Accounting Ans- the recording of the day-to-day financial activities of a company and the organization of
that information into summary reports used to evaluate the company's financial status
Bookkeeping Ans- the pres
...
Accounting Ans- the recording of the day-to-day financial activities of a company and the organization of
that information into summary reports used to evaluate the company's financial status
Bookkeeping Ans- the preservation of a systematic, quantitative record of an activity
accounting system Ans- used by a business to handle routine bookkeeping tasks and to structure the
information so it can be used to evaluate the performance and financial status of the business
Accounting information Ans- Info that is intended to be useful in making decisions about the future.
The balance sheet, the income statement, and the statement of cashflows Ans- What are the three
primary financial statements?
External Users Ans- Who is financial accounting information primarily prepared for and used by?
Managerial Accounting Ans- the name given to accounting systems designed for internal users
Balance Sheet Ans- Reports a company's assets, liabilities, and owners' equity
Income Statement Ans- reports the amount of net income earned by a company during a period
Net income Ans- the excess of a company's revenues over its expenses
statement of cash flows Ans- reports the amount of cash collected and paid out by a company in the
following three types of activities: operating, investing, and financing
FASB Ans- Which private body establishes accounting rules in the U.S.?
Financial Accounting Standards Board (FASB) Ans- a private body established and supported by the joint
efforts of the U.S. business community, financial analysts, and practicing accountants
The Securities and Exchange Commission (SEC) Ans- the organization that regulates U.S. stock exchanges
and seeks to create a fair information environment in which investors can buy and sell stocks without
fear that companies are hiding or manipulating financial data
American Institute of Certified Public Accountants (AICPA) Ans- the professional organization of certified
public accountants (CPAs) in the United States
Public Company Accounting Oversight Board (PCAOB) Ans- the organization that inspects the audit
practices of registered audit firms and has statutory authority to investigate questionable audit practices
and to impose sanctions such as barring an audit firm from auditing SEC-registered companies
Internal Revenue Service (IRS) Ans- Gov't agency that establishes rules to define exactly when income
should be taxed. It has no role in setting financial accounting rules; and a company's financial
statements are not used in determining how much tax the company must pay
The International Accounting Standards Board (IASB) Ans- Organization that was formed to develop a
common set of worldwide accounting standards. Its standards are increasingly accepted worldwide, but
FASB rules are still the standard in the United States.
1. Rapid Advancements in the IT field
2. the international integration of worldwide business
3. Increased scrutiny associated with large corporate accounting scandals Ans- Which 3 factors have
combined to make right now a time of significant change in accounting?
Sarbanes-Oxley Act Ans- A wave of accounting scandals starting in 2001 resulted in this act, which
increases U.S. federal government scrutiny of the production of financial statements.
Balance Sheet Ans- reports a company's financial position at a specified point in time and lists the
company's resources (assets), obligations (liabilities), and net ownership interest (owners' equity).
Assets Ans- probable future economic benefits obtained or controlled by a company as a result of past
transactions or events
Liabilities Ans- probable future sacrifices of economic benefits arising from present obligations of a
company to transfer assets or provide services in the future as a result of past transactions or events
Owners' equity Ans- the residual interest in the assets of a company that remains after deducting its
liabilities
Assets = Liabilities + Owners' Equity Ans- What is the accounting equation?
By order of liquidity Ans- In what order are assets typically listed on the balance sheet?
Current and Long-term Ans- Liabilities are divided into which 2 categories on the balance sheet?
states that the financial results of an economic entity should be reported separately from the financial
results of other entities, even though all those entities may be controlled by the same person Ans- What
is the entity concept?
(revenues-expense= net income) Ans- Equation to calculate net income
When work has been done and collectability of cash can be reasonably assured Ans- According to
accounting rules, when should revenue be recognized?
Operating activities Ans- those activities that comprise the day-to-day operations of a business.
Investing activities Ans- The purchase and sale of long-term assets such as land and equipment are
known as _______________.
Financing activities Ans- those activities through which cash is obtained from, or repaid to, creditors and
investors
information on the accounting assumptions used in preparing the statements and supplemental
information not included in the statements themselves Ans- What information do the notes to
accounting statements provide?
1. Summary of accounting policy
2. Additional info about summary totals
3. Disclosure of info not included in summary
4. Supplemental disclosure required by FASB or SEC Ans- What are the 4 general types of accounting
notes?
Conservatism Ans- the practice of recognizing all losses but not recognizing gains until they are certain
Materiality Ans- the concept that weighs whether a certain dollar amount is large enough to make a
difference to anyone
Articulation Ans- the idea that the three primary financial statements are interrelated
Debt Ratio
Total Liabilities/
Total Assets Ans- Percentage of funds needed to purchase assets that were obtained through borrowing
Current Ratio
Current Assets/
Current Liabilities Ans- Measure of liquidity; number of times current assets could cover current
liabilities
Return on Sales Ratio
Net Income/
Sales Ans- Number of pennies earned during the year on each dollar of sales
Asset Turnover
Sales/
Total Assets Ans- Number of dollars of sales during the year generated by each dollar of assets
Return on Equity
Net Income/
Stockholder's Equity Ans- Number of pennies earned during the year on each dollar invested
Price-earnings Ratio
Market Value of Shares/
Net Income Ans- Amount investors are willing to pay for each dollar of earnings; indication of growth
potential
1) to predict a company's future profitability and cash flows
2) to identify and improve potential problem areas Ans- What are the two main purposes of financial
statement analysis?
financial ratios Ans- relationships between two financial statement numbers and are often used in
analyzing and describing a company's performance
financial docs that allow comparison of financial statements across years and between companies and
are prepared by dividing all financial statement numbers by sales for the year Ans- Common-size
financial statements
Return on sales is computed as net income divided by sales Ans- In terms of ROE, define profitability.
Asset turnover is computed as sales divided by assets and is interpreted as the number of dollars in sales
generated by each dollar of assets Ans- In terms of ROE, define efficiency.
Assets-to-equity ratio is computed as assets divided by equity and is interpreted as the number of
dollars of assets a company is able to acquire using each dollar invested by stockholders Ans- In terms of
ROE, define leverage.
the profitability of each dollar in sales and turnover is the degree to which assets are used to generate
sales Ans- Margin
NOTE: Companies with a low margin can still earn an acceptable level of return on assets if they have a
high turnover.
current asset Ans- an asset that is expected to be used within one year of the balance sheet date
cash, accounts receivable, and inventory Ans- What are the most common current assets?
Property, plant, and equipment (PPE) Ans- What are the primary long-term assets?
companies report the intangibles that they have purchased from other companies but not the
intangibles that they have developed themselves Ans- Which intangible assets are reported on the
balance sheet?
current liability Ans- those obligations that are expected to be paid or ot
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