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Genbus 101 Ch. 14

Accounting
the recording, measurement, and interpretation of financial information
Certified Public Accountant
an individual who has been certified by the state in which he or she practices to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records.
Private accountants
employed by large corporations, govt agencies, and other organizations to prepare and analyze their financial statements
Certified Management Accountants
private accountants who, after rigorous examination, are certified by the national association of accountants and who have some managerial responsibility.
Managerial accounting
the internal use of accounting statements by managers in planning and directing the organizations activities
Cash flow
the 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
summary of a firms financial information, products, and growth plans for wonders and potential investors
assets
a firms economic resources, or items of value that it owns, such as cash, inventory, land, equipment, buildings, and other tangible and intangible things
Liabilities
debts the firm owes to others
Owners equity
assets minus liabilities and reflects historical values
accounting equation
assets=liabilities+owners equity
double entry bookkeeping
a system of recording and classifying business transactions in separate accounts in order to maintain 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
time ordered list of account transactions
ledger
a book or computer file with separate sections for each account
income statement
a financial report that shows an organizations profitability over a period of time – month, quarter, or year
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 (COGS=beginning inventory+interim purchases-ending inventory)
gross income (or profit)
revenues-COGS
expenses
are the costs incurred in 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 organizations financial position at a given moment
current assets
assets that are used or concerted into cash within the course of a calendar year
accounts receivable
money owed a company by its clients or customers who have promised to pay fro the products at a later date
current liabilities
a firms 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
an account representing all unpaid financial obligations incurred by the organization
statement of cash flows
explains how the companies cash changed from the beginning of the accounting period to the end
ratio analysis
calculations that measure an organizations financial health
profitability ratios
measure how much operating income or net income an organization is able to generate relative to its assets, owners equity, and sales
profit margin
computed by dividing net income by sales, shows the overall percentage profits earned by the company
return on assets
net income divided by assets shows how much income the firm produces for every dollar invested in assets
return on equity
aka ROI, calculated by dividing net income by wonders equity who’s 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 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 of the course of a year
total asset turnover
sales divided by 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 int cash to meet short term debt
current ratio
current assets divided by current liabilities
quick ratio (acid test)
a stringent measure of liquidity that eliminates inventory
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
indicates 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
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 or profit divided by the number of stock shares outstanding
dividends per share
the actual cash received for each share owned

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