MIE 201 Exam 5 2nd

Accounting

The recording, measurement, and interpretation of financial information.

Certified Public Accountant (CPA)

An individual who has been state certified to provide accounting services.

Private Accountants

Accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements.

Certified Management Accountants (CMAs)

Private accountants who, after rigorous examination, are certified by the Institute of Management Accountants and who have some managerial responsibility.

Managerial Accounting

The internal use of accounting statements by managers in planning and directing the organization's activities.

Cash Flow

The movement of money through an organization over a daily, weekly, monthly, or yearly basis.

Budget

An internal financial plan that forecasts expense and income over a set period of time.

Annual Report

A summary of the firm's financial information, products, and growth plans for owners and potential investors.

Assets

A firm's economic resources, or items of value that it owns, such as cash, inventory, land, equipment, buildings, and other tangible and intangible things.

Liabilities

Debts that a firm owes to others.

Owner's Equity

Equals assets minus liabilities and reflects historical values.

Accounting Equation

Assets = Liabilities + Owner's Equity

Double-Entry Bookkeeping

A system of recording and classifying business transactions in separate accounts in order to maintain the balance of the accounting equation.

Accounting Cycle

The four-step procedure of an accounting system: examining source documents, recording transactions in an accounting journal, posting recorded transactions, and preparing financial statements.

Journal

A time-ordered list of account transactions.

Ledger

A book or computer file with separate sections for each account.

Income Statement

A financial report that shows an organization's profitability over a period of time- month, quarter, or year.

Revenue

The total amount of money received from the sale of goods or services, as well as from related business activities.

Cost of Goods Sold

The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies.

Gross Income

Revenues minus the cost of goods sold required to generate the revenues.

Profit

The difference between what it costs to make and sell a product and what a customer pays for it.

Expenses

The costs incurred in the day-to-day operations of an organization.

Depreciation

The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used.

Net Income

The total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings.

Balance Sheet

A "snapshot" of an organization's financial position at a given moment.

Current Assets

Assets that are used or converted into cash within the course of a calendar year; also called short-term assets.

Accounts Receivable

Money owed a company by its clients or customers who have promised to pay for the products at a later date.

Current Liabilities

A firm's financial obligations to short-term creditors, which must be repaid within one year.

Accounts Payable

The amount a company owes to suppliers for goods and services purchased with credit.

Accrued Expenses

All unpaid financial obligations incurred by an organization.

Statement of Cash Flows

Explains how the company's cash changed from the beginning of the accounting period to the end.

Ratio Analysis

Calculations that measure an organization's financial health.

Profitability Ratios

Ratios that measure the amount of operating income or net income an organization is able to generate relative to its assets, owners' equity, and sales.

Profit Margin

Net income divided by sales; shows the overall percentage of profits earned by the company.

Return on Assets

Net income divided by assets; shows how much income the firm produces for every dollar invested in assets.

Return on Equity

Net income divided by owners' equity; also called return on investment (ROI); shows how much income is generated by each $1 the owners have invested in the firm.

Asset Utilization Ratios

Ratios that measure how well a firm uses its assets to generate each $1 of sales.

Receivables Turnover

Sales divided by accounts receivable; indicates how many times a firm collects its accounts receivable in one year.

Inventory Turnover

Sales divided by total inventory; indicates how many times a firm sells and replaces its inventory over the course of a year.

Total Asset Turnover

Sales divided by total assets; measures how well an organization uses all of its assets in creating sales.

Liquidity Ratios

Ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt.

Current Ratio

Current assets divided by current liabilities; measures how well an organization can turn its assets into cash to meet short-term debt.

Quick Ratio (Acid Test)

A stringent measure of liquidity that eliminates inventory.

Debt Utilization Ratios

Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity.

Debt to Total Assets Ratio

A ratio indicating how much of the firm is financed by debt and how much by owners' equity.

Times Interest Earned Ratio

Operating income divided by interest expense; a measure of the safety margin a company has with respect to the interest payments it must make to its creditors.

Per Share Data

Data used by investors to compare the performance of one company with another on an equal, per share, basis.

Earnings Per Share

Net income or profit divided by the number of stock shares outstanding; measures the value of earnings per outstanding share.

Dividends Per Share

The actual cash received for each share owned.

Finance

The study of how money is managed by individuals, companies, and governments.

Money

Anything generally accepted in exchange for goods and services.

Checking Account

Money stored in an account at a bank, or other financial institution that can be withdrawn without advance notice.

Savings Account

Accounts with funds that usually cannot be withdrawn without notice and/or have limits on the number of withdrawals per period.

Money Market Accounts

Accounts that offer higher interest rates than standard bank rates but with greater restrictions.

Certificates of Deposit (CDs)

Savings accounts that guarantee a depositor a set interest rate over a specific interval of time as long as the funds are not withdrawn before the end of the interval.

Credit Cards

Means of access to preapproved lines of credit granted by a bank or finance company.

Reward Cards

Credit cards that carry a benefit to the user.

Debit Card

Looks like a credit card but works like a check. Results in a direct, immediate, electronic payment from the cardholder's checking account to a merchant or other party.

Cryptocurrency

A digital exchange medium that uses secure online ledger enabled by blockchain technology.

Federal Reserve Board

An independent agency of the federal government established in 1913 to regulate the nation's banking and financial industry.

Monetary Policy

Means by which the Fed controls the amount of money available in the economy.

Open Market Operations

Decisions to buy or sell U.S. Treasury bills (short-term debt issued by the U.S. government) and other investments in the open market.

Reserve Requirement

The percentage of deposits that banking institutions must hold in reserve.

Discount Rate

The rate of interest the Fed charges to loan money to any banking institution to meet reserve requirements.

Credit Controls

The authority to establish and enforce credit rules for financial institutions and some private investors.

Commercial Banks

The largest and oldest of all financial institutions, relying mainly on checking and savings accounts as sources of funds for loans to businesses and individuals.

Savings and Loan Associations (S&Ls)

Financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages; also called "thrifts."

Credit Union

A financial institution owned and controlled by its depositors, who usually have a common employer, profession, trade group, or religion.

Mutual Savings Banks

Financial institutions that are similar to savings and loan associations but, like credit unions, are owned by their depositors.

Federal Deposit Insurance Corporation (FDIC)

An insurance fund established in 1933 that insures individual bank accounts.

National Credit Union Administration (NCUA)

An agency that regulates and charters credit unions and insures their deposits through its National Credit Union Insurance Fund.

Diversified Firms

Nonfinancial firms that help finance their customers' purchases of expensive equipment.

Insurance Companies

Businesses that protect their clients against financial losses from certain specified risks (e.g., death, accident, and theft).

Pension Funds

Managed investment pools set aside by individuals, corporations, unions, and some nonprofit organizations to provide retirement income for members.

Mutual Fund

An investment company that pools individual investor dollars and invests them in large numbers of well-diversified securities.

Exchange-Traded Funds

An investment fund made up of a pool of assets that track an underlying index.

Brokerage Firms

Firms that buy and sell stocks, bonds, and other securities for their customers and provide other financial services.

Investment Banker

Underwrites new issues of securities for corporations, states, and municipalities.

Finance Companies

Businesses that offer short-term loans at substantially higher rates of interest than banks.

Electronic Funds Transfer (EFT)

Any movement of funds by means of an electronic terminal, telephone, computer, or magnetic tape.

Automated Teller Machine (ATM)

The most familiar form of electronic banking, which dispenses cash, accepts deposits, and allows balance inquiries and cash transfers from one account to another.

Automated Clearinghouses (ACHs)

A system that permits payments such as deposits or withdrawals to be made to and from a bank account by magnetic computer tape.

Working Capital Management

The managing of short-term assets and liabilities.

Transaction Balances

Cash kept on hand by a firm to pay normal daily expenses, such as employee wages and bills for supplies and utilities.

Lockbox

An address, usually a commercial bank, at which a company receives payments in order to speed collections from customers.

Marketable Securities

Temporary investment of "extra" cash by organizations for up to one year in US treasury bills, certificates of deposit, commercial paper, or eurodollar loans.

Treasury Bills (T-Bills)

Short-term debt obligations the US government sells to raise money.

Commercial Certificates of Deposit (CDs)

Issued by commercial banks and brokerage companies, available in minimum amounts of $100,000, that may be traded prior to maturity.

Commercial Paper

A written promise from one company to another to pay a specific amount of money.

Eurodollar Market

A market for trading US dollars in foreign countries.

Trade Credit

Credit extended by supplies for the purchase of their goods and services.

Line of Credit

An arrangement by which a bank agrees to lend a specified amount of money to an organization upon request.

Secured Loans

Loans backed by collateral that the bank can claim if the borrower do not repay them.

Unsecured Loans

Loans backed only by the borrowers' good reputation and previous credit rating.

Prime Rate

The interest rate that banks charge their best customers (usually large corporations) for short-term loans.

Factor

A finance company to which businesses sell their accounts receivable, usually for a percentage of the total face value.

Long-Term (Fixed) Assets

Production facilities (plants), offices, and equipment - all of which are expected to last for many years.

Capital Budgeting

The process of analyzing the needs of the business and selecting the fixed assets that will maximize its value.

Long-term Liabilities

Debts that will be repaid over a number of years, such as long-term loans and bond issues.

Bonds

Debt instruments that larger companies sell to raise long-term funds.