by owners' equity.
net income
Cash from ______ activities is calculated by combining the changes in the revenue accounts, expense accounts, current asset accounts, and current liability accounts.
operating
Owners' contributions to the organization in combination with income earned and retained to grow and develop the firm are called ______.
owner's equity
The "Retained Earnings" account is one of the _____ accounts.
owners' equity
Data used by investors to compare the performance of one company with another on an equal, per share basis is the definition of ______.
per share data
The process of transferring information from a journal to a ledger is known as ______.
posting
An accountant that is employed by a large corporation, government agency, or other organization to prepare and analyze their financial statements would be called a(n) ______ accountant.
private
Step two of the accounting cycle is ______.
recording transactions
At the end of an accounting period, all revenue and expense accounts are moved into an account called _____.
retained earnings
Revenue is defined as ______.
sales plus other money coming into the firm
Investors may use per _______ data to compare the performance of one company with another on an equal, or per share, basis. Generally, the more shares of stock a company issues, the less income is available for each share.
share
Earnings per share is the ratio of net income, or profit, to ______.
shares of stock outstanding
The balance sheet takes its name from its reliance on ______.
the accounting equation
Operating income divided by interest expense is the definition of ______.
times interest earned ratio
The _____ format balance sheet is newer and gaining wide acceptance. It shows assets on the top followed by liabilities and owners' equity.
vertical
Which two terms are synonymous with the term "income statement"?
✅ P&L statement ✅ operating statement
Which three were part of the Sarbanes-Oxley Act passed in the early 2000s?
✅ Punished corporate executives with potential jail sentences ✅ Required firms to be more rigorous in their accounting and reporting practices ✅ Required separation of consulting and auditing
Select from the following all the ways that managers and business owners use financial statements. (Select all that apply)
✅ for reporting information to employees ✅ to aid in internal planning & control ✅ to assist in reporting to the IRS
Revenue minus the cost of goods sold is called gross _____ or _____. (Select two answers)
✅ income ✅ profit
Which three are examples of profitability ratios?
✅ return on equity ✅ profit margin ✅ return on assets
Who receives the dividends per share?
The stockholder
Refrigerated display cases, commercial meat slicers, and walk-in cold storage units are _____ of David's Deli.
assets
The current ratio is calculated by dividing _______ current by current _______.
assets liabilities
In the 2000s, the government intervened in the economy and bailed out some of the United States' largest _____.
banks
Which of the following is considered the most stringent liquidity ratio?
Quick ratio
The recording, measurement, and interpretation of financial information is known as _______.
accounting
Which of the following is the main distinguishing factor between accountants and bookkeepers?
Accountants analyze and interpret financial information, while bookkeepers do not.
Which of the following is an asset of a business?
Accounts receivable
Which of the following ratios is important in determining a company's overall stock price?
Earnings per share ratio
True or false: An expense statement provides an explanation of how the company's cash changed from the beginning of the accounting period to the end.
False
_____ is an intangible asset that often includes an organization's reputation.
Goodwill
What does it mean to say that an annual report has been audited?
It bears the signature of a CPA attesting that the document is an accurate reflection of the financial condition of the firm.
In the fundamental accounting equation _______= Liabilities + Owners' equity.
Assets
Which of the following scenarios most warrants an organization using a "bottom-up" budget?
Larger, fast-growing organizations
______ refers to how fast an asset can be converted into cash.
Liquidity
What type of ratio measures the speed with which a company can turn its assets into cash in order to meet its debts?
Liquidity ratio
Which of the following is a debt utilization ratio?
Times interest earned ratio
What is the term given to a summary of all financial data to make certain the figures are correct and balanced?
Trial balance
Cost of goods sold is calculated by using ______.
beginning inventory, interim purchases, and ending inventory
Managers of most firms tend to keep debt-to-asset levels ______.
below 50 percent
A(n) _______ is an internal financial plan that forecasts income and expenses of the organization for a set period of time.
budget
Owners' or Stockholders' equity ______.
can come from past profitable operations or from money investors have given the firm
Of utmost importance to management is/are _____, which is the movement of money through a firm on a daily, weekly, monthly, or yearly basis.
cash flow
Forensic accountants would most likely become certified as ______.
certified fraud examiners
Gross income or profit equals revenues minus the ______ required to generate the revenue.
cost of goods sold
The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies is ______.
cost of goods sold
Items that can or will be converted into cash within one calendar year are called short-term assets or _______ assets.
current
Assets that can or will be converted into cash within one year are termed ______.
current assets
The _____ ratio indicates how much of an organization is financed by debt and how much by owners' equity.
debt to total assets
A ratio indicating how much of the firm is financed by debt and how much by owners' equity is the definition of ______.
debt to total assets ratio
Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity are ______ ratios.
debt utilization
Ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt are _______ ratios.
liquidity
The internal use of accounting statements by managers in planning and directing the organization's activities is known as _______ accounting.
managerial
The internal use of accounting statements by managers in planning and directing the organization's activities is referred to as ______.
managerial accounting
All of the money that has been contributed to a firm that never has to be paid back is called ______.
owner's equity
The fourth step of the accounting cycle is to ______.
prepare financial statements
Accounting scandals of the last decade or a bit more, have prompted _____ to take a greater role in trying to control such problems.
the federal government
Which of the following is considered the most important component of an annual report?
CPA's signature
_____ is the movement of money through an organization over a daily, weekly, monthly, or even yearly basis.
Cash flow
_______ liabilities must be repaid within one year.
Current
Which of the following must be repaid within 1 year?
Current liabilities
True or false: Organizational budgets are always prepared on a monthly basis.
False Daily, weekly, and yearly budgets are also used in organizations.
_______ statements evaluate the return on stockholders' investment and the overall quality of the firm's management team.
Financial
Which organization sets the principles of financial accounting and reporting in the private sector in the United States?
Financial Accounting Standards Board
What is the term for a written report that quantitatively evaluates the return on stockholders' investments and the overall quality of the firm's management team?
Financial statement
Match the type of expense to its correct category. I. Selling expenses II. General and administrative expenses III. Interest expenses IV. Research and development expense
I. Advertising and sales salaries II. The costs of owning and maintaining the general office III. The direct costs of borrowing money IV. Includes the costs for people, equipment, and information used to design and build prototypes and samples
Match the description to the correct user of financial reports. I. Potential investors II. Banks and lenders III. Labor unions
I. Use financial statements to determine whether returns from a given firm are likely to compare favorably with other similar companies II. Use financial statements to determine a company's ability to meet current and future debt obligations if a loan or credit is granted III. Use financial statements to establish reasonable expectations for salary and other benefit requests
Which report summarizes an organization's profitability over a specific period, which may be a week, a month, or a year?
Income statement
Which of the following is NOT a characteristic of a balance sheet?
It states that liabilities must equal owners' equity.
Which of the following would most likely include a title of controller or internal auditor?
Private accountant
______ ratios measure how much operating income an organization is able to generate relative to assets, owners' equity, and sales.
Profitability
Which calculation shows how much income the firm produces for every dollar it invests in assets?
Return on assets
_______ is/are the total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as the rental of property and investments.
Revenue
The relationship among assets, liabilities, and owners' equity is a fundamental concept in accounting known as the _______ equation.
accounting
The _______ _______ is a four-step procedure accounting system.
accounting cycle
Terry's Tire shop has replaced the tires on ten delivery trucks for one of his best clients--Deliveries 4U. Terry is allowing Deliveries 4U to pay for the tires over a period of time. The money owed to Terry by Deliveries 4U is considered ______.
an accounts receivable
Depreciation is considered a type of ______.
general & administrative expense
A firm's profit margin is based solely on data found on the ______.
income statement
All of the following are considered fixed assets except ______.
inventory
Sales divided by total inventory is called _______ turnover and this calculation indicates how many times a firm sells and replaces its inventory over the course of a year.
inventory
Of the three major activities of a firm, the changes in the long-term asset accounts is accounted for in the cash from ______ activities.
investing
A(n) _______ is a time-ordered list of account transactions.
journal
Accounting data is first entered in a(n) ______.
journal
After source documents are examined, each financial transaction is recorded in a _______.
journal
A _______ analysis calculates an organization's financial health.
ratio
Sales divided by accounts receivable is the definition of ______.
receivables turnover
Net income divided by assets is the definition of ______.
return on assets
Inventory turnover is defined as ______.
sales divided by total inventory
The first step of the accounting cycle is to examine _______ documents, like checks, credit card receipts, and other evidence concerning specific transactions.
source
The definition of accounts payable is ____.
the amount a company owes to suppliers for goods and services purchased with credit
Which of the following accurately describe profit margin for a business? (pick three answers)
✅ It shows the overall percentage profit earned by a company ✅ It is computed by dividing net income by sales ✅ The higher the profit margin, the higher the return on every dollar of revenue for the business
Financial statements prepared by accountants would be used by which of the following stakeholders of a business? (Select all that apply)
✅ Managers ✅ Government agencies ✅ Creditors ✅ Investors
Select from the following those items that characterize a certified public accountant. (Select all that apply)
✅ May provide opinions regarding the accuracy of financial statements ✅ May complete audits of corporate financial records ✅ May file tax returns
External statements that managers in an organization may prepare are used for which of the following? (select all that apply)
✅ Obtaining credit from lenders ✅ Reporting results to stockholders ✅ Preparing the annual report ✅ Filing income taxes
What are the three common expense accounts shown on an income statement?
✅ Research, development, and engineering expenses ✅ Selling, general, and administrative expenses ✅ Interest expenses
Cash from operating activities is calculated by combining the changes in which four accounts?
✅ Revenue accounts ✅ Current liability accounts ✅ Expense accounts ✅ Current asset accounts
In 2008, the United States experienced a financial crisis. What three things took place to prevent the crisis from turning into a depression?
✅ The federal government bailed out some of the largest banks. ✅ Congress passed the Dodd-Frank Act. ✅ The Federal Reserve Board was allowed to implement legislation regarding banks.
What is the purpose of the Financial Accounting Standards Board? (Select all that apply)
✅ To guide and educate the public on the use of financial information ✅ To establish standards for financial accounting and reporting
Select from the following the two formats of balance sheets.
✅ Vertical ✅ Traditional
Which two companies had a great deal to do with passage of the Sarbanes-Oxley Act?
✅ Worldcom ✅ Enron
A ratio analysis combines information from which two reports?
✅ balance sheet ✅ income statement
