mie201 chp14

accepting

recording, measurement, and interpretation of financial information.

certified public accountant (CPA)

an individual who has been state certified to provide accounting services ranging from the preparation of financial records and filing or tax returns to complex audits of corporate financial records.

forensic accounting

accounting that is fit for legal review

private accountants

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

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

cash flow

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

budget

an internal financial plan that forecasts expenses and income over a set period of time

annual report

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

assets

cash, inventory, land, equipment, buildings, and other tangible and intangible things

liabilities

are debts the firm owes to others

owner's equity

contains all money that has ever been contributed to the company that has never has to be paid back

accounting equation

assets = liabilities + owners' equity

double entry bookkeeping

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

accounting cycle

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 program with separate files for each account.

trial balcne

a summary of balances of all the accounts in the general ledger

income statement

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

revenue

total amount of money received (or promised) from the sale of goods or services, as well as from other business activities such as the rental of property and investments.

cost of goods sold

amount of money the firm spent (or promised to spend) to buy and/or produce the products it sold during the accounting period.

gross income/profit

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

expenses

costs incurred in day-to-day operations of a organization.

depreciation

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

net income

total profit (or loss) after all expenses, including taxes, have been deducted from revenue.

balance sheet

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

current assets

short-term assets

accounts receivable

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

current liabilities

include a firm's financial obligations to short-term creditors.

accounts payable

represents amount owed to suppliers for goods and services purchased with credit.

accrued expenses

represents all unpaid financial obligations incurred by the organization

statement of cash flows

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

ratio analysis

calculations that measure an organization's financial health, brings complex information form the income statement and balance sheet into focus so that managers, lenders, owners and other interested parties can measure and compare the organization's productivity, profitability, and financing mix with other similar entities.

profitability ratios

measure how much operating income or net income an organization is able to generate relative to its assets, owner's equity and sales.

profit margin

computed by dividing net income by sales.

return on assets

net income divided assets

return on equity

also called ROI. net income divided by owners' equity

asset utilization ratios

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.

liquidity ratios

compare current assets to current liabilities to indicate the speed with which a company can turn its assets into cash to meet debts as they fall due

current ratio

calculated by dividing current assets by current liabilites

quick ratio (acid test)

far stringent measure of liquidity because it eliminates inventory, the least liquid current asset.

debt utilization ratios

provide information about how much debt an organizations is using relative to other sources of capital such as owners' equity.

debt to total assets ratio

indicates how much of the firm is financed by debt and how much by owners' and equity. debt (assets-equity) /total assets

time interest earned ratio

operating income divided by interest expense. measure of safety margin a company has with respect to interest payment it must make to its creditors.

dividends per share

paid by corporation to stockholders for each share owed.