Quiz 2 Comprehensive Set

Quiz 2 Overview - BA100 Section 007 Miller

accounting

comprehensive system for collecting, analyzing, and communicating financial information

bookkeeping

recording of accounting transactions

accounting information system (AIS)

organized procedure for identifying, measuring, recording, and retaining financial information for use in accounting statements and management reports

controller

person who manages all of a firm's accounting activities (chief accounting officer)

financial accounting

field of accounting concerned with external users of a company's financial information

managerial/management accounting

field of accounting that serves internal users of a company's financial information

certified public accountant (CPA)

accountant licensed by the state and offering services to the public

audit

systematic examination of a company's accounting system to determine whether its financial reports reliably represent its operations

generally accepted accounting principles (GAAP)

accounting guidelines that govern the content and form of financial reports

tax service

assistance provided by CPAs for tax preparation and tax planning

management advisory services

assistance provided by CPA firms in areas such as financial planning, information systems design, and other areas of concern for client firms

core competencies for accounting

the combination of skills, technology, and knowledge that will be necessary for the future CPA (skills in strategic thinking and critical problem-solving; communications, interpersonal skills, and effective leadership; dedication to meeting customer needs; ability to integrate diverse information; and proficiency with information technology)

private accountant

salaried accountant hired by a business to carry out its day-to-day financial services

management accountant

private accountant who provides financial services to support managers in various business activities within a firm

certified management accountant (CMA)

professional designation awarded by the Institute of Management Accountants (IMA) in recognition of management accounting qualifications

forensic accounting

the practice of accounting for legal purposes

certified fraud examiner (CFE)

professional designation administered by the ACFE in recognition of qualifications for a specialty area within forensic accounting)

Sarbanes-Oxley Act of 2002 (Sarbox or SOX)

enactment of federal regulations to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations

accounting equation

equation used by accountants to balance data for the firm's financial transactions at various points in the year

Assets = Liabilities + Owner's Equity

asset

any economic resource expected to benefit a firm or an individual who owns it

liability

debt owed by a firm to an outside organization or individual

owners' equity

amount of money that owners would receive if they sold all of a firm's assets and paid all of its liabilities

Assets - Liabilities

financial statements

any of several types of reports summarizing a company's financial status to stakeholders and to aid in managerial decision-making

balance sheet

financial statement that supplies detailed information about a firm's assets, liabilities, and owners' equity; provides a snapshot of an organization's financial condition at a specific point in time; summarizes a company's assets, liabilities, and equity, adhering to the fundamental accounting equation

current asset

asset that can or will be converted into cash within a year

liquidity

the ease with which an asset can be converted into cash

fixed asset

asset with long-term use or value, such as land, buildings, and equipment

depreciation

accounting method for distributing the cost of an asset over its useful life

intangible asset

nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit

goodwill

amount paid for an existing business above the value of its other assets

current liability

debt that must be paid within one year

accounts payable (payables)

current liability consisting of bills owed to suppliers, plus wages and taxes due within the coming year

long-term liability

debt that is not due for at least one year

paid-in capital

money that is invested in a company by its owners

retained earnings

earnings retained y a firm for its use rather than paid out as dividends

income/profit-and-loss statement

financial statement listing a firm's annual revenues and expenses so that a bottom line shows annual profit or loss; summarizes a company's revenues, expenses, and profits or losses over a specific period of time, typically a fiscal quarter or year; it provides insight into a company's financial performance and its ability to generate profit

Profit (or Loss) = Revenues - Expenses

revenues

funds that flow into a business from the sale of goods or services

cost of revenues

costs that a company incurs to obtain revenues from other companies

cost of goods sold

costs of obtaining materials for making the products said by a firm during the year

gross profit

preliminary, quick-to-calculate profit figure calculated from the firm's revenues minus its cost of revenues (the direct costs of getting the revenues)

operating expenses

costs, other than the cost of revenues, incurred in producing a good or service

operating income

gross profit minus operating expenses

net income/profit/earnings

gross profit minus operating expenses and income taxes

statement of cash flows

financial statement describing a firm's yearly cash receipts and cash payments; provides a detailed breakdown of a company's cash inflows and outflows over a specific period of time; it highlights the company's ability to generate cash from operations, manage its investing and financing activities, and maintain liquiditys

budgt

detailed statement of estimated receipts and expenditures for a future period of time

revenue recognition

formal recording and reporting of revenues at the appropriate time

full disclosure

guideline that financial statements should not include just numbers but should also furnish management's interpretations and explanations of those numbers

solvency ratio

financial ratio, either short- or long-term, for estimating the borrower's ability to repay debt

profitability ratio

financial ratio for measuring a firm's potential earnings

acitivity ratio

financial ratio for evaluating management's efficiency in using a firm's assets

short-term solvency ratio

financial ratio for measuring a company's ability to pay immediate debts

current ratio

financial ratio for measuring a company's ability to pay current debts out of current assets

Current Assets / Current Liabilities

long-term solvency ratio

financial ratio for measuring a company's ability to pay its long-term debt

debt

company's total liabilities

leverage

ability to finance an investment through borrowed funds

earnings per share

profitability ratio measuring the net profit that the company earns for each share of outstanding stock

price earnings ratio

most commonly known as the P/E ratio, this ratio is the comparison of a firm's current share price to its current earnings per share

code of professional conduct

code of ethics for CPAs as maintained and enforced by the AICPA

International Accounting Standards Board (IASB)

organization responsible for developing a set of global accounting standards and for gaining implementation of those standards

public company

company that must publicly release audited financial accounting information; information available on investor relations pages, SEC webpage, and data consolidators

statement of comprehensive income

an extended version of the income statement that includes both net income (or net profit) and other comprehensive income (OCI); provides a more complete picture of all changes in equity as it includes changes not included in the traditional income statement

statement of shareholders' equity

Shows changes in the equity portion of a company's balance sheet over a specific period; details how equity components such as common stock, preferred stock, retained earnings, and additional paid-in capital have changed due to various business activities and transactions

gross profit margin

measures the percentage of revenue that exceeds the cost of goods sold (COGS), indicating how efficiently a company produces its goods

Gross Profit/Revenue × 100

net profit margin

indicates the percentage of revenue remaining after all expenses, taxes, and interest have been deducted from total revenue

Net Income/Revenue × 100

Return on Assets (ROA)

measures how effectively a company uses its assets to generate profit

Net Income/Average Current Assets × 100

NOTE: Use average CURRENT assets, not average total assets

debt to equity ratio

compares a company's total liabilities to its shareholders' equity, reflecting the degree to which debt is used to finance the company

Total Liabilities/Shareholders' Equity

inventory turnover

measures how efficiently a company manages its inventory by comparing the cost of goods sold with average inventory

Cost of Goods Sold/Average Inventory

accounts receivable turnover

indicates how efficiently a company collects its receivables by
comparing net credit sales with average accounts receivable

Net Credit Sales/Average Accounts Receivable

distribution mix

combination of distribution channels by which a firm gets its products to end users

intermediary

individual or firm that helps to distribute a product

wholesaler

intermediary who sells products to other businesses for resale to final consumers

retailer

intermediary who sells products directly to consumers

distribution channel

network of independent companies through which a product passes from producer to end user

direct channel

distribution channel in which a product passes from producer to consumer without intermediaries

sales agent

independent intermediary who generally deals in the related product lines of a few producers and forms long-term relationships to represent those producers and meet the needs of many customers

broker

independent intermediary who matches numerous sellers and buyers as needed, often without knowing in advance who they will be

intensive distribution

strategy by which a product is distributed through as mamy channels as possible

exclusive distribution

strategy by which a manufacturer grants exclusive rights to distribute or sell a product to a limited umber of wholesalers or retailers in a given geographic area

selective distribution

strategy by which a company uses wholesalers and retailers who give special attention to specific products in its sales efforts

channel conflict

conflict arising when the members of a distribution channel disagree over the roles they should play or the rewards they should receive

channel captain

channel member who is most powerful in determining the roles and rewards of other members

merchant wholesaler

independent wholesaler who takes legal possession of goods produced by a variety of manufacturers and then resells them to other organizations

full-service merchant wholesaler

merchant wholesaler that provides credit, marketing, and merchandising services in addition to traditional buying and selling services

limited-function merchant wholesaler

merchant wholesaler that provides a limited range of services

drop shipper

limited-function merchant wholesaler that receives customer orders, negotiates with producers, takes title to goods, and arranges for shipment to customers

e-intermediary

Internet distribution channel member that assists in delivering products to customers or that collects information about various sellers to be presented to consumers, or they help deliver online products to buyers

syndicated selling

e-commerce practice whereby a website offers other websites commissions for referring customers

shopping agent (e-agent)

e-intermediary in the Internet distribution channel that assists users in finding products and prices but does not take possession of products

department store

large product-line retailer characterized by organization into specialized departments

supermarket

large product-line retailer offering a variety of food and food-related items in specialized departments

specialty store

retail store carrying one product line or category of related products

bargain retailer

retailer carrying a wide range of products at bargain prices

discount house

bargain retailer that generates large sales volume by offering goods at substantial price reductions

catalog showroom

bargain retailer in which customers place orders for catalog items to be picked up at on-premises warehouses

factory outlet

bargain retailer owned y the manufacturer whose products it sells

wholesale club

bargain retailer offering large discounts on brand-name merchandise to customers who have paid annual membership fees

convenience store

retail store offering easy accessibility, extended hours, and fast service

direct-response retailing

form of non-store retailing in which firms directly interact with customers to inform them of products and to receive sales orders

mail order (catalog marketing)

form of non-store retailing in which customers place orders for catalog merchandise received through the mail

telemarketing

form of non-store retailing in which the telephone is used to sell directly to consumers