KSU accounting 231 exam 2 review

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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.


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