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30 Cards in this Set
- Front
- Back
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accounting
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the measuring, classifying, analyzing, and communicating of financial information to help people inside and outside a company make good financial decisions.
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bookkeeping
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the recording of a firm's financial transactions
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Inside users of accounting
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managers: need it to make plans and to guide the firm
employees: use it to see if the firm is profitable, if they'll keep their jobs, and if retirement accounts are healthy. |
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Outside users of accounting
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stockholders: need the info to see how well the firm is doing and whether it is profitable
lenders: banks and similar institutions need it to evaluate the company's financial health and credit rating suppliers: vendors need this data govt agencies: need info to ensure tax revenues are collected. |
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managerial accounting
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preparing accounting information and analyses for managers and other decision makers inside an organization
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financial accounting
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preparing accounting information and analyses for people outside the organization such as stockholders, creditors, lenders, etc.
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Private accountants
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in house accountants working for a single organization
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two types of private accountants
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CMA: a type of private accountant, they have passed a two day examination held by the institute of management accountants, that tests their knowledge of managerial accounting and business
CIA: a type of private accountant that holds a bachelors degree, two years of internal auditing experience, and passed a test given by the institute of internal auditors |
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audit
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formal evaluation of a client's financial records to determine their fairness and reliability.
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public accountants
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provide accounting services to clients on a fee basis. many are licensed as Certified public accountants, or CPAS.
CPA: met certain requirements for education and experience and have passed a series of examinations established by the american institute of certified public accountants. |
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Types of public accountants
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external auditors: public accountants who audit
tax accountants: trained in tax law, concentrates on preparing tax returns and doing tax planning. management advisory services: specialized accounting services that CPA's offer business managers to resolve different kinds of problems |
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not for profit accountants
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work for governments and nonprofit organizations, concerned with efficiency, and not profits.
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two types of not for profit accountants
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government accountants: determine where tax money goes
forensic accountants: investigate suspected crimes within the field of finance, such as fraud. |
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Generally Accepted Accounting Principles (GAAP)
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a set of accounting standards used in preparation of financial statements to ensure that they are relevant, reliable, consistent, and comparable.
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The six steps of the accounting process
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1. collect: find and sort records of business transactions
2. record: put daily transactions in journals, using double entry bookkeeping 3. classify: put journal entries in categories in a ledger 4.summarize: test ledger data accuracy by doing a trial balance 5. report: issue financial statements 6.analyze: assess the firms financial condition using ratio analysis |
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journal
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a record book or part of a computer program containing the daily record of the firm's transactions
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ledger
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a specialized record book or computer program that contains summaries of all journal transactions, accumulated into specific categories
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trial balance
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making a summary of all the data in the ledgers to see if the figures are accurate, or balanced
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three types of financial statements
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1. balance sheets- reports a firm's financial condition at a given time by showing its assets, liabilities, and owner's equity
2. income statements- shows a firm's revenues and expenses for a particular time period and the resulting profit or loss 3. statements of cash flows- reports over a period of time, the firms cash receipts |
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ratio analysis
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uses one of a number of different ratios- such as liquidity, activity, debt to owner's equity, and profitability- to evaluate variables in a financial statement
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liquidity ratios
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measure a firms ability to meet its short term obligations when they become due.
current ratio and acid test ratio |
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current ratio
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current ratio= current assets/ current liabilities
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acid test ratio
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acid test ratio= cash+marketable securities + receivables /current liabilities
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activity ratios
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used to evaluate how well management uses a firms assets to generate revenue
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debt to owner's equity ratios
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measures of the extent to which a company uses debt, such as bank loans to finance its operations
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debt to owners equity ratio
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total liabilities/owner's equity
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profitability ratios
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used to measure how well profits are doing in relation to the firms sales, assets or owners equity.
return on sales,return on assets, return on owner's equity |
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return on sales formula
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net income/net sales
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return on assets formula
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net income/total assets
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return on owner's equity formula
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net income/owner's equity
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