Business Final

Accounting

The recording measurement, and interpretation of financial information

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

Accounting Equation

Assets = liabilities + owners’ equity

Accounts Payable

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

Accounts Receivable

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

Accrued Expenses

Is an account representing all unpaid financial obligations incurred by an organization

Annual Report

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

Asset Utilization Ratios

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

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

Balance Sheet

A “snapshot” of a company’s financial position at a given moment

Budget

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

Cash Flow

The movement of money through a business on a daily, weekly, monthly, or yearly basis

Certified Management Accountants (CMA)

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

Certified Public Accountant (CPA)

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

Cost of Goods Sold

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

Current Assets (short-term assets)

Assets that are used or converted into cash within the course of a calendar year

Current Liabilities (short-term liabilities)

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

Current Ratio

Current assets divided by current liabilities

Debt to Total Assets Ratio

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

Debt Utilization Ratios

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

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

Dividends Per Share

The actual cash received for each share owned

Double-entry Bookkeeping

A system of recording and classifying business transactions that maintains the balance of the accounting equation

Earnings per share

Net income or profit divided by the number of stock shares outstanding

Expenses

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

Gross income (profit)

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

Income Statement

A financial report showing the profitability of a firm over a period of time - month, quarter, or year

Inventory Turnover

Sales divided by total inventory

Journal

A time-ordered list of account transactions

Ledger

A book or computer file with separate files for each account

Liabilities

Debts a firm owes to others

Liquidity Ratios

Ratios that measure the speed with which a company can turn assets into cash to pay off short-term debt

Managerial Accounting

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

Net Income (Net Earnings)

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

Owners’ Equity

Equals assets minus liabilities and reflects historical value

Per Share Data

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

Private Accountants

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

Profit

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

Profit Margin

Net income divided by sales

Profitability Ratios

Ratios that measure the amount of operating income or net income a firm is able to generate relative to its assets, owners’ equity, and sales

Quick Ratio (Acid Test)

A stringent measure of liquidity that eliminates inventory

Ratio Analysis

Calculations that measure an organization’s financial health

Receivables Turnover

Sales divided by accounts receivable

Return on Assets

Net income divided by assets

Return on Equity (Return on Investment; ROI)

Net income divided by owners’ equity

Revenue

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

Statement of Cash Flows

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

Times Interest Earned Ratio

Operating income divided by interest expense

Total Asset Turnover

Sales divided by total assets

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

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

Brokerage Firms

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

Certificates of Deposits (CDs)

Savings accounts that guarantee a depositor a set interest rate over a specified interval as long as the funds are not withdrawn before the end of the period - six months or one year, for example

Checking Account (Demand Deposit)

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

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

Credit Cards

Means of access to pre-approved lines of credit granted by a bank or finance company

Credit Controls

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

Credit Union

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

Debit Card

A card that looks like a credit card, but works like a check; using it results in a direct, immediate, electronic payment from the cardholder’s checking account to the merchant or third party

Discount Rate

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

Electronic Funds Transfer (EFT)

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

Federal Deposit Insurance Corporation (FDIC)

An insurance fund established in 1933 to insure individual bank accounts

Federal Reserve Board (the Fed)

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

Finance

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

Finance Companies

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

Insurance Companies

Businesses that protect their clients against financial losses from certain specified risks (death, accident, and theft, for
example)

Investment Banker

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

Monetary Policy

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

Money (Currency)

Anything generally accepted in exchange for goods and services

Market Money Accounts

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

Mutual Fund

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

Mutual Savings Banks

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

National Credit Union Association (NCUA)

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

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

Pension Funds

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

Reserve Equipment

The percentage of deposits that banking institutions must hold in reserve

Reward Cards

Credit card that carries a benefit to the user

Savings Accounts

Accounts with funds that usually cannot be withdrawn without advance notice

Savings and Loan Associations (S&Ls)

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

Bonds

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

Capital Budgeting

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

Commercial Certificates of Deposits (CDs)

Certificates of deposit issued by commercial banks and brokerage companies, available in minimum amounts of $100,000,
which may be traded prior to maturity

Commercial Paper

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

Dividend Yield

The dividend per share divided by the stock price

Eurodollar Market

A market centered in London for trading U.S. dollars in foreign countries

Factor

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

Floating-rate Bonds

Bonds with interest rates that change with current interest rates otherwise available in the economy

Investment Banking

The sale of stocks and bonds for corporations

Junk Bonds

A special type of higher-interest-rate bond that carries higher inherent risks

Line of Credit

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

Lockbox

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

Long-term (fixed) Assets

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

Long-term Liabilites

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

Marketable Securities

Temporary investments of “extra” cash by organizations for up to one year in U. S. Treasury bills, certificates of deposit,
commercial paper, or Eurodollar loans

Over-the-Counter (OTC) Market

A network of dealers all over the country linked by computers, telephones, and teletype machines

Primary Market

The market where firms raise financial capital

Prime Rate

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

Retained Earnings

Earnings after expenses and taxes that are reinvested in the assets of the firm and belong to the owners in the form of equity

Secondary Markets

Stock exchanges and over-the-counter markets where investors can trade their securities with others

Secured Bonds

Bonds that are backed by specific collateral that must be forfeited in the event that the issuing firm defaults