Chapter 16

Chartered accountant (CA)

an accountant who has met the examination, education and experience requirements of the Canadian Institute of CA's.

Certified general accountant (CGA)

has met the exam, edu, and experience requirements of the CGA Accountants Association of Canada

Gross profit/margin

how much a firm earned by buying (or making) and selling merchandise

What is the ratio analysis provide for the firm?

info about its financial position in key areas for comparison to similar firms in its industry and its past performance

current assets

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

What are the four key categories of ratios?

liquidity ratios leverage (debt) ratios profitability (performance) ratios activity ratios

Bonds payable

long term liabilities that represent money lent to a firm that must be paid back

Intangible assets

long-tem assets that have no real physical form but do have value

How does managerial accounting differ from financial accounting?

managerial accounting provides information for planning and control purposes to managers within the firm to assist them in decision making financial accounting provides information in the form of three basic financial statements to managers and external users of data such as creditors and lenders

What does amortization measure? (2) Where is it reflected? (2)

measures the cost of tangible assets against the revenue earned from the use of this asset. Amortization is reflected in both the balance sheet and the income statement

What are LIFO and FIFO methods of? FIFO LIFO

methods of transferring a cost of inventory sold to the income statement First in, first out last in, first out

capital assets

relatively permanent, such as land, buildings, and equipment

matching principle

revenues are recorded with earned and expenses are recorded when incurred

Taxes payable

sales taxes and GST or HST collected, and income tax payable

Retained earnings

the accumulated earnings from a firm's profitable operations that remains in the business and not paid out to shareholders as dividends

Owners' equity (formula)

the amount of the business that belongs to the owners minus any liabilities owed by the business

Double-entry bookkeeping

the concept of every business transaction affecting at least two accounts

compliance

the job of reviewing and evaluating the records used to prepare a company's financial statement

What are the six steps in the accounting cycle? (ARPDPA)

1. Analyzing documents 2. Recording information into journals 3. Posting that information into ledgers 4. Developing a trial balance 5. Preparing financial statements 6. Analyzing financial statements

costs of goods sold/manufactured

A measure of the cost of merchandise sold or cot of raw materials and supplies used for producing items for resale

What is the difference between a private and a public accountant? (2)

A public accountant provides services for a fee to a variety of companies, whereas a private accountant works for a single company. Only public accountants can supply independent audits

Trial balance

A summary of all of the data in the account ledgers to show whether the figures are correct and balanced

What is accounting (RCSI) What is the system used to record and summarize accounting data into reports? what are the three parts of the accounting system? (I,P,O) describe.

Accounting is the recording, classifying, summarizing and interpreting of financial events that affect an organization. an accounting system Inputs: sales documents and other records. Processing: recording, classifying, summarizing Outputs: financial statements

tax accountant

An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies

What is the job of an auditor? What is an independent audit? Who is it conducted by?

Auditors review and evaluate the standards used to prepare a company's financial statements an evaluation and unbiased opinion about the accuracy of a company's financial statements An independent audit is conducted by a public accountant

What is the difference between bookkeeping and accounting?

Bookkeeping is part of accounting and includes the mechanical part of recording data. Accounting also includes classifying, summarizing, interpreting, and reporting data to management.

How can computers help accountants? (2) What can computers not do? (1)

Computers can record and analyze data and provide financial reports. Software can ensure that the accounting equation is always in balance when recording each transaction They can not make good financial statements independently

Operating expenses

Costs involved in operating a business. such as rent, utilities, and salaries

Accounts payable

Current liabilities or bills a company owes to others for merchandise or services purchased on credit but not yet paid for.

Accounts

Different types of assets, liabilities and owners equity

Assets

Economic resources owned by a firm

Liquidity

How fast an asset can be converted into cash

What are journals and ledgers?

Journals are the first place bookkeepers record transactions. Bookkeepers summarize journal entries by posting them to ledgers. Ledgers are specialized accounting books that arrange the transactions by homogeneous groups (accounts).

What has happened to the nature of rules used, on a global scale, to record business transactions?

Many countries are now using just one set of rules, IFRS.

What does an income statement measure? What is the formula for gross margin? What is the formula for net income before taxes? what is the formula for net income/loss?

Reports revenues, costs, and expenses for a specific period of time. Revenue - costs of goods sold gross margin - operating expenses net income before taxes - taxes

What does a balance sheet do? What is the accounting equation?

Reports the financial position of a firm on a given day. The fundamental accounting equation used to prepare the balance sheet is Owner's equity = Assets - liabilities

Notes payable

Short or long term liabilities that a business promises to repay by a certain date

What is a cash flow statement? What are the three major activities of a firm?

The difference between cash receipts (money coming in) and cash disbursements (money going out). operations, investing, financing

Liabilities

What the business owes to others (debts),

Forensic accounting

a new area of accounting that focuses its attention on fraudulent activity

Accounting cycle

a six-step procedure that results in the preparation and analysis of the major financial statements

annual report

a yearly statement of the financial condition, progress and expectations of an organization.

Certified Management Accountant (CMA)

accountant who has me the exam, education and experience requirements of the Society of Management Accountants of Canada