LearnSmart Chapter 17: Understanding Accounting and Financial Info

Leverage or debt ratios measure the degree to which a firm relies on:

borrowed funds

The _____ line is another name for net income after taxes.

bottom

The ability to read, understand, and analyze accounting reports and financial statements is critical in understanding:

business operations

It's possible for a business to increase its sales and profits yet still suffer _____ ____ problems.

cash flow

Managerial accounting is concerned with:

controlling, measuring production costs, preparing budgets

Earnings per share can either be basic earnings per share or _____ diluted earnings per share.

diluted

Which of the following are considered users of managerial accounting info:

The Chief of Financial Officer, Department managers

Management decision making is based on a firm's financial health and stability which are shown on the:

financial statements

Of the three major activities of a firm, cash raised from the issuance of new debt is known as:

financing

The key working areas of accounting include:

government and not-for-profit accounting, tax accounting, financial accounting, managerial accounting, auditing

Revenue minus cost of goods sold is called

gross profit

Return on sales is net ______ divided by net sales

income

The _____ statement shows all of firm's revenues, costs, and whether it made a profit or loss during a specific period.

income

Which financial statement's purpose is to reveal whether a business is earning a profit or losing money?

income statement

A(n) _______ audit is an evaluation and unbiased opinion about the accuracy of a company's financial statements

independent

The ratio that measures the speed with which inventory moves through the firm and gets converted into sales is called the

inventory turnover ratio

_____ refers to how fast an asset can be converted into cash

liquidity

The purposes of auditing include:

looking into operational effectiveness and efficiency, examining the financial health of an organization, reviewing records

The difference between revenue and costs is called

net income or loss

The "bottom line" is

net income or loss after taxes, the last line on the income statement

Depreciation is considered a type of:

operating expense

The primary purpose of the Sarbanes-Oxley Act is one of:

oversight

Gov and not-for-profit accounting involves working or organizations whose purpose is to serve:

ratepayers, taxpayers

Operating expenses include which of the following?

rent, supplies, utilities

Revenue is the monetary value of what a firm received for:

services rendered, goods sold, interest earned

Arthur Andersen was convicted of obstruction of justice for _____ shredding records in the Eron case

shredding

An advantage of use of computers to maintain and compile accounting information is:

speed

An account system includes inputs, ______, and outputs.

processing

Double-entry bookkeeping requires that every transaction be recorded in ______ places

two

An acid-test ratio between _____ and 1.0 is usually considered satisfactory but could also be sign of some cash flow problems.

0.5

In order to be certified management accountant a person must:

be certified by the Institute of Certified Management Accountants, meet the educational reqs, pass a qualifying exam

Stockholders equity is the value of what stockholders' own in a firm minus ______

liabilities

______ accounting deals with information, whereas ______ accounting provides information outside the firm.

Managerial, financial

Six steps of accounting cycle

1. Analyze source documents 2. Record transactions in journals 3. Transfer (post) journal entries to ledger 4. Take a trial balance 5. Prepare financial statements 6. Analyze financial statements

Transactions that are entered in the journal are then posted to specific categories

ledger

A ____ private accountant works for a single firm or agency and performs accounting functions for use in making decisions within that firm or agency.

private

The three profitability performance ratios are:

return on equity, return on sales, earnings per share

On the statement of cash flows financing activities would include:

taking on new debt, paying dividends, paying past debt

The Financial Accounting ______ _____defines the generally accepted accounting principles.

Standards Board

Three major activities of operations, investments, and financing are included on which financial statement?

Statement of cash flows

Which of the following provides a summary of money coming into and going out of the firm that tracks a company's cash receipts and payments?

Statement of cash flows

A balance sheet reports on:

a firm's financial status on a specific date

The income statement shows:

a firm's profit after costs, expenses, and taxes

A major purpose of _____ is to help managers evaluate the financial condition and the operating performance of the firm

accounting

Common financial transactions include:

acquiring insurance, buying and selling goods, paying employees

The _______ _______ is the yearly statement of the firm's financial condition, progress, and expectations provided to stakeholders.

annual report

A trial balance is a summary of all financial data in ledgers which ensures the figures are correct and _____.

balanced

What are retained earnings?

Accumulated earnings not paid out to stockholders

______ are economic resources owned by a firm.

Assets

_____ payable are long-term liabilities that represent money loaned to the firm that must be paid back

Bonds

Which of the following is considered to be part of accounting?

Classifying, recording, and interpreting financial transactions

_____ assets are items that can or will be converted into cash within one year

Current

Major accounting scandals in the early 2000s involved companies such as:

Eron, Tyco, WorldCom

Accounting departments do no report financial information about a nonprofit organization

False

The Red Cross is a non-profit, which would most likely require the services of which type of professional to prepare its financial statements?

Public or private accountant

An example of an accounting software package is:

Quickbooks

Which of the following are inputs to the accounting system?

Sales documents, shipping documents

Formula for cost of goods sold

purchase price + freight charges + storage costs

What are some benefits of using computers for accounting purposes?

Software can help if no strong accounting support is available, information can be posted from journals instantaneously, computers can handle large amounts