MIE 201 exam 5

accounting

the 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 the filing of tax returns to complex audits of corporate financial records

unbiased

certified public accountants are allowed to express their _____ opinion regarding the accuracy of the client's financial statements

certified public accountants

______ are self-employed or members of large public accounting firms

forensic accounting

Accounting that is fit for legal review

private accountant

accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements

private accountants

controller, tax accountant, or internal auditor are all examples of ______

Certified Management Accountant (CMA)

private accountants who, after rigorous examination, are certified by the National Association of Accountants and who have some managerial responsibility

bookkeepers

responsible for obtaining and recording the information that accountants require to analyze a firm's financial position (less training than accountants and limited to day-to-day recording of business transactions)

accountants

record financial information and understand, interpret, and develop sophisticated accounting systems necessary to classify and analyze complex financial information.

Managerial Accounting

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

cash flow

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

cash flow

management's greatest single concern is _____

budget

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

annual report

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

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

Liabilities

debts that a firm owes to others

owners equity

equals assets minus liabilities and reflects historical values

accounting equation

Assets = Liabilities + Owner's Equity

double-entry bookkeeping

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

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

journal

a time-ordered list of account transactions

ledger

a book or computer file with separate sections for each account

trial balance

a summary of the 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 - month, quarter, or year (also known as the profit and loss statement or operating statement)

revenue

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

Cost of Goods Sold

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

cost of goods sold

beginning inventory + interim purchases - ending inventory = ____

Gross revenue

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

profit

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

expenses

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

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

net income

the total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings

balance sheet

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

traditional balance sheet

places the organization's assets on the left side and its liabilities and owners' equity on the right.

vertical balance sheet

assets on top followed by liabilities and owners equity

liquidity

all assets are listed in descending order of ____

current assests

assets that are used or converted into cash within the course of a calendar year; also called short-term assets

Accounts Receivable

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

current liabilities

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

accounts payable

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

accrued expenses

all unpaid financial obligations incurred by an organization

statement of cash flows

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

cash from operating activities

Calculated by combining the changes in the revenue, expense, current assets and current liability accounts

cash from investing activities

Calculated from changes in the long-term or fixed asset accounts

cash from financing activities

Calculated from changes in the long-term liability accounts and the contributed capital accounts in owners' equity

transparency and accuracy

_____ and ____ in reporting revenue, income, and assets develops trust from investors and other stakeholders

ratio analysis

calculations that measure an organization's financial health

Profitability Ratios

ratios that measure the amount of operating income or net income an organization is able to generate relative to its assets, owners' equity, and sales

profit margin

Net Income/Sales, shows the overall percentage of profits earned by the company

Return on Assets

Net Income/Total Assets, shows how much income the firm produces for every dollar invested in assets

Return on Equity

Net Income/Stockholders Equity, shows how much income is generated by each $1 the owners have invested in the firm

asset utilization ratios

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

Receivables Turnover

Sales / Accounts Receivable, indicates how many times a firm collects its accounts receivable in one year

Inventory Turnover

Sales/Inventory, indicates how many times a firm sells and replaces its inventory over the course of a year

Total Asset Turnover

Sales/Total Assets, measures how well an organization uses all of its assets in creating sales

liquidity ratios

ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt

current ratio

current assets/current liabilities

quick ratio

a stringent measure of liquidity that eliminates inventory ((current assets - inventory)/current liabilities)

debt utilization ratios

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

debt to total assets ratio

Debt (Assets - Equity) / Total Assets, a ratio indicating how much of the firm is financed by debt and how much by owners' equity

times interest earned ratio

operating income divided by interest expense, it is a measure of the safety margin a company has with respect to the interest payments it must make to its creditors

per share data

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

earnings per share

net income/number of shares outstanding

dividends per share

the actual cash received for each share owned, dividends paid/number of shares outstanding

finance

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

money

anything generally accepted in exchange for goods and services; also called currency

primary purpose

moneys ______ is to enable a person or organization to trade money for a good or a service

medium of exchange

anything that is used to determine value during the exchange of goods and services

measure of value

Money serves as a common standard or yardstick of the value of goods and services

store of value

money serves as a way to accumulate wealth until it is needed

characteristics of money

durability, portability, divisibility, uniformity, limited supply, acceptability

checking account

money stored in an account at a bank or other financial institution that can be withdrawn without advance notice; also called a demand deposit

savings accounts

accounts with funds that usually cannot be withdrawn without advance notice; also known as time deposits

money market account

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

certificates of deposits

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

credit cards

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

reward cards

credit card that carries a benefit to the user

debit card

A card that looks like a credit card but operates like cash; money is immediately subtracted from the cardholder's bank account when a purchase is made.

federal reserve board

an independent agency of the federal government established in 1913 to regulate the nation's banking and financial industry; also called "the fed"

federal reserve board responsibilities

1. conduct monetary policy, 2. promote financial system stability, 3. to supervise and regulate financial institutions and activities, 4. to foster payment and settlement system safety and efficiency, 5. to promote consumer protection and community development

monetary policy

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

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

reserve requirement

the percentage of deposits that banking institutions must hold in reserve

discount rate

The rate of interest that the Federal Reserve charges to loan money to any banking institution to meet reserve requirements

credit controls

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

savings and loan association

financial institutions that primarily offer savings accounts and make long-term loans for residential mortgages; also called "thrifts"

credit union

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

mutual savings banks

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

Federal Deposit Insurance Corporation (FDIC)

an insurance fund established in 1933 that insures individual bank accounts

National Credit Union Administration (NCUA)

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

Non banking financial institutions

financial institutions that offer some financial services such as short-term loans or investment products, but do not accept deposits (ex: insurance companies, pension funds, mutual funds, brokerage firms, etc)

insurance companies

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

pension funds

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

mutual funds

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

Exchange Traded Funds

an investment fund made up of a pool of assets that track an underlying index

brokerage firms

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

investment banker

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

finance companies

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

electronic funds transfer

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