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61 Cards in this Set
- Front
- Back
accounting |
the act of collecting, organizing, and analyzing data |
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bookkeeping |
keeping the financial records of a firm |
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certified public accountant (CPA) |
an individual who passes an exam and meets specific requirements in order to become an accountant |
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types of accounting |
financial, management, governmental, tax, project |
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financial accounting |
used for external reporting |
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management accounting |
used by management for internal decision making |
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governmental accounting |
used in the public sector |
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tax accounting |
used for tax preparation |
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project accounting |
used to track the progress of a subject |
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financing activities |
transactions directly involved with financing the company from startup to expansion |
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operating activities |
day-to-day business operations of an orginization |
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investing activities |
transactions used for investing purposes |
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internal users |
primary users within an organization |
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management (internal user) |
use information to examine the organization's performance and make decisions |
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employees (internal user) |
use information to see how profitable the company is and how its performance might affect employees future compensation and job security |
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owners (internal user) |
use information to analyze data and take action when profits or sustainability need to be adjusted |
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external users |
secondary users outside of an organization |
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creditors (external user) |
use information to determine if a business is able to repay money borrowed from sources such as suppliers, banks, or other lenders usually the credit terms set by creditors reflect the financial health of the business |
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tax authorities (external user) |
the IRS uses this information to determine if tax returns filed on behalf of the company are trustworthy |
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investors (external users) |
use information to determine if it makes financial sense to invest in a company |
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regulatory authorities (external user) |
use information such as annual or government reports to be sure the organization complies with rules and regulations |
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Financial Accounting Standards Board (FASB) |
establishes accounting standards for financial reporting |
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Generally Accepted Accounting Principles (GAAP) |
generally accepted accounting principles used for reporting financial information |
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accounting cycle |
identifying, collecting and analyzing documents and transactions to create financial statements |
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accounting cycle diagram |
source documents --> journals --> ledger --> trial balance --> financial statements --> source documents (etc.) |
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assets |
valuable items that are owned by a business |
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liabilities |
debt that businesses owe to others |
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owner's equity |
amount owner has invested plus profits not distributed |
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accounting equation |
Assets = liabilities + owner's equity |
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double-entry bookkeeping |
transactions are recorded in two areas that offset one another |
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balance sheet |
summarizes a company's assets, liabilities, and owner's equity |
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income statement |
profit and loss statement |
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statement of owner's equity |
displays owner's equity in the firm |
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statement of cash flows |
reports cash generate and used in a specific time period |
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ratio analysis |
using ratios to calculate the financial health of the organization |
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liquidity ratios |
ratios used to measure the ability of a firm to pay short-term debt |
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current ratio |
compares ratio of assets to liabilities in an organization |
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acid test (quick ratio) |
measures ability to convert assets into cash |
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leverage ratios |
ratios used to measure how much a firm relies on debt to operate the business |
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debt ratio |
measures how much debt a company has for each dollar in assets |
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debt-to-equity |
measures relationship between liabilities and the owner's capital |
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profitability ratios |
ratios used to measure how well managers use available resources to make a profit |
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profit |
income after costs and expenses are deducted from sales revenue |
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gross margin |
shows what percentage of each dollar results in profit after expenses are paid |
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return on sales (operating margin) |
shows how well a firm generates income from sales |
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return of equity (ROE) |
shows how much a company earns on each dollar invested by shareholders of the company |
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activity ratios |
measure how effectively management uses organizational assets |
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average collection period |
shows how long a company waits to collect money from customers |
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inventory turnover rate |
measures how long it takes to convert inventory into sales |
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International Accounting Standards Board (IASB) |
Board developed to promote consistent financial reporting around the globe |
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International Financial Reporting Standards (IFRS) |
international reporting standards |
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financial plan |
plan to determine funding needs of the organization |
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financial manager |
individual who examines plans, assesses and manages financial functions of the organization |
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role of financial manager |
1) raising capital 2) allocating funds 3) forecasting profits 4) understanding capital markets |
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short-term financing |
funds needed for less than one year |
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sources of short-term financing |
1) personal equity 2) trade creditors 3) factoring 4) line of credit 5) short-term loan |
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commercial paper |
short-term debt issued by a corporation to raise money |
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long-term financing |
funds needed for more than one year |
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debt financing |
borrowing money that must be repaid |
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equity financing |
investments by others for an exchange of ownership in the business |
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undercapitalization |
not having enough capital to operate or expand a business |