Accounting Ch. One

Front 1

Define accounting:

Back 1

an information system that measures, processes, and communicates financial information about an economic entity

Front 2

Define business

Back 2

an economic unit that aims to sell goods and services to customers at prices that will provide an adequate return to its owners

Front 3

define profitability

Back 3

ability to earn enough income to attract and hold investment capital

Front 4

define liquidity

Back 4

ability to have enough cash to pay debts when they are due

Front 5

define operating activities

Back 5

selling goods & services to customers, employing managers & workers, buying and producing goods and services, and paying taxes

Front 6

define investing activities

Back 6

spending capital a company receives in productive ways that help it achieve its objectives: include buying land, equipment and other resources that are needed to operate the business and selling them when they are no longer needed

Front 7

define financing activities

Back 7

involve obtaining adequate funds, or capital, to begin operations and to continue operating. Include obtaining capital from creditors, such as banks and suppliers, and from owners

Front 8

define performance measures

Back 8

indicate whether managers are achieving their business goals and whether the business activities are well managed

Front 9

define management accounting

Back 9

provides internal decision makers who are charged with achieving the goals of profitability and liquidity

Front 10

define financial accounting

Back 10

generates reports and communicates them to external decision makers so they can evaluate how well the business has achieved its goals (creates FINANCIAL STATEMENTS)

Front 11

Explain the difference between accountants and bookkeepers

Back 11

Accountants' main goals are the analysis, interpretation, and use of information, while bookkeepers simply record financial transactions and keep financial records

Front 12

define a management information system

Back 12

interconnected subsystems that provide the information needed to run a business

Front 13

fraudulent financial reporting

Back 13

intentional preparation of misleading financial statements, resulting from distortion of records, falsified transactions, or misapplication of various accounting principles

Front 14

Sarbanes-Oxley Act

Back 14

2002, regulate financial reporting and the accounting profession by:
Ordering the Securities and Exchange Commission (SEC) to draw up rules requiring chief executives and chief financial advisors of all publicly traded US companies to swear that based on their knowledge, the quarterly statements and annual reports their companies filed are accurate and complete

Front 15

define management

Back 15

people who are responsible for operating a business and meeting its goals of profitability and liquidity

Front 16

What are the basic management functions

Back 16

Financing the business
Investing resources
Producing goods & services
Marketing goods and services
Managing employees
Providing info to decision makers

Front 17

What are some examples of users of accounting info that have a direct financial interest?

Back 17

Investors, creditors (banks, mortgage companies, securities firms, insurance firms, etc)

Front 18

What are some examples of users of accounting info that have indirect financial interest?

Back 18

Tax authorities, regulatory agencies, labor unions, customers, etc.

Front 19

define business transactions

Back 19

economic events that affect a business's financial position

Front 20

sole proprietorship

Back 20

business owned by one person

Front 21

partnership

Back 21

like sole proprietorship, but it has two or more owners that share the profits and losses of the business according to a prearranged formula

Front 22

corporation

Back 22

business unit chartered by the state and legally separate from its owners, the stockholders, who elect a board of directors to run the corporation for their benefit

Front 23

Accounting equation

Back 23

Assets=Liabilities + Owner's Equty

Front 24

define assets

Back 24

economic resources of a company that are expected to benefit the company's future operations

Front 25

define liabilities

Back 25

A business's present obligations to pay cash, transfer assets, or provide services to other entities in the future

Front 26

define owner's equity

Back 26

represents the claims by the owner of a business to the assets of the business

Owners equity= Assets- Liabilities

Front 27

revenues and expenses

Back 27

increases and decreases in the owner's equity that result from operating a business

Front 28

What four major financial statements are used to communicate accounting info about a business?

Back 28

Income statement, statement of owner's equity, balance statement & statement of cash flows

Front 29

Income statement

Back 29

summarizes the revenues earned and expenses incurred by a business over an accounting period

Front 30

Statement of owner's equity

Back 30

Changes in owner's equity over an accounting period

Front 31

Balance sheet

Back 31

shows the financial position of a business on a certain date, usually the end of the month or year

Front 32

Statement of cash flows

Back 32

focuses on liquidity

Front 33

cash flows

Back 33

inflows and outflows of cash into and out of a business

Front 34

define GAAP

Back 34

Generally accepted accounting principles, encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time

Front 35

what is a CPA and why do companies need them?

Back 35

CPA- certified public accountant

Make sure that financial statements are not falsified, by an independent source that does not have stake either way in the company's health

Front 36

define audit

Back 36

examination of a company's financial statement and the accounting systems, controls and records that produced them