KSU accounting 231 exam 2 review
what is owner's equity?
the net assets of the business; the obligation on the part of the business to the owners.
what is the accounts receivable turnover ratio?
the number of times during a period the company collects the accounts receivable
what is the inventory turnover ratio
the number of times during a period the company completed the cycle of purchasing and selling inventory
what is the payables turnover?
the number of times during the period the firm completed the payment cycle
what are liabilities?
the obligation to transfer resources to a supplier of goods or capital
what are assets?
the right to use resources that have expected future economic benefit
what is another name for the balance sheet?
the statement of financial position
what are the purpose of solvency (liquidity ratios)?
they evaluate a companies ability to meet short-term obligations. (like, can you pay your bills)
what is the payables turnover formula?
total cash expense/average current liabilites
what are activity ratios?
used to evaluate the efficiency of operations
under the cash basis of accounting, when are expenses recorded?
when cash is paid
under the cash basis of accounting, when are revenues recorded?
when cash is received
under the accrual basis of accounting, when are expenses recorded?
when expenses are used to earn a revenue
under the accrual basis of accounting, when are revenues recorded?
when service is performed or goods are provided
return on equity ratio
"financial leverage" it links the income statement to the balance sheet
what is the average collection period formula?
365/A/R turnover
what is the average selling period formula?
365/inventory turnover ratio
what is the average payment period formula?
365/payables turnover
What is the balance sheet?
Assets=liabilities+OE
what is the average collection period?
converts the A/R turnover into days. represents the number of days it takes to collect the average amount of receivables
what is the average selling period?
converts the inventory turnover into days, represents the number of days it takes to sell the average amount of inventory
what is the average payment period?
converts the payable turnovers into the average number of days it takes to pay the bills
what is the inventory turnover ratio formula
cost of goods sold/beg inventory+end inventory
what is the current ratio formula?
current assets/current liabilities
what is quick ratio?
(more reliable) shows the relationship of quick (liquid) assets to current liabilities
what does current liabilities include?
A/P, salary payable, taxes payable, ect.
gross margin ratio formula
Gross margin/net sales (want it to be higher than industry average)
what is working capital?
ability of the firm to use current assets to cover or pay current obligations.
what is another name for quick ratio?
acid-test ratio
earnings per share (EPS)
allows for a relative comparison between companies (compare lowes against home depot)
gross margin ratio
analyzes the portion of sale leftover after deducting the COGS
what are current assets?
assets that are expected to be used up or converted to cash within one year.
what is the quick ratio (acid-test) formula
cash+temporary investments+A/R/current liabilities
what does quick assets include?
cash, A/R, temporary investments
what does current assets include?
cash, A/R, temporary investments, inventory, office supply, and any prepaid rent, insurance, ect.
return on assets ratio
looks at two important profitability elements : earning and investments
what is the matching concept principle?
match the expense incurred in generating a revenue against that revenue in the same accounting period
what is the formula for accounts receivable turnover?
net credit sales/(begA/R+end A/R)/2
earnings per share formula
net income/#shares of stock outstanding
return on sales ratio formula
net income/net sales(higher than industry average)
return on assets ratio formula
net income/total assets (higher than industry average)
return on equity formula
net income/total stockholder's equity
what are current liabilities?
obligations due within one year.
what are quick assets?
only consider current assets that are one step from being converted to cash
return on sales ratio
shows how good a job we do of keeping the sales revenue
what is the statement of owner's equity?
shows the change in the net value of the business for a period of time (tracks the balance of the resources claimed by the owners)
what is current ratio?
shows the relationship of total current assets to total current liabilities
what title applies to the st. of OE?
sole props & partnerships.
