Management/ Intro to Business Chapter 14
Balance Sheet
A financial statement that summarizes a firm's financial position at a specific point in time.
Income Statement
A financial statement that summarizes a firm's revenues and expenses and shows its total profit or loss over a period of time.
journal
A form for recording transactions in chronological order
Certified Management Accountant (CMA)
A managerial accountant who has completed a professional certification program, including passing an examination.
Double-Entry Bookkeeping
A method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.
Notes Receivable
A written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
Annual Report
A yearly document that describes a firm's financial status and usually discusses the firm's activities during the past year and its prospects for the future.
Private Accountants
Accountants who are employed to serve one particular organization.
Financial Accounting
Accounting that focuses on preparing external financial reports that are used by outsiders such as lenders, suppliers, investors, and government agencies to assess the financial strength of a business.
Managerial Accounting
Accounting that provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.
Accounts Payable
Amounts to be paid in the future for goods or services already acquired
Accounts Receivable
Amounts to be received in the future due to the sale of goods or services
Certified Public Accountant (CPA)
An accountant who has completed an approved bachelor's degree program, passed a test prepared by the American Institute of CPAs, and met state requirements. Only a CPA can issue an auditor's opinion on a firm's financial statements.
Current Assets
Assets that can or will be converted to cash within the next 12 months.
Long-Term Liabilities
Claims that come due more than one year after the date of the balance sheet.
selling expenses
Expenses of promoting sales, such as displaying and advertising merchandise, making sales, and delivering goods to customers.
general and administrative expenses
Expenses that support the operating activities of a business.
financial statements
Financial reports that summarize the financial condition and operations of a business
Liquidity Ratios
Ratios that measure a firm's ability to pay its short-term debts as they come due.
Profitability Ratios
Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed.
Activity Ratios
Ratios that measure how well a firm uses its assets.
Debt Ratios
Ratios that measure the degree and effect of a firm's use of borrowed funds (debt) to finance its operations.
intangible assets
long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value
Current Liabilities
Short-term claims that are due within a year of the date of the balance sheet.
Notes Payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
Depreciation
The allocation of an asset's original cost to the years in which it is expected to produce revenues.
Gross Profit
The amount a company earns after paying to produce or buy its products but before deducting operating expenses.
Net Sales
The amount left after deducting sales discounts and returns and allowances from gross sales.
Net Loss
The amount obtained by subtracting all of a firm's expenses from its revenues, when the expenses are more than the revenues.
Net Profit (Net Income)
The amount obtained by subtracting all of a firm's expenses from its revenues, when the revenues are more than the expenses.
Net Working Capital
The amount obtained by subtracting total current liabilities from total current assets; used to measure a firm's liquidity.
Retained Earnings
The amounts left over from profitable operations since the firm's beginning; equal to total profits minus all dividends paid to stockholders.
Ratio Analysis
The calculation and interpretation of financial ratios using data taken from the firm's financial statements in order to assess its condition and performance.
Expenses
The costs of generating revenues.
Revenues
The dollar amount of a firm's sales plus any other income it received from sources such as interest, dividends, and rents.
Operating Expenses
The expenses of running a business that are not directly related to producing or buying its products.
Generally Accepted Accounting Principals (GAAP)
The financial accounting standards followed by accountants in the United States when preparing financial statements.
Financial Accounting Standards Board (FASB)
The private organization that is responsible for establishing financial accounting standards in the United States.
Accounting
The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities.
Auditing
The process of reviewing the records used to prepare financial statements and issuing a formal auditor's opinion indicating whether the statements have been prepared in accordance with accepted accounting rules.
inventory Turnover Ratio
The ratio of cost of goods sold to average inventory; measures the speed with which inventory moves through a firm and is turned into sales.
Net Profit Margin
The ratio of net profit to net sales; also called return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.
Earnings Per Share (EPS)
The ratio of net profit to the number of shares of common stock outstanding; measures the number of dollars earned by each share of stock.
Return on Equity (ROE)
The ratio of net profit to total owners' equity; measures the return that owners receive on their investment in the firm.
Acid - Test (Quick) Ratio
The ratio of total current assets excluding inventory to total current liabilities; used to measure a firm's liquidity.
Current Ratio
The ratio of total current assets to total current liabilities; used to measure a firm's liquidity.
Debt-to-Equity Ratio
The ratio of total liabilities to owners' equity; measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner's funds).
Liquidity
The speed with which an asset can be converted to cash.
Owners' Equity
The total amount of investment in the firm minus any liabilities; also called net worth.
Gross Sales
The total dollar amount of a company's sales.
Cost of Goods Sold
The total expense of buying or producing a firm's goods or services.
Assets
Things of value owned by a firm.
Liabilities
What a firm owes to its creditors; also called debts.
cash flow from investment activities
cash flows associated with purchase and sale of both fixed assets and equity investments in other firms
Cash flow from operating activities
cash flows directly related to sale and production of the firm's products and services
cash flow from financing activities
cash flows that result from debt and equity financing transactions; include incurrence and repayment of debt, cash inflow from the sale of stock, and cash outflows to repurchase stock or pay cash dividends
Accounting Cycle
the process by which companies produce their financial statements for a specific period
bookkeeping
the recording of business transactions
tangible assets
those assets that can be appraised by value or seen or touched
Statement of Cash Flows
A financial statement that provides a summary of the money flowing into and out of a firm during a certain period, typically one year.
Public Accountants
Independent accountants who serve organizations and individuals on a fee basis.
Sarbanes-Oxley Act
Legislation passed in 2002 that sets new standards for auditor independence, financial disclosure and reporting, and internal controls; establishes an independent oversight board; and restricts the types of non-audit services auditors can provide audit clients.
Fixed Assets
Long-term assets used by a firm for more than a year such as land, buildings, and machinery.
Intangible Assets
Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill.
current portion of long-term debt
Portion of long-term debt due within one year or the operating cycle, whichever is longer; reported under current liabilities.
Ledgers
a book in which financial records are kept
Trial Balance
a proof of the equality of debits and credits in a general ledger
