Peregrine accounting and finance

Gross Margin Ratio

(Net Sales - Cost of Goods Sold) / Net Sales

depreciation equation

(cost - salvage value) / useful life

What will usually cause the liability account Accounts Payable to increase?

Credit

Which term is associated with "right" or "right side"?

Credit

When a company pays a bill, the account Cash will be __________.

Credited

Entries to revenues accounts such as Service Revenues are usually _________

Credits

What will usually cause an asset account to increase?

Debit

Which term is associated with "left" or "left side"?

Debit

When cash is received, the account Cash will be _________

Debited

Entries to expenses such as Rent Expense are usually _________

Debits

Which financial statement reports the revenues and expenses for a period of time such as year or a month?

Income Statement

Unearned Revenues is what type of account?

Liability (The company that is to perform the service or is to deliver the product has received the cash in advance and therefore has an obligation (liability) to deliver the service or the product.)

Gross margin

Revenue - operating expenses. Does include "overhead" (patent, royalties, accounting salaries, office rent but not capital outlays, depreciation, or taxes)

Under the accrual basis of accounting, revenues are reported in the accounting period when which of the following occurs?

Services or gods have been delivered

Solvency

The ability of a company to pay interest as it comes due and to repay the balance of debt due at its maturity.

What is arbitrage?

The practice of earning a profit by buying a good at a low price and reselling the good at a higher price.

Accounting entries involve a minimum of how many accounts?

Two - because of the double entry system, every transaction will affect at least two accounts

petty cash fund

a cash fund used to pay relatively small amounts

if a country has two income tax brackets with higher tax rates on higher income, a taxpayer earning enough to be taxed in the higher bracket earning $100 additional dollars will pay

a tax rate on the $100 equal to the higher rate

profitability

ability to provide financial rewards sufficient to attract and retain financing

Under the accrual basis of accounting, expenses are reported in the accounting period when which of the following occurs?

an expense matches the revenues or is used up

central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

horizontal analysis

analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends

Resources owned by a company (such as cash, accounts receivable, vehicles) are reported on the balance sheet and are referred to as _________

assets

the process by which management allocates available investment funds among competing investment proposals is called ____________

capital rationing

Cash does not include:

commercial paper

Assets are usually reported on the balance sheet at which amount?

cost

production budgets are used to prepare ______________ budgets

direct materials purchases, direct labor cost, and factory overhead cost

Discounted cash flow analysis determines value by

finding the present value of all future payments

when interest rates go up, bond prices

for the same time to maturity go down

if a person's home currency goes up in value this will make

foreign currency decrease in relative value

the times interest earning ratio is computed as what

income before tax plus interest expense divided by interest expense

accelerating the collection of receivables will tend to cause the accounts receivable turnover to what?

increase

the primary advantages of the average rate of return method are its ease of computation and the fact that __________

it emphasizes the amount of income earned over the life of the proposal

a bank reconciliation should be prepared periodically because

it is part of effective controls over cash

Obligations (amounts owed) are reported on the balance sheet and are referred to as ________

liabilities

assuming the borrower does not default, corporate bonds have which characteristic

limited liability

lowering interest rates through central bank action is thought to cause

lower unemployment

Revenue minus expenses equals _____.

net income

profit margin equation

net income/net sales

Liabilities often have the word __________ in their account title

payables

an initial public offering of a stock is

primary market transaction

Financial statements

provide information that is useful for making investment and other economic decisions about businesses

profit margin

reasonable expectation of all expenses, accounting net income

in accrual accounting, the effects of business transactions are ____________

recorded when the economic effect occurs

the Sarbanes-Oxley Act of 2002 requires companies and their independent accountants to _______________

report on the effectiveness of the company's internal controls

Vertical analysis

reporting an amount on a financial statement as a percentage of another item on the same financial statement

The first budget customarily prepared as part of an entity's master budget is the

sales budget

the ability of a business to repay its debts and to earn income is referred to as what

solvency and profitability

Assets minus liabilities equals _________

stockholders' equity or owner's equity (net assets if a nonprofit)

What is present value?

the current value of future cash flows discounted at the appropriate discount rate

Liquidity

the ease with which an asset can be converted into cash

Tertiary Market

the industry segment that includes retail businesses such as stores

secondary market

the market in which previously issued securities are traded among investors

residual claimant

the stockholder receives whatever remains after all other claims against the firm's assets have been satisfied

what is cash flow

the total amount of money being transferred into and out of a business

mergers and acquisitions serve an important role in governing American corporations because

they facilitate the replacement of inferior management

Present Value Index

total present value of net cash flow/ amount to be invested

True of false, is annual tax expenses included on a income statement

true

assuming the company does not default on its debt, investments in common stock have what characteristic?

uncertain rewards, ownership rights, limited liability, and residual claimant

If the actual direct labor hours spent producing a commodity differ from the standard hours, the variance is termed

unfavorable

an analysis in which all the components of an income statement are expressed as a percentage of net sales is called

vertical analysis

Cost principle

A principle that states that acquired assets and services should be recorded at their actual cost.

Which financial statement reports the assets, liabilities, and stockholders' (owner's) equity at a specific date?

Balance sheet