practice 1

Time value of money

The concept that money available now is worth more than the same amount in the future.

Future value determination

Requires principal amount and interest rate to calculate future value.

Positive investment results

Earnings must exceed the rate of inflation to show positive results.

Personal financial information example

Pay stub.

Business-related financial information example

Accounts receivable record.

Useful financial data

Must be gathered and organized to be helpful to businesses.

Understandable financial information

Must be clear to anyone who needs to use it.

Financial jargon

Specialized language in financial information that may hinder understanding.

Relevant financial information

Must be timely to be considered relevant.

Most relevant financial consideration for purchasing machinery

The amount of money left in the budget for the fiscal year.

Reliable financial information

Must be complete to be considered reliable.

Preparing reliable financial reports

Business must be neutral in its financial disclosures.

Reliable financial information

Conforms to specific processing standards.

Comparable financial information

Must be consistent to enable comparisons.

Recording financial information

Should be done the same way every time for consistency.

Important application of financial information in business

Business decision-making.

Saving money by switching providers

Example of reducing expenses.

Checking if a new product can be afforded

Example of increasing sales.

Financial information used for budgets

Useful for creating and adjusting budgets.

Using surplus cash to pay off a loan

Example of managing debt.

Reviewing financial info before signing a contract

Shows the use of financial info to enter into legal agreements.

Reducing expenses results

Monitoring ongoing business activities.

Comparing financial information with competitors

Reason for examining financial info from another company.

Keeping financial records of a business

Known as accounting.

Overall purpose of accounting

To control the finances of the business.

Importance of accurate accounting records

They show how the business is performing.

Groups that use managerial accounting information

Supervisors make regular use of it.

Creditors examine financial records

Most likely to review records when applying for a bank loan.

Government studies accounting reports

To identify trends in the industry.

Useful accounting information

Must be accurate and up to date.

Requirement for a good accounting system

It should provide needed information quickly.

Lack of protection in accounting system

Resulted in theft and fraud.

Checks, receipts, and invoices

Examples of source documents in accounting.

Most likely accounting method for a small business without credit

Cash method.

Most likely accounting method for a large business

Accrual method.

Example of accrual method of accounting

Shows both cash and credit sales in records.

True statement about bookkeeping

Bookkeeping records business transactions.

First three steps in the accounting cycle order

Analyze, journalize, and post.

Enabling comparisons across organizations

Accounting standards make this possible.

Categories of information in balance sheet

Assets, liabilities, and owner’s equity.

Report that likely caused credit denial

Balance sheet review by the bank.

Record summarizing profit or loss

Income statement provides this summary.

Financial report estimating cash movement

Cash flow statement.

Purpose of ethics in business

Guides individuals on how to do what is right.

Task performed by managerial accountant

Developing budgets.

Primary audience for financial accountants

Investors.

Ethical principle in accounting ownership

Responsibility requires accountants to take ownership.

Evelyn demonstrates integrity

By refusing to overstate earnings despite pressure.

Example of transparency/full disclosure

Adding notes to financial statements explaining policies.

Ethical principle of striving for improvement

Due care encourages improving and giving best effort.

Risking objectivity or independence

Marty risks this due to his father's connection.

Keeping merger information confidential

Staying ethical in handling sensitive information.

Work's impact on society

Illustrates the ethical principle of the public interest.