1 Glossary
- accounting cycle
- process of generating financial statements, beginning with a business transaction and ending with the preparation of the report
- Selling expenses
- Include salaries and commissions paid to salespeople and the costs of advertising, sales supplies, delivery, and other items that can be linked to sales activity, such as insurance, telephone and other utilities, and postage
- Trademarks
- registered names that can be sold or licensed to others
- Activity ratios
- reflect the speed with which resources are converted to cash or sales
- certified management accountant (CMA)
- Whereas some private accountants hold the CPA designation, managerial accountants also have a professional certification program including passing an exam
- double-entry bookkeeping.
- To keep the accounting equation in balance, every transaction must be recorded as two entries.
- Expenses
- costs of generating revenues.
- generally accepted accounting principles (GAAP)
- To ensure accuracy and consistency in the way financial information is reported, accountants in the United States follow GAAP
- gross domestic product
- the market value of all goods and services produced by the economy in a given year
- gross sales,
- the total dollar amount of a company’s sales
- income statement
- summarizes the firm’s revenues and expenses and shows its total profit or loss over a period of time
- Income taxes payable
- Taxes owed for the current operating period but not yet paid
- Liabilities
- amounts a firm owes to creditors
- Long-term liabilities
- due more than one year after the date of the balance sheet
- managerial accounting
- provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations
- net profit (or net income)
- revenues are more than expenses
- Revenues
- dollar amount of sales plus any other income received from sources such as interest, dividends, and rents
- Accounting
- process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities
- Accounts payable
- Amounts the firm owes for credit purchases due within a year
- Accounts receivable
- Amounts owed to the firm by customers who bought goods or services on credit
- Accrued expenses
- Expenses, typically for wages and taxes, that have accumulated and must be paid at a specified future date within the year although the firm has not received a bill
- acid-test (quick) ratio
- used to measure the firm’s ability to pay its current liabilities without selling inventory
- annual report
- a yearly document that describes a firm’s financial status.
- audit
- financial statement review
- balance sheet
- summarizes a firm’s financial position at a specific point in time
- Bookkeeping
- the system used to record a firm’s financial transactions, is a routine, clerical process
- Cash
- the speed with which they can be converted to cash
- certified public accountant (CPA)
- an accountant must complete an approved bachelor’s degree program and pass a test prepared by the American Institute of CPAs (AICPA)
- cost of goods sold
- total expense of buying or producing the firm’s goods or services
- Current liabilities
- Liabilities due within a year of the date of the balance sheet
- current ratio
- ratio of total current assets to total current liabilities
- Debt ratios
- measure the degree and effect of the firm’s use of borrowed funds (debt) to finance its operations
- debt-to-equity ratio
- measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owners’ funds)
- Depreciation
- allocation of the asset’s original cost to the years in which it is expected to produce revenues
- Earnings per share (EPS)
- ratio of net profit to the number of shares of common stock outstanding
- Financial accounting
- focuses on preparing external financial reports that are used by outsiders; that is, people who have an interest in the business but are not part of the company’s management
- Financial Accounting Standards Board (FASB
- To ensure accuracy and consistency in the way financial information is reported, accountants in the United States follow
- financial ratio
- states the relationship between financial data on a percentage basis
- financial transactions
- sales, payments, purchases,
- Fixed assets
- long-term assets used by the firm for more than a year
- full employment
- everyone who wants to work has a job
- General and administrative expenses
- salaries of top managers and office support staff; utilities; office supplies; interest expense; fees for accounting, consulting, and legal services; insurance; and rent
- gross profit
- The amount a company earns after paying to produce or buy its products but before deducting operating expenses
- intangible
- patent or trademarked name
- Intangible assets
- long-term assets with no physical existence
- Inventory
- Stock of goods being held for production or for sale to customers
- inventory turnover ratio
- measures the speed with which inventory moves through the firm and is turned into sales
- journal
- a listing of financial transactions in chronological order
- ledgers
- show increases and decreases in specific asset, liability, and owners’ equity accounts
- liquidity
- the speed with which assets can be converted to cash
- Liquidity ratios
- measure the firm’s ability to pay its short-term debts as they come due
- Marketable securities
- Temporary investments of excess cash that can readily be converted to cash
- net loss
- expenses exceed revenues
- net profit margin
- called return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted
- Net sales
- amount left after deducting sales discounts and returns and allowances from gross sales
- Net working capital
- measure a firm’s overall liquidity and is calculated by subtracting total current liabilities from total current assets
- Notes payable
- Short-term loans from banks, suppliers, or others that must be repaid within a year
- Notes receivable
- Amounts owed to the firm by customers or others to whom it lent money
- operating expenses
- expenses of running the business that are not related directly to producing or buying its products
- Owners’ equity
- Assets − Liabilities
- private accountants
- Accountants employed to serve one particular organization
- Profitability ratios
- measure how well the firm is using its resources to generate profit and how efficiently it is being managed
- public accountants
- Independent accountants who serve organizations and individuals on a fee basis
- Ratio analysis
- calculating and interpreting financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance
- Retained earnings
- amounts left over from profitable operations since the firm’s beginning
- return on equity (ROE)
- It measures the return that owners receive on their investment in the firm, a major reason for investing in a company’s stock
- Sales discounts
- price reductions given to customers that pay their bills early
- Sarbanes-Oxley Act
- was designed to address the investing public’s lack of trust in corporate America. It redefines the public corporation–auditor relationship and restricts the types of services auditors can provide to clients
- statement of cash flows
- summary of the money flowing into and out of a firm, is the financial statement used to assess the sources and uses of cash during a certain period, typically one year
- tangible
- cash, equipment, and buildings
- trial balance
- The ledger totals for each account are summarized in a trial balance, which is used to confirm the accuracy of the figures
