Business Finance Lecture - Vocabulary Flashcards

Fifty vocabulary flashcards covering core terms and definitions from the Business Finance lecture notes.

Users of productive resources, seek a profit by providing products or services that satisfy society's needs and wants.

Business

A business that has been organized for commercial purposes.

Firm

A profit-seeking entity that links scarce resources to customer satisfaction; involved in developing aid, marketing, organizing capital/workforce, and taking risks in new markets.

Business Firm

To earn profit; to increase its value as an economic entity; to improve the quality of life in the community.

Primary Goals of Business

The art and science of managing the financial resources of a business.

Finance

Finance

The art and science of managing the financial resources of a business.

Allocation of Financial Resources

The process of assigning financial resources to projects and assets.

Procurement of Funds

The process of obtaining funds for the business.

Efficient Utilization of Financial Resources

Using financial resources effectively to achieve goals.

Financial Manager

Person responsible for planning and controlling the firm’s financial activities.

Financial Planning and Analysis

Forecasting, budgeting, and evaluating financial implications for decision-making.

Managing the Firm’s Assets

Overseeing resources owned by the firm to maximize value.

Managing Liabilities and Owner’s Equity

Handling obligations to creditors and owners’ claims on assets.

Accounting Practices

Procedures for recording, reporting, and communicating financial information.

Auditing

Independent examination to ensure fairness and reliability of reports; can be external or internal.

External Auditor

An independent contractor hired to perform auditing or attest functions.

Internal Auditing

Examination of information systems, records, and operations to ensure efficiency and integrity.

Cost Accounting

Tracking costs, income, and profits related to specific jobs; budgeting vs actual; allocation and control of production costs.

Financial Accounting

Recording transactions and preparing periodic reports on financial position and results.

Government Accounting

Identification of the uses of resources in line with laws.

Tax Accounting

Planning techniques to maximize profits while minimizing taxes; auditing involves tax returns and representation.

Tax Auditing

Preparation of tax returns and representation before taxing jurisdictions.

Management Consulting

Advice on mergers/takeovers, systems installation/modification, budgeting, forecasting, and planning.

Compliance Accounting

Preparing accounting reports and statements that adhere to standards set by regulators.

Accounting Education

Many CPAs are professors in colleges and universities.

Forensic Accounting

Using accounting to investigate and recreate business conditions for valuation; common in divorce or insurance recovery.

Recordkeeping

Maintaining accurate and complete records of assets, liabilities, income, and expenses for financial statements and tax.

Basic Recordkeeping System

A basic journal, accounts receivable/payable, payroll, petty cash, and inventory records.

Accounting Cycle

Sequence from journalizing to posting, preparing financial statements, adjusting entries, and closing.

General Journal

Records all transactions not in specialized journals; includes non-cash items like depreciation.

Cash Receipts Journal

Records all cash inflows; related to receipts and bank deposits.

Cash Disbursement Journal

Records all cash outflows and payments.

Sales Journal

Records value of each sales invoice; totals posted to the general ledger.

Purchases Journal

Records supplier invoices; totals posted to the general ledger.

General Ledger

A summary of all transactions from all journals; organized by account type.

Trial Balance

A list of account balances to verify that total debits equal credits.

Balance Sheet

A snapshot of assets, liabilities, and owners’ equity at a date.

Income Statement

A report of revenues and expenses showing net income.

Cash Flow Statement

A financial statement showing cash flows from operating, investing, and financing activities.

Financial Statements

The complete set of external reports: balance sheet, income statement, changes in equity, cash flow, and notes.

Notes to Financial Statements

Explanatory notes summarizing significant accounting policies and other details.

Users of Accounting Information

Owners, creditors, customers, government, tax services, investors, employees, public.

Net Income

The profit reported for a period; earnings after expenses.

Depreciation

Systematic allocation of the cost of tangible fixed assets over their useful life.

Cash Flow vs Net Income

Cash flow measures cash in/out; net income is accounting profit; they can differ due to non-cash items.

Operating Activities

Cash flows from the principal revenue-producing activities.

Investing Activities

Cash flows from the purchase or sale of PPE and investments.

Financing Activities

Cash flows from raising or repaying capital and paying dividends.

Beginning Cash Balance

Cash available at the start of a period in a cash flow budget.

Ending Cash Balance

Cash available at the end of a period in a cash flow budget.

Cash Budget

A projection of cash inflows and outflows over a period, usually month-by-month.

Sales Forecast

Projection of expected sales used as the starting point for budgeting.

Projected Cash Inflows

Expected cash receipts from sales, collections, loans, and other inflows.

Projected Cash Outflows

Expected cash payments for COGS, operating expenses, debt, etc.

Beginning Cash Balance + Inflows - Outflows

The basic formula for the cash flow bottom line (ending cash balance) in a cash flow budget.

Cash Management

Managing cash to hold an optimum balance and maximize returns while maintaining liquidity.

Working Capital

Management of short-term assets and liabilities to ensure liquidity.

Lockbox System

A system where customers send checks to a PO box, bank collects to speed receipts.

Electronic Funds Transfer

Moving funds between accounts electronically instead of using checks.

Stretch Payables

Delaying payment of obligations to manage cash flow.

Contingency Plans

Plans for unexpected events to maintain liquidity and operations.

Cash Flow Budget Four Steps

1) Sales forecast; 2) Project inflows; 3) Project outflows; 4) Combine projections month-by-month.

Beginning Cash Balance (cash budget step)

The starting cash available before projected inflows/outflows.

Ending Cash Balance (cash budget step)

The final projected cash position after inflows and outflows.

Notes

Explanatory details accompanying financial statements; summarize accounting policies and other notes.

GSIS Balance Sheet Example

Illustrates assets, liabilities, and net worth in a real-world statement (as shown in notes).

Financial Statements (External Users)

Reports prepared for external users like owners, creditors, and regulators.

Accrued vs Cash-based Reporting

Accrual accounting recognizes revenue and expenses when earned/incurred, not when cash is exchanged; cash flow is focused on cash movements.

Profit is Not Cash

Net profit does not equal cash because non-cash items (like depreciation) affect profit.

Amount of Cash Flow from Operations

Cash generated from the core business activities and operations.

Notes to Financial Statements

Explanatory notes that accompany financial statements detailing accounting policies.

Inventory Records

Part of the basic recordkeeping system tracking stock levels and movements.

Accounts Receivable Records

Part of the basic recordkeeping system tracking money owed by customers.

Accounts Payable Records

Part of the basic recordkeeping system tracking money owed to suppliers.