MGMT 20000 Final Midterm Term Review (Intro to Accounting Purdue 2025)

Acid-Test Ratio / Quick Ratio (On Formula Sheet)

Cash, Current investments, and accounts receivable divided by current liabilities; measures the availability of liquid current assets to pay current liabilities.

Commercial Paper

Borrowing from another company rather than from a bank.

Contingencies

Uncertain situations that can result in a gain or a loss for a company.

Contingent Gain

An existing uncertain situation that might result in a gain.

Contingent Liability

An existing uncertain situation that might result in a loss.

Current Liabilities / Short-term Liabilities / Short-term Debt

Obligations that, in most cases, are due within one year from the balance sheet date. However, when a company has an operating cycle longer than a year, its current liabilities are defined by the length of the operating cycle, rather than by the length of one year.

Current Portion of Long-term Debt

Debt that will be paid within one year from the balance sheet date.

Current Ratio (On Formula Sheet)

Current assets / current liabilities; measures the availability of current assets to pay current liabilities.

Debt Covenant

An agreement between a borrower and a lender requiring certain minimum financial measures be met of the lender can recall the debt.

Deferred Revenue

Cash received in advance from a customer for products or services to be provided in the future.

FICA Taxes

Based on the Federal Insurance Contributions Act; tax withheld from employees' paychecks and matched by the employers for Social Security and Medicare.

Fringe Benefits

Additional employee benefits paid for by the employer.

Gift Card Breakage

The point in time when gift cards expire or when the likelihood of redemption by customers is viewed as remote.

Liability

An obligation of a company to transfer some economic benefit in the future.

Line of Credit / Revolving Credit Arrangement

A prearranged agreement between a company and a financial institution that allows the company to borrow as needed up to a certain amount.

Liquidity

Having sufficient cash (or other assets convertible to cash in a relatively short time) to pay currently maturing debts.

Long-term Liabilities / Noncurrent Liabilities

Liabilities that are due more than one year after the balance sheet date.

Notes Payable

Written promises to repay amounts borrowed plus interest.

Quick Assets

Includes only cash, current investments, and accounts receivable.

Sales Tax Payable

Sales tax collected from customers by the seller, representing current liabilities payable to the government.

Unemployment Taxes

A tax to cover federal and state unemployment costs paid by the employer on behalf of its employees.

Working Capital

The difference between current assets and current liabilities.

Amortization Schedule

Provides a table format detailing the cash payment each period, the portions of each cash payment that represents interest, the change in carrying value, and the balance of the carrying value.

Annuity

Cash payments of equal amounts over equal time periods, such as bond interest payments.

Bond

A formal debt instrument issued by a company to borrow money. The issuing company (borrower) is obligated to pay back to the investor (lender): a stated amount, referred to as the principal or face amount, at a specified maturity date and periodic interest payments over the life of the bond.

Callable

A bond feature that allows the borrower to repay the bonds before their scheduled maturity date at a specified call price.

Capital Structure

The mixture of liabilities and stockholders' equity in a business.

Carrying Value

The amount for which a liability is reported in the balance sheet.

Convertible Bond

A bond feature that allows the lender (or investor) to convert each bond into a specified number of shares of common stock.

Debt Financing

Borrowing money from creditors (liabilities).

Debt to Equity Ratio (On Formula Sheet)

Total liabilities / total stockholders' equity; measures a company's risk.

Default Risk

The risk that a company will be unable to pay the bond's face amount or interest payments as they become due.

Discount

A bond's issue price is below the face amount.

Early Extinguishment of Debt

The issuer retires debt before its scheduled maturity date.

Equity Financing

Obtaining investment from stockholders (stockholders' equity).

Installment Payment

Includes both an amount that represents interest and an amount that represents a reduction of the outstanding loan balance.

Lease

A contractual arrangement by which the lessor (owner) provides the lessee (user) the right to use an asset for a specified period of time.

Market Interest Rate / Effective-interest Rate / Yield Rate

An implied rate based on the price investors are willing to pay to purchase a bond in return for the right to receive the face amount at maturity and periodic interest payments over the remaining life of the bond.

Premium

A bond's issue price is above the face amount.

Private Placement

Sale of debt securities directly to a single investor.

Return on Assets (On Formula Sheet)

Net income / Average total assets; measures the amount of net income generated for each dollar invested in assets.

Security Bonds

Bonds that are supported by specific assets pledged as collateral.

Serial Bonds

Bonds that require payment of the principal amount of the bond over a series of maturity dates.

Sinking Fund

An investment fund used to set aside money to be used to pay debts as they come due.

Solvency

Refers to a company's ability to pay its current and long-term obligations.

Stated Interest Rate

The rate specified in the bond contract used to calculate the cash payments for interest.

Term Bonds

Bonds that require payment of the full principal amount at a single maturity date.

Times Interest Earned Ratio (On Formula Sheet)

Ratio of net income + interest expense + income tax expense / interest expense.

Unsecured Bonds

Bonds that are not supported by specific assets pledged as collateral.

Accumulated Deficit

A negative balance in Retained Earnings

Additional Paid-In Capital / Paid-in Capital in Excess of Par

The portion of the cash proceeds from issuing stock above par value.

Angel Investors

Wealthy individuals in the business community willing to risk investment funds on a promising business venture.

Articles of Incorportation

Describes the nature of the company's business activities, the shares to be issued, and the composition of the initial board of directors.

Authorized Stock

Number of shares available to sell, as stated in the company's articles of incorporation.

Convertible Stock

Shares can be exchanged for common stock.

Corporation

An entity that is legally separate from its owners and even pays its own income taxes.

Cumulative

Dividends not declared in a given year accumulate until the company does declare dividends.

Declaration Date

The date the board of directors announces the next dividend to be paid.

Dividends

Distributions to stockholders, typically in the form of cash.

Dividends in arrears

Unpaid dividends on cumulative preferred stock.

Dividend Yield

Dividends per share / the stock price.

Double Taxation

Corporate income is taxed once on earnings at the corporate level and again on dividends at the individual stockholder level.

Earnings Per Share (On Formula Sheet)

Net income available to common shareholders / average shares of common stock outstanding.

Growth Stocks

Stocks that tend to have higher price-earnings ratios and are expected to have higher future earnings.

Initial Public Offering (IPO)

The first time a corporation issues stock to the public.

Issued Stock

Number of shares sold to investors; includes treasury shares.

Limited Liability

Stockholders in a corporation can lose no more than the amount they invested in the company.

No-par Value Stock

Common stock that has not been assigned a par value.

Organization Chart

Traces the line of authority within the corporation.

Outstanding Stock

Number of shares that currently are held by investors, does not include treasury shares.

Paid-in Capital

The amount stockholders have invested in the company.

Par Value

The legal capital assigned per share of stock.

Payment Date

The date of the actual distribution of dividends on shares outstanding.

Preferred Stock

Stock with preference over common stock in the payment of dividends and the distribution of assets.

Price-earnings Ratio (On Formula Sheet)

The stock price / earnings per share so that both stock price and earnings are expressed on a per share basis.

Privately Held Corporation

Does not allow investment by the general public and normally has fewer stockholders.

Property Dividend

The distribution of a noncash asset to stockholders.

Publicly Held Corporation

Allows investment by the general public and is regulated by the Securities and Exchange Commission.

Record Date

The date on which a company looks at it's records to determine who the stockholders of the company are.

Redeemable

Shares can be returned to the corporation at a fixed price.

Retained Earnings

Earnings not distributed as dividends to stockholders over the life of the company.

Return on Equity (ROE) (On Formula Sheet)

Net income / average stockholders' equity; measures the income generated per dollar of equity.

S Corporation

Allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership.

Stated Value

The legal capital assigned per share to no-par stock.

Statement of Stockholders' Equity

A financial statement that summarizes the changes in stockholders' equity over time.

Stock Dividends

Additional shares of a company's own stock given to stockholders.

Stock Split

A large stock dividend that includes a reduction in the par or stated value per share.

Treasury Stock

A company's own issued stock that it has purchased.

Value Stocks

Stocks that tend to have lower price-earnings ratios and are priced low in relation to current earnings.

Venture Capital Firms

Provide additional financing, often in the millions, for a percentage ownership in the company.

Asset Turnover (On Formula Sheet)

Net sales / average total assets; measures the sales per dollar of assets invested.

Cash Flow to Sales

Net cash flows from operating activities / net sales revenue; measures the operating cash flow generated per dollar.

Cash Return on Assets

Net cash flows from operating activities / average total assets; measures the operating cash flow generated per dollar of assets.

Direct Method

Adjusts the items in the income statement to directly show the cash inflows and outflows from operations, such as cash received from customers and cash paid for inventory, salaries, rent, interest, and taxes.

Financing Activites

Transactions with lenders, such as borrowing money and repaying debt, and with stockholders, such as issuing stock, paying dividends, and purchasing treasury stock.

Indirect Method

Begins with net income and then lists adjustments to net income in order to arrive at operating cash flows.

Investing Activities

Transactions involving the purchase and sale of long-term assets and current investments.

Noncash Activities

Significant investing and financing activities that do not affect cash.

Operating Activities

Transactions involving revenue and expense activities.

Statement of Cash Flows

A financial statement that summarizes activities involving cash inflows and cash outflows over a period of time.