Ch 17: Information & Accounting Concepts

EBITDA

earnings before interest, taxes, depreciation, and amortization

internal auditors

employees who investigate and evaluate the organization's internal operations and data to determine whether they are accurate and whether they comply with GAAP, federal laws and industry regulation

financial analysis

evaluating a company's performance and the financial implications

accured expenses

expenses that have been incurred but for which bills have not been received or paid

gross profit

the amount remaining when the cost of goods sold is deducted from net sales; also known as gross margin

liquidity ratios

measure of a firm's ability to pay its short term obligations

accounting

measuring, interpreting, & communicating financial info to support internal and external decision making

generally accepted accounting principles (GAAP)

standards and practices used by publicly held corporations in the U.S. and a few other countries in the preparation of financial statements

balance sheet

statement of a firm's financial position on a particular date; also known as a statement of financial position

bookkeeping

record keeping; the clerical aspect of accounting

profitability ratios

show the state of the company's financial performance/how well it's generating profits

management accounting

the area of accounting concerned with preparing data for use by managers within the organization

financial accounting

the area of accounting concerned with preparing financial info for users outside of the organization

net operating income

the best indicator of financial health

cost of goods sold

the cost of producing or acquiring a company's products for sale during a given period

liquidity

the ease with which they can be converted to cash

the accounting equation

the equation stating that assets equal liabilities plus owners equity

matching principle

the fundamental principle requiring that expenses incurred in producing revenue be deducted from the revenues they generate during an accounting period

controller

the highest ranking accountant in a company, responsible for overseeing all accounting functions

Sarbanes-Oxley

the informal name of comprehensive legislation designed to improve the integrity and accountability of financial info

accounts payable

the money the company owes its suppliers and vendors for miscellaneous services such as electricity charges

owners equity

the portion of a company's assets that belongs to the owners after obligations to all creditors have been met

retained earnings

the portion of shareholder's equity earned by the company but not distributed to its owners in the form of dividends

return on sales

the ratio between net income after taxes and net sales; also known as the profit margin

return on equity

the ratio between net income after taxes and total owner's equity

closing the books

transferring net revenue and expense accounts balances to retained earnings for the period

cash basis

an accounting method in which revenue is recorded when payment is received and an expense is recorded when cash is paid

calendar year

a 12-month accounting period that begins on Jan 1st and ends on Dec 31st

leverage, or debt, ratios

a company's abilities to pay its long term debt

income statement

a financial record of a company's revenues, expenses, and profits over a given period of time; also known as a profit-and-loss statement

debt-to-assets-ratio

a measure of a firm's ability to carry long-term debt, calculated by dividing total liabilities by total assets

earnings per share

a measure of a firm's profitability for each share of outstanding stock, calculated by dividing net income after taxes by the average number of shares of common stock outstanding

quick ratio

a measure of a firm's short-term liquidity, calculated by adding cash, marketable securities, and receivables, then dividing that sum by current liabilities; also known as the acid-test ratio

current ratio

a measure of firm's short-term liquidity, calculated by dividing current assets by current liabilities

debt-to-equity-ratio

a measure of the extent to which a business is financed by debt as opposed to invested capital, calculated by dividing the company's total liabilities by owner's equity

accounts receivable turnover

a measure of the time a company takes to turn its accounts receivable into cash, calculated by dividing sales by the average value of accounts receivable for a period

inventory turnover ratio

a measure of the time a company takes to turn its inventory into sales, calculated by dividing cost of goods sold by the average value of inventory for a period

double entry bookkeeping

a method of recording financial transactions that requires a debit entry and a credit entry for each transaction to ensure that the accounting equation is always kept in balance

statement of cash flows

a statement of a firm's cash receipts and cash payments that presents info on its sources and uses of cash

depreciation

an accounting procedure for systematically spreading the cost of a tangible asset over its estimated useful life

activity ratios

analyze how well a company is managing and making use of its assets

fiscal year

any 12 consecutive months used as an accounting period

assets

any things of value owned by/leased by a business

fixed assets

assets retained for long-term use, such as land, buildings, machinery, and equipment also referred to as property, plant, and eqipment

international financial reporting standards (IFRS)

accounting standards and practices used in many countries outside the U.S.

operating expenses

all costs of operation that are not included under costs of goods sold

accounts receivable

amounts due from customers

accural basis

an accounting method in which revenue is recorded when a sale is made and an expense is recorded when it is incurred

current assets

cash and items that can be turned into cash within one year

liabilities

claims against a firm's assets by creditors

forensic accounting

combining accounting and investigating skills to assist in legal and criminal matters

cost accounting

computing and analyzing production and operating costs

expenses

costs created in the process of a generating revenues

working capital

current assets minus current liabilities

ammortization

for intangible assets, the same allocation is known as this

audit

formal evaluation of the fairness and reliability of a client's financial statements

revenue recognition

how and when a company records incoming revenue

private accounts

in-house accountants employed by organizations and businesses other than a public accounting firm; also called corporate accountants

external auditors

independent accounting firms that provide auditing services for public companies

net income

profit earned or loss incurred by a firm, determined by subtracting expenses from revenues; casually referred to as the bottom line

long-term liabilities

obligations that fall due more than a year from the date of the balance sheet

current liabilities

obligations that must be met within a year

general expenses

operating expenses incurred in the overall administration of a business

selling expenses

operating expenses incurred in the through marketing and distributing the product, such as advertising, supplies, and wages/salaries

tax accounting

preparing tax returns and interpreting tax law

certified public accountants (CPAs)

professionally licensed accountants who meet certain requirements for education and experience and who pass a comprehensive examination; will often also apply for CMAs (certified managerial accountants)

public accountants

professionals who provide accounting services to other businesses and individuals for a fee