Chapter 14 - Financial Info and Accouting

Chartered Accountants (CA)

Accountant who completed approved bachelors degree program, educational program, and passed a comprehensive examination. Provides tax, audit, management services. Focus on external reporting, and provide whether statements are accurate. Generally work in 4 areas : Public practice, Industry, Govt, or Education.

Certified General Accountant (CGA)

Accountant who focuses mainly on external financial reporting.

Certified Management Accountant (CMA)

Accountant who works primarily in industry and focuses on internal management accounting. Provides technology, human resources, finance, and operations.

Financial Accounting

Accounting that focuses on preparing external financial reports that are used by outsiders such as creditors, lenders, suppliers, investors, and govt agencies to asses financial strength of a business.

Managerial Accounting

Accounting that provides financial info managers inside organization can use to evaluate and make decisions about current and future operations.

Amortization ( DEPRECIATION )

Allocation of an assets original cost to years in which it is expected to produce revenues. Kind of like an estimate on how much value will be lost on the equipment.

Gross profit

Amount company earns after paying to produce products.

Net Sales

Amount left after deducting sales, DIS, RET, ALl, from gross sales.

Retained Earnings

Amount leftover after all expenses and whatnot are paid.

Net Profit ( net income )

Amount obtained by subtracted all firm expenses from revenue, when revenues are more than expenses

Net loss

Amount obtained by subtracting all firms expenses from revenue when expense > revenue. ( BRACKET THE NUMBER IF ITS A LOSS )

Net working capital

Amount obtained by subtracting total current liabilities from total current assets. Used to measure firms liquidity, BASICALLY TOTAL OE

Current Assets

Assets that can or will be converted to cash w/in the year. Important b/c provide funds to pay current bills. ex) Cash (funds on hand), Marketable securities (temporary investments of excess cash), ACCT REC (amount owed to girm), Notes REC (amount owed by those lent to), Inventory (stock of goods for sale).

Ratio Analysis

Calculation and interpretation of financial ratios using data taken from firms financial statements to asses its condition and performance.

Long term Liabilities

Claims that come due more than one year after date ex) bank loans, mortgages, company bonds sold

Expenses

Cost of generating revenues

COGS

Cost of goods sold. Total expense of buying or producing good.

Revenues

Dollar amount of firms sales plus any other income recieved from sources such as interest, dividends, and rents.

Operating Expenses

Expenses of running business that are not related to producing or buying product. ex) ELECTRICITY

Statement of Financial Position (balance sheet)

Financial Statement that summarizes firms financial position at a specific point in time. Reports everything in the equation Assets = Liabilities + Owners Equity.

Generally Accepted Accounting Principles (GAAP)

Financial accounting rules, standards, and usual practices followed by accountants in Canada when preparing financial statements until Jan 2011.

Statement of cash flows

Financial statement that provides summary of money flowing in and out of firm during certain period. (ONE YEAR TYPICALLY)

Income Statement

Financial statement that summarizes firm's revenue and expenses, shows total profit or loss over period of time.

Profitability Ratios

Ratio that measures how well firm uses resource to generate profit and how efficiently it is managed.

Liquidity Ratios

Ratios that measure a firms ability to pay short term debts as they come due

International Financial Reporting Standards (IFRS)

Set of globally accepted accounting standards adopted in Canada on Jan 1, 2011.

Fixed Assets

long term assets used by firm for more than a year. Ex) Land, building, machines.

Current Liabilities

Short-term claims that are due within a year of date of statement of financial position. ex) ACCT PAY (amount firm owes), Notes PAY (loans from bank), Accrued expenses (wages, taxes etc), Income tax PAY (taxed owed for current period)

Liquidity

Speed with which an asset can be converted to cash. Cash most liquid, listed first.

Six Steps to ACCT cycle

Step 1: Analyze business transaction documents. Review and ensure all documents complete. Step 2: Record business transactions in journal chronologically. Step 3: Post journal entries to ledgers. Shows inc. and dec. in specific assets accounts. Step 4: Prepare Trial Balance (total of ledgers in each acct) confirms accuracy of figures. Step 5: Prepare Financial statements, and management reports from account data. Uses values from balance. Step 6: Analyze reports. Used to make decisions.

Assets

Things owned by a firm

Owners Equity

Total amount of investment in the firm minus liabilities. AKA : NET WORTH.

Gross Sales

Total dollar amount of company's sales

Liabilities

What a firm owes its creditors

Intangible Assets

Long-term assets with no physical existence. ex) Patents, Copyrights (both shield firm from direct competition), Trademarks (registered name, can be sold) , Good will (company pays more for aquired firm than value).

Debt ratios

Measures degree and effect of firms use of borrowed funds (debt) to finance operations.

Double Entry Bookkeeping

Method of accounting which each transaction recorded as at least two entries so that accounts of records are changed. Basically recording for Debit and Credit.

Owners Equity

Owners total investment in business after all liabilities paid.

Accounting

Process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities.

Accounting Cycle

Process of generating financial statements, beginning with a transaction and ending with preparation of report.

Inventory turnover ratio

Ratio of COGS to AVG INV; measures speed which inventory moves through firm, and turns to sales

Net Profit Margin

Ratio of net profit to net sales; also called return on sales.. Measures percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.

Earnings per share (EPS)

Ratio of net profit to number of common shares outstanding; measures number of dollars earned by each share.

Return on Equity (ROE)

Ratio of net profit to total owners equity; measures return that owners recieve on their investment firms.

Acid-test (quick) ratio

Ratio of total current assets (excluding inv) to total current liabilities; used to measure firms liquidity. Like Current ratio, MAIN DIFF EXCLUDES INV

Current Ratio

Ratio of total current assets to total current liabilities; used to measure firms liquidity

Debt - Equity eatio

Ratio of total liabilities to owners equity; measures relation between amount of debt financing and amount of equity financing (owners funds).

Activity Ratios

Ratio that measures how well a firm uses assets

Annual Report

Yearly Document describing firms financial status and discussion of firm activities during past year and prospects for the future. Includes: Statement of Financial Position, Income Statement, Statement of Cash Flows.