Part 1
Examples of fixed assets include
buildings and equipment
financial transactions
buying and selling goods and services, acquiring insurance, paying employees, and using supplies usually we group all purchases together and all sales transactions together
notes payable
can be short-term or long-term liabilities (like loans from banks) that a business promises to repay by a certain date
It's possible for a business to increase its sales and profits yet still suffer __ __ problems.
cash flow
Arthur Andersen
one of the nations leading accountants, was forced out of business after being convicted of obstruction of justice for shredding records in the Enron case (the conviction was later overturned by the US Supreme Court)
Rent, salaries, supplies, utilities, and insurance are examples of ___ expenses that are general expenses
operating
Depreciation is considered a type of
operating expense
In operating a business, rent, salaries, supplies, utilities and insurance are all examples of:
operating expenses
Rent, salaries, supplies, utilities, and insurance are examples of ______ expenses that are general expenses.
operating expenses
The statement of cash flows reports cash receipts and disbursements related to __, investments, and financing.
operations
The statements of cash flows reports cash receipts and disbursements related to ___, investments, and financing.
operations
outputs (part of the accounting system)
outputs financial system balance sheet income statement statements of cash flows other reports (e.g., annual reports)
The value of what stockholders own in firm minus any liabilities is called __.
owners' equity
What is the difference between assets and liabilities?
owners' equity
accounting
classifying, summarizing, interpreting, and reporting
(CPA) certified public accountant
passes a series of exams meets certain educational and experience requirements
Basic earnings per share is the ratio of net income after taxes to:
common stock shares outstanding
___accounting programs post information from journals instantaneously so that financial information is readily available.
computerized
Financial accounting and managerial accounting differ in terms of who uses the information. Financial accounting provides information primarily for:
people outside of the organization
An accountants' time is freed up to do more important tasks such as financial analysis due the assistance provided by using:
computerized accounting programs
managerial accounting is concerned with:
preparing budgets, controlling, and measuring production costs
A ________________ accountant works for a single firm or agency and performs accounting functions for use in making decisions within that firm or agency.
private
Jayleen works for her firm preparing and analyzing its financial statements. She would be called a(n) __ accountant.
private
The ___ of ____ ____ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale
cost of goods sold
What term describes the cost of merchandise the firm sells?
cost of goods sold
The __ of __ __ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale.
costs of goods sold
___ assets are items that can or will be converted into cash within one year
current
accounts payable
current liabilities or bills the company owes others for merchandise or services it purchased on credit but has not yet paid for
What are the main types of financial ratios used in ratio analysis?
debt ratios, profitability ratios, activity ratios, and liquidity ratios
The purpose of the Financial Accounting Standards Board is to be __.
define generally accepted accounting principles
Which type of accountant would be avaliable to businesses or individuals on a fee basis?
public accountant
An accounting system is used to __.
record and summarize accounting data into reports
bookkeeping
recording
Accumulated earnings from a firm's profitable operations that are reinvested in the business and not paid to stockholders are __ __.
retained earnings
An indirect measure of risk that tells us how much a firm earned for each dollar invested by its owners is called:
return on equity
What is the term for all resources that come into the firm from operating activities?
revenue
accounting cycle
series of six steps
Which of the following are inputs to the accounting system?
shipping documents sales documents
Which of the following are inputs to the accounting system?
shipping documents and sales documents
financial accounting
differs from managerial accounting in that the financial information and analysis it generates are for people primarily outside the organization
earnings per share can be either basic earnings per share or ______________ earnings per share
diluted
The three profitability performance ratios are
earnings per share (EPS) returns on sales and return on equity
Assets may include
economic resources tangible and intangible resources NOT bonds payable
Not-for-profit organizations need accounting professionals to:
show that their money is being spent properly, show their donors that their money is being spent, and show that their funds are well-managed
A company that uses a capital account for owners equity is organized as a _________________ ____________ or a partnership.
sole proprietorship
Cash receipts and disbursements related to operations, investments, and financing are reported on the __.
statement of cash flows
Cash receipts and disbursements related to operations, investments, and financing are reported on the _____________
statement of cash flows
trial balance
summary of data in ledgers
A ___ accountant is trained in tax law and is responsible for preparing tax returns or developing tax strategies
tax
Which of the following are considered disciplines within the accounting profession
tax accounting managerial accounting financial accounting
balance sheet
the financial statement that reports a firms financial condition at a specific time the assets are equal to or balanced with the liabilities and owners (or stockholders) equity
The "bottom line" is:
the last line on the income statement and/or net income or loss after taxes
revenue
the monetary value of what a firm received for goods sold, services rendered, and other payments (such as rents received, money paid to the firm for its use of patents, interest earned, etc)
bottom line
the net income (net loss) the firm incurred from revenue minus sales return, costs, expenses, and taxes over a period of time and the last line on the income statement
operating expenses
the sum of the cost of doing business, except the cost of goods; they include such items as sales persons' salaries , bags, paper and pencils, and cleaning of carpets...
net income
the total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings
tax accountant
trained in tax and law is responsible for preparing tax returns, or developing tax strategies
A journal is the place where __.
transactions are first recorded
How many entries are required for each transaction in the ledgers?
two
liabilities
what the business owes to others, its debts
journal
where the days transactions are kept journal comes from french word jour "day"
private accountant
works for single firm, government agency, or nonprofit organization
Accounting provides ___ statements that are critical to understanding the health of a business.
financial
Because they indicate a firm's financial health and stability, the use of __ are key factors in management decision making.
financial statements
the major activities of a firm shown on the statement of cash flows include:
financing, operations, and investments
__________ assets are long-term assets like land, buildings, and equipment
fixed
A company's net sales minus cost of goods sold is called
gross profit
Revenue minues cost of goods sold is called
gross profit
The __ statement summarizes revenues, costs, and expenses over a specific period, which may be a week, a month, or a year.
income
Which financial statement reports the firm's financial operations over a particular period of time?
income statement
Which financial statement shows the firm's profit after costs, expenses, and taxes?
income statement
source documents
information about business transactions is obtained from original business papers
inputs (part of the accounting system)
inputs accounting documents. sales documents purchasing documents shipping documents payroll records bank records travel records entertainment records
Managerial accounting is used to provide information __.
inside the firm
What type of long term assets have no real physical form but do have value?
intangible assets
On a balance sheet, assets may include
intangible assets and tangible resources
Revenue is the monetary value of what a firm received for __.
interest earned
Which ratio is the cost of goods sold divided by the average inventory?
inventory turnover
____________ are cash used in or provided by the firm's investment activities.
investments
A tax accountant has specialized and learned tax __ and is responsible for preparing tax returns.
law, legislation, or laws
Information in the journal is transferred to the __, so managers can find all the information about a single account in one place.
ledger
bookkeeping tasks
1. divide all the firms transactions into meaningful catagories (sales documents, purchasing receipts, and shipping documents) keeping the information organized and manageable 2. record financial data from original transactions documents into a record book or computer program called a journal, where data is first entered
What are three major categories on the balance sheet?
liabilities, assets, and owners' equity
The debt a firm owes to others is called a(n) __.
liability
The ease with which an asset can be converted to cash is called __.
liquidity
intangible assets
long-term assets that have no physical form but do have value. patents, trademarks, copyrights, and goodwill are intangible assets
leverage (debt) ratios
measures the degree to which a firm relies on borrowed funds in its operations
Users of managerial accounting information include __. 1. Internal Revenue Service 2. potential investors 3. the Chief Financial Officer 4. department managers
3. the Chief Financial Officer 4. department managers
accounting profession
5 key working areas: (disciplines) 1. managerial accounting 2. financial accounting 3. auditing 4. tax accounting 5. governmental and not-for-profit accounting
independent audit
an evaluation and unbiased opinion about the accuracy of a company financial statements. annual reports also often include an auditors unbiased written opinion
The information and analysis that comes from managerial accounting is used to __.
assist managers inside the organization with their decision making
Reviewing and evaluating records used to prepare a company's financial statements is referred to as __.
auditing
Reviewing and evaluating records used to prepare a company's financial statements is referred to as:
auditing
The key working areas of accounting include managerial accounting, financial accounting, tax accounting, government and nonprofit accounting, and __.
auditing
The ___ ___ reports a firm's financial condition on a specific date, whereas the ___ ____ summarizes revenues, costs, and expenses for a specific period
balance sheet income statement
Examples of profitability ratios include:
basic earnings per share, return on equity, and return on sales
The ___ line is another name for net income after taxes
bottom
The __ line is another name for net income after taxes.
bottom line
The bottom line is
net income or loss after taxes the last line on the income statement
gross profit
net sales minus cost of goods sold
List the steps in the accounting cycle from beginning to end
1. Analyze source documents (sales slips, travel records, etc.) 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
An acid-test ratio between ________ and 1.0 is usually considered satisfactory but could also be a sign of some cash flow problems.
0.5
The __ __ provides information about a company's financial status to company managers, owners, government agencies, and the general public.
annual report
In the fundamental accounting equation: ___ = liabilities + owner's equity
assets
What are three components make up the fundamental accounting equation?
assets, owners' equity, liabilities
Reviewing and evaluating records used to prepare a company's financial statements is referred to as
auditing
a type of long term liability that represents money lent to the firm that they must pay back is called a(an)
bond payable
A company's ____ statements summarize all of the transactions that have occurred over a particular period
financial statement
A summary of all the financial transactions that have occurred over a particular period is referred to as a __.
financial statement
The principles, defined by Financial Accounting Standards Board (FASB), that accountants must follow to assure that a firm's accounting information is accurate are abbreviated as __.
generally accepted accounting principles (GAAP)
Sales, purchasing, and shipping documents are all considered examples of __ to an accounting system.
inputs or entries
Transactions that are entered in the journal are then posted to specific categories in a(n) __.
ledger
Debts, known for accounting purposes as __, are what the business owes to others.
liabilities
Stockholder's equity is the value of what stockholders' own in a firm minus ___________________
liabilities
Accounts payable, notes payable, and bonds payable are all common __.
liability accounts
bonds payable
long-term liabilities that represent money lent to the firm that must be paid back
return on sales
net income divided by net sales
The primary purpose of the Sarbanes-Oxley Act is one of:
oversight
The major categories of balance sheet are assets, liabilities, and __.
owners' equity
The role of an auditor is to __.
review and evaluate a company's financial information
The primary users of government and nonprofit accounting information are __, __, and __.
special interest groups, taxpayers, and legislative bodies.
double-entry bookkeeping
the practice of writing every transaction in two places. it requires two entries in the journal and in the ledgers for each transaction recording financial transactions that requires a debit entry and credit
basic earnings per share
the ratio of net income after taxes to the number of common stock shares outstanding
Which items are inputs to the accounting system? 1. statement of cash flows 2. sales documents 3. income statement 4. payroll records 5. shipping documents
2. sales documents 4. payroll records 5. shipping documents
Operating expenses including which of the following? 1. capital improvements 2. supplies 3. utilities 4. rent
2. supplies 3. utilities 4. rent
A Certified Public Accountant (CPA) must __. 1. pass a test every year 2. be a public accountant or an internal auditor 3. meet a state's requirements for education and experience 4. pass a series of exams
3. meet a state's requirements for education and experience 4. pass a series of exams
inventory turnover ratio
A ratio that measures the liquidity of inventory by measuring the number of times average inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period.
Bonds Payable
Long-term liabilities that represent money lent to the firm that must be paid back.
What are retained earnings?
accumulated earnings not paid out to stockholders
Ratios used to measure the effectiveness of management in utilizing the assets that are available are called
activity ratios
Stakeholders who want to look at detailed financial information on the financial condition, progress, and expectations of a company will look at
an annual report
assets
economic resources (things of value) owned by a firm including: productive, tangible items such as 1. equiptement 2. buildings 3. land 4. furniture 5. motor vehicles that help generate income as well as intangible items with value: 1. patents 2. trademarks 3. copyrights 4. goodwill (reputation and superior products)
The "bottom line" is __. 1. net income or loss after taxes 2. the last line on the statement of cash flows 3. the last line on the income statement 4. the last line on the balance sheet
1. net income or loss after taxes 3. the last line on the income statement
In order to be a certified management accountant a person must:
1. pass a qualifying exam 2. meet the educational requirement 3. be certified by the Institute of Certified Management Accountants
processing (part of the accounting system)
1. recording: entries are made into journals 2. classifying: the effects of these journal entries are transfers or posted into ledgers 3. all accounts are summarizes
Which are the advantages of using of computers to maintain and compile accounting information?
1.Handle large amounts of data 2. Speed
The key working areas of accounting include
1.auditing 2.government and not-for-profit accounting 3. tax accounting 4. managerial accounting 5. financial accounting
What three activities are part of the function of accounting? 1. prioritizing financial transactions 2. classifying financial transactions 3. planning financial transactions 4. interpreting financial transactions 5. recording financial transactions
2. classifying financial transactions 4. interpreting financial transactions 5. recording financial transactions
public accountant
provides accounting services to individuals or businesses on a fee basis
1.accounting 2.bookkeeping 3.accounting cycle 4.trial balance
1. classifying, summarizing, interpreting, and reporting 2. recording 3. series of six steps 4. summary of data in ledgers
MD&A - Management Discussion and Analysis
A section of a company's annual report in which management discusses numerous aspects of the company, both past and present.
Accounting Cycle
A six-step procedure that results in the preparation and analysis of the major financial statements.
Ledger
A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.
If financial management is the heartbeat of competitive businesses, what keeps that heartbeat stable?
Accounting information
Managerial Accounting
Accounting used to provide information and analyses to managers inside the organization to assist them in decision making.
Assets
Adjustments ensure that _____ are reported at amounts representing economic benefits that remain at the end of the current period
Liabilities
Adjustments ensure that _______ are reported at amounts owed at the end of the current period that will require future sacrifice of resources.
Income statement and balance sheet
Adjustments involve both the _____ and _____ accounts
SOX - Sarbanes-Oxley Act
After WorldCom, Enron, and Tyco, get engulfed in accounting scandales, congress passes this act (2002). This legislation created new government reporting standards for publicly traded companies. It also created the PCAOB.
depreciation
Any decrease or loss in value caused by age, wear, or market conditions
Expenses
Are recorded in the same period as the revenues to which they relate (matching principle)
Which of the following are major accounts on the balance sheet?
Assets Liabilities owner's equity
Fundamental Accounting Equation
Assets = Liabilities + Owners' equity; this is the basis for the balance sheet
Fixed Assets
Assets that are relatively permanent, such as land, buildings, and equipment.
liquidity
Availability of resources to meet short-term cash requirements. The ease with which an asset can be converted into cash.
If an individual passes a rigorous examination established by the American Institute of Certified Public Accountants (AICPA) and meets a state's educational and experience requirements, they can be recognized as a(n) __.
Certified Public Accountant or CPA
Operating Expenses
Costs involved in operating a business, such as rent, utilities, and salaries.
PCAOB - Public Company Accounting Oversight Board
Created by SOX, it is in charge of overseeing the AICPA (American Institute of Certified Public Accountants).
Accounts Payable
Current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for.
Long-term
Deferral adjustments have effects on things like supplies, prepaid rent, or even _____-_____ long term assets like, buildings, equipment. And software.
Big Four Accounting Firms
Deloitte Touche Tohmatsu PwC Ernst & Young KPMG
Balance Sheet
Financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners' equity.
Statement of Cash Flows
Financial statements that reports cash receipts and disbursements related to a firm's three major activities: operations, investments, and financing.
__ accounting generates financial information for people outside the firm, while __ accounting generates financial information for people inside the firm.
Financial, Managerial
The principles that accountants must follow in order to assure that a firm's accounting information is accurate are abbreviates as:
GAAP General Accepted Accounting Principles
__ and nonprofit accounting supports organizations whose purpose is not generating profit, but serving ratepayers, taxpayers, and others according to a duly approved budget.
Government
GASB - Governmental Accounting Standards Board
Government accounting standards are set by this board
Gross Profit (or gross margin)
How much a firm earned by buying (or making) and selling merchandise.
Which financial statement shows the firm's profit after costs, expenses, and taxes?
Income statement
Current Assets
Items that can or will be converted into cash within one year.
___________ ratios measure a company's ability to turn assets into cash to pay its short-term debt
Liquidity
Intangible Assets
Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.
fixed assets
Long-term assets that are relatively permanent such as land, buildings, or equipment.
What is the meaning of bonds payable?
Long-term liabilities that represent money lent to the firm that must be paid back
Cash flow analysis is especially important for what kind of business?
Small businesses
The Financial Accounting ___________ __________ defines the generally accepted accounting principles.
Standards Board
What type of accountant is most likely to develop strategies for a firm in dealing with the Internal Revenue Service?
Tax accountant
Activity Ratios
Tell us how effectively management is turning inventory into profits. Example: Inventory Turnover Ratio.
Which of the following are considered users of managerial accounting information:
The Chief Financial Officer and department managers
The U.S. Securities and Exchange Commission - SEC
They have suggested that International Accounting Standards Board (IASB) replace the Generally Accepted accounting Principles (GAAP) with the International Financial Reporting Standards (IFRS) in the near future.
Depreciation Expense
This account reports the cost of equipment use in the current period
Owners' Equity
Total Assets minus Total Liabilities of the company. Also known as net worth of the company or shareholders assets or net assets. The amount of the business that belongs to the owners minus any liabilities owed by the business.
What is the term given to a summary of all financial data to make certain the figures are correct and balanced?
Trial balance
Journals are the first place bookkeepers record transactions. Bookkeepers then summarize journal entries by posting them to ledgers. Ledgers are specialized accounting books that arrange the transactions by homogeneous groups (accounts).
What are journals and ledgers?
"Cooking the Books" Early Recognition of Revenue Late Recognition of Expense Inadequate Reserves for Bad Debts, Returns, & Liabilities Changing Inventory Valuation Methods- 1 Time Boost to Income Phony Transactions With Partnerships
What are some accounting issues and challenges?
Accrual
_____ adjustments are used to record revenue of expenses when they occur prior to cash and to adjust corresponding balance sheet accounts.
Deferral adjustments
_______ _____ are used to decreased balance sheet accounts and increase corresponding income statement accounts
Revenues
_______ are recorded when earned (revenue recognition principle)
The income statement shows __.
a firm's profit after costs, expenses, and taxes.
annual report
a yearly statement of the financial condition, progress, and expectations of an organization companies are seeking to reduce cost by putting the annual report on the firms website and making better use of the Form 10-k that is required by the Securities and Exchange commission
Recording, classifying, summarizing, and interpreting financial events in an organization is called
accounting
Recording, classifying, summarizing, and interpreting financial events in an organization is referred to as __.
accounting
What is considered to be the "language of business"?
accounting
accounting
accounting goes far beyond the recording of financial information. accountants classify and summarize financial data provided by bookkeepers, and then interpret the data and report the information to management. they also suggest strategies for improving the firms financial condition and prepare financial analysis and income tax returns
accounting information
accounting reports and financial statements reveal as much about a businesses health as pulse and blood pressure reading tell us about a persons health almost impossible to understand business operations without being able to read, understand, and analyze accounting reports and financial statements
The method used to record and summarize accounting data into reports is called a(n) __ system.
accounting system
What are the three common liability accounts recorded on a balance sheet?
accounts, notes, and bonds payable.
owners equity
The amount remaining after the value of all liabilities is subtracted from the value of all assets.
Ratio Analysis
The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements.
What are steps in the accounting cycle? 1. analyze transactions 2. build a budget 3. prepare a trail balance 4. record transaction in the journal 5. determine investment opportunities
1. analyze transactions 3. prepare a trail balance 4. record transaction in the journal
accounting cycle
6-step procedure that results in the preparation and analysis of the major financial statements 1. analyze source documents (sales slips, travel records, etc.) 2. record transactions in journals 3. transfer (post) journal entires to ledger 4. take a trial balance 5. prepare financial statements: balance sheet, income statement, statements of cash flows 6. analyze financial statements
Inventory Turnover Ratio
= (Costs of goods sold)/(average inventory)
Basic Earnings Per Share Ratio - Basic EPS
= (net income after taxes)/(number of common stock shares outstanding). It helps determine the amount of profit a company earned for each share of outstanding common stock
contra-account
A _____-_____ is used to keep track of all the depreciation recorded against equipment.
acid test ratio
A liquidity ratio that measures a firm's ability top meet its short-term debts. This ratio ignores stocks when calculating because some stocks (e.g. Ferrari cars or Airbus jets) cannot be quickly and easily turned into cash.
Cost of Goods Sold (or Cost of Goods Manufactured)
A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
Certified Management Accountant (CMA)
A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants.
In order to be a certified management accountant a person must:
A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the institute of certified management accountants.
What is the difference between assets and liabilities?
Owner's equity
Two examples of account software packages are
Peach Tree and Quickbooks
What are the main types of financial ratios used in ratio analysis?
Profitability ratios Liquidity ratios Debt ratios Activity ratios
The Red Cross is a non-profit which would most likely require the services of which type of accountant?
Public or Private accountant
__ is the term for resources that come into the firm from operating activities.
Revenue
Net Income or Net Loss
Revenue left over after all costs and expenses, including taxes are paid.
Notes Payable
Short-term or long-term liabilities that a business promises to repay by a certain date.
Accumulated depreciation
The contra-account used to record equipment depreciation is named _____ _______, and is a negative asset account that is subtracted from the equipment account in the assets section of the balance sheet.
Cash Flow
The difference between cash coming in and cash going out of a business. Operations, Investment, Financing.
Liquidity
The ease with which an asset can be converted into cash.
The four key categories of ratios are liquidity rations, leverage (debt) ratios, profitability (performance) ratios, and activity ratios.
What are the four key categories of ratios?
Liabilities
What the business owes to others (debts).
What are some benefits of using computers for accounting purposes? 1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 3. They can make good financial decisions automatically. 4. Information can be posted from journals instantaneously.
1. Software can help if no strong accounting support is available. 2. It frees accountants' time for more important tasks 4. Information can be posted from journals instantaneously.
Which of the following are considered disciplines within the accounting profession? 1. financial accounting 2. managerial accounting 3. investment accounting 4. tax accounting
1. financial accounting 2. managerial accounting 4. tax accounting
Revenue is the monetary value of what a firm received for
1. interests earned 2. services rendered 3. goods sold
The primary users of government and not-for-profit accounting information are:
1. legislative bodies 2. citizens 3. special interest groups
Managerial accounting is concerned with:
1. measuring production costs 2. preparing budgets 3. controlling
FASB - Financial Accounting Standards Board
Defines the generally accepted accounting principles (GAAP) that accountants must follow. If accounting reports are prepared in accordance with GAAP, users can expect the information to meet standards accounting professionals have agreed on.
Assets
Economic resources (things of value) owned by a firm.
Computers can record and analyze data and provide financial reports. Software can continuously analyze and test accounting systems to be sure they are functioning correctly. Computers can help decision making by providing appropriate information, but they cannot themselves make good financial decisions. Accounting applications and creativity are still human functions.
How do computers help accountants?
Managerial accounting provides information and analyses to managers within the firm to assist them in decision making. Financial accounting provides information and analyses to external users of data such as creditors and lenders.
How does managerial accounting differ from financial accounting?
Which legislation prohibits accounting firms from providing consulting services to companies they audit?
The Saxbarnes-Oxley Act
Retained Earnings
The accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
Income Statement
The financial statement that shows a firm's profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm (expenses), and the resulting net income.
Analyze
The first step of the accounting cycle, ______, involves determining the necessary adjustments to make to the accounting records.
Auditing
The job of reviewing and evaluation the information used to prepare a company's financial statements.
Double-entry Bookkeeping
The practice of writing every business transaction in two places.
managerial accounting
provides information and analysis to managers (department managers and chief financial officers) inside the organization to assist them in decision making. concerned with: 1. measuring and reporting costs of production 2. marketing, and other functions; 3. preparing budgets (planning); 4. checking whether or not units are staying within their budgets (controlling) 5. designing strategies to minimize taxes
Government and not-for-profit accounting involves working for organizations whose purpose is to serve:
rate-payers and taxpayers
Government and nonprofit accounting involves working for organizations whose purpose is to serve __ and __.
ratepayers and taxpayers
statements of cash flow
reports cash receipts and cash disbursements related to the three major activities of a firm: 1. opperations: cash transactions associated with running the business 2. investments: cash used in or provided by the firms investment activities 3. financing: cash raised by taking on new debt, or equity capital or cash used to pay business expenses, past debts, or company dividends Describes yearly cash receipts and cash payment
Stockholders, or owners' equity represents __.
the value of the business that belongs to owners
income statement
summarizes all the resources, called "revenue" that have come into the firm from operating activities, money resources the firm used up, expenses it incurred in doing business, and resources it has left after paying all costs and expenses, including taxes....shows the firms profit after costs, expenses, and taxes determines whether a business is earning a profit or losing money
List the steps in the accounting cycle from beginning to end.
1. Analyze source documents 2. Record transactions in journals 3. Transfer Journal entries to a ledger 4. Trail balance 5. Prepare financial statements 6. Analyze financial statements
List the steps in the accounting cycle from beginning to end. Place the first step on top and list them down to the last step on the bottom.
1. Analyze source documents 2. Record transactions in journals 3. Transfer journal entries to a ledge 4. Take a trial balance 5. Prepare financial statements 6. Analyze financial statements
Trial Balance
A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
Financial Statement
A summary of all the transactions that have occurred over a particular period.
Annual Report
A yearly statement of the financial condition, progress, and expectations of an organization.
Financial Accounting
Accounting information and analyses prepared for people outside the organization
The method used to record and summarize accounting data into reports is called a:
Accounting system
Government and Not-for-profit Accounting
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
CPA exams are established by the __ __ of Certified Public Accountants.
American Institute of Certified Public Accountants
Tax Accountant
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
Certified Internal Auditor (CIA)
An accountant who has a bachelor's degree and two years of experience in internal auditing, and who has passed an exam administered by the Institute of Internal Auditors.
Certified Public Accountant (CPA)
An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA).
Public Accountant
An accountant who provides accounting services to individuals or businesses on a fee basis.
Private Accountant
An accountant who works for a single firm, government agency, or nonprofit organization.
Independent Audit
An evaluation and unbiased opinion about the accuracy of a company's financial statements.
Accounting Cycle
Analyze, Record, summarize in T - accounts, prepare a trial balance, report financial statements are all a part of the what?
Which of the following are considered users of mangaerial accounting informationa
Chief informational officer Department managers
Accounting Information
If financial management is the heartbeat of competitive businesses, what keeps that heartbeat stable?
Unadjusted
In analyzing accounts, the question "where are we now?" pertains to the current (_______) balances
Adjusted
In analyzing accounts, the question "where do we need to be?" pertains to the desired (_____) balances.
Liquidity Ratios
Measure a company's ability to turn assets into cash to pay its short-term debts (liabilities that must be repaid within one year). Two key liquidity ratioos are the current ratio (current assets)/(current liabilities) and the acid-test ratio (or quick ratio) (cash+accounts receivable+marketable securities)/(current liabilities).
Leverage (debt) ratios
Measure the degree to which a firm relies on borrowed funds in its operations. Example: Debt to owners' equity ratio = (total liabilities)/(owners' equity)
Diluted EPS - Diluted earnings per share ratio
Measures the amount of profit earned for each share of outstanding common stock, but also considers stock options, warrants, preferred stock, and convertible debt securities the firm can convert into common stock.
___ income after taxes is the last line on the income statement
Net income aka net earnings net profit
___ payable can be either short term or long term liabilities that a business promises to repay by a certain date
Notes payable
Journal
The record book or computer program where accounting data are first entered.
Bookkeeping
The recording of business transactions
Accounting
The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.
Depreciation
The systematic write-off of the cost of a tangible asset over its estimated useful life.
Adjustments
These are made at to the accounting records at the end of the period to ensure assets and liabilites are reported at appropriate amounts
1. The Business Entity (assumes that the business is separate from its owners or other businesses. Revenue and expense should be kept separate from personal expenses) 2. The Business Transaction (more than one principle about how to record a transaction accrual vs. cash etc) 3. Going Concern (assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable.) 4. Periodicity (implies that the economic activities of an enterprise can be divided into artificial time periods.) 5. Money Basis for Reporting (assumes a stable currency is going to be the unit of record. The FASB accepts the nominal value of the US Dollar as the monetary unit of record unadjusted for inflation.) 6. Objectively Verifiable Evidence (the company financial statements provided by the accountants should be based on objective evidence.) 7. Adequate Disclosure (Amount and kinds of information disclosed should be decided based on trade-off analysis as a larger amount of information costs more to prepare and use. Information disclosed should be enough to make a judgment while keeping costs reasonable. Information is presented in the main body of financial statements, in the notes or as supplementary information) 8. Conservatism (when choosing between two solutions, the one that will be least likely to overstate assets and income should be picked) 9. Materiality (the significance of an item should be considered when it is reported. An item is considered significant when it would affect the decision of a reasonable individual.) 10. Consistency (It means that the company uses the same accounting principles and methods from year to year.)
What are the Foundations of Accounting?
1. Analyzing documents 2. Recording information into journals 3. Posting that information into ledgers 4. Developing a trial balance 5. Preparing financial statements - the balance sheet, income statement, and statement of cash flows 6. Analyzing financial statements
What are the six steps of the accounting cycle?
Cash flow is the difference between cash receipts (money coming in) and cash disbursements (money going out). The statements of cash flows reports cash receipts and disbursements related to the firms' major activities: operations, investments, and financing.
What is a statement of cash flows?
A public accountant provides services for a fee to a variety of companies, whereas a private accountant works for a single company. Private and public accountants do essentially the same things with the exception of independent audits. Private accountants do perform internal audits, but only public accountants supply independent audits.
What is the difference between a private accountant and a public accountant?
Bookkeeping is part of accounting and includes the systematic recording of data. Accounting includes classifying, summarizing, interpreting, and reporting data to management.
What is the difference between bookkeeping and accounting?
Auditors review and evaluate the standards used to prepare a company's financial statements. An independent audit is conducted by a public accountant and is an evaluation and unbiased opinion about the accuracy of a company's financial statements.
What is the job of an auditor?
Ratio analysis provides the firm with information about its financial position in key areas for comparison to other firms in its industry and its own past performance.
What is the major value of ratio analysis to the firm?
Deferral adjustment
When Sonic Gateway pays its rent in advance and initially defers it as an asset on the balance sheet under "Prepaid Rent", then at the end of the month decreases the prepaid rent but adds it onto "Rent Expense" on the income statement, they are making a ______ _____.
Accrual vs. cash Accounting
Your computer installation business finishes a job in November, and doesn't get paid until three months later in January. Under the cash method, you would record the payment in January. Under the accrual method, you would record the income in your November books.
capital account
a portion of the balance of payments comprised of foreign purchases of U.S. assets minus U.S. purchases of foreign assets, plus the change in official reserves
(CMA) certified management accountant
a professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants....provides information to managers INSIDE the organization
trial balance
a proof of the equality of debits and credits in a general ledger A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced. a list of accounts and their balances at a given time
financial statement
a summary of all the financial transactions that have occurred over a particular period. indicate a firms financial health and stability, and are key factors management decision making
The __________ _________ is the yearly statement of the firm's financial condition, progress, and expectations provided to stakeholders
annual report
computerized accounting programs
can post information from journals instantaneously from remote locations to encrypted laptops or cell phones, making financial information available whenever the organization needs it. the companies sensitive financial information is safe and secure, but is in the accountants hands when needed, freeing accountants time for more important tasks such as financial forecasting particularly helpful to small business owners. accounting software like "Intuits QuickBooks" dress the specific needs of small businesses that are often significantly different from the needs of a major corporation
It's possible for a business to increase its sales and profits yet still suffer ___________ ____________ problems.
cash flow
It's possible for a business to increases its sales and profits yet still suffer ___ ___ problems
cash flow
Earnings per share is profit earned by a company for each share of outstanding ___ ____
common stock
The _________ of ____________ _____________ measures the cost of merchandise the firm sells or the materials and supplies used to manufacture them for sale
cost of goods sold
(FASB) Independent Financial Accounting Standards Board
defines the generally accepted accounting principles (GAAP) that accountants must follow. if accounting reports are prepared in accordance with GAAP, users can expect the information to meet standards upon which accounting professionals have agreed
current assets
items that can or will be converted into cash within one year including: cash, accounts receivable, and inventory
Financial data from transaction documents are first recorded in a ______________
journal
Financial transactions are first recorded in the ___ and then transferred, or posted to the ___
journal; ledger
The data are then transferred into categories in a ________________, so managers can find all the information about a single account in one place.
ledger
____ ratios measure the degree to which a firm relies on borrowed funds in its operations
leverage ratios
cost of goods sold (or cost of goods manufactures)
measures the cost of merchandise the firm sells or the cost of raw materials and supplies it used in producing items for resale. includes: the purchase price plus any fright charges paid to transport goods, plus any costs associated with storing the goods
accounting system
method used to record and summarize accounting data into reports
A certified public accountant
must follow GAAP in the US must pass a series of exams
A certified public accountant
must pass a series of exams and must follow GAAP in the United States
Which of the following would be shown on an income statement?
net income cost of goods sold operating expenses revenue NOT liabilities nor assets
A company that uses a capital account for owners equity is organized as a sole ___ or a partnership
proprietorship
auditing
reviewing and evaluating the information used to prepare a company financial statements
ledger
specialized accounting book or computer program A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.
bookkeeping
the recording of business transactions, is a basic part of financial reporting.
accounting "language of business"
the recording, classifying, summarizing (recording), and interpreting of financial events and transactions in an organization to provide management and other interested parties the financial information they need to make good decisions about its operation. major purpose is to help internal managers make well informed decisions and to report financial information about the firm to interested stakeholders: employees, owners, creditors, suppliers, unions, community activists, investors, and the government (for tax purposes)
Sarbanes-Oxley Act (Sarbox)
this legislation created new government reporting standards for publicity traded companies. it also created the PCAOB (Public Company Accounting Oversight Board) which is charged with overseeing the AICPA (Institute of Certified Public Accountants). put into place in order to ensure the integrity of the auditing process
