Business Essentials Chp.14 Questions

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Accounting

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Comprehensive system for collecting, analyzing, and communicating financial information

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Bookkeeping

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Recording of accounting transactions

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Accounting Information System (AIS)

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Organized procedure for identifying, measuring, recording, and retaining financial information for use in accounting statements and management reports

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Controller

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Person who manages all of a firm's accounting activities (chief accounting officer)

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Financial Accounting

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Field of accounting concerned with external users of a company's financial information

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Managerial (Management) Accounting

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Field of accounting that serves internal users of a company's financial information

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Certified Public Accountant (CPA)

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Accountant licensed by the state and offering services to the public

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Audit

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Systematic examination of a company's accounting system to determine whether its financial reports reliably represent its operations

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Generally Accepted Accounting Principles (GAAP)

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Accounting guidelines that govern the content and form of financial reports

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Tax Services

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Assistance provided by CPAs for tax preparation and tax planning

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Management Advisory Services

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Assistance provided by CPA firms in areas such as financial planning, information systems design, and other areas of concern for client firms

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Core Competencies For Accounting

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The combination of skills, technology, and knowledge that will be necessary for the future CPA

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Private Accountant

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salaried accountant hired by a business to carry out its day-to-day financial activities

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Management Accountant

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Private accountant who provides financial services to support managers in various business activities within a firm

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Certified Management Accountant (CMA)

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Professional designation awarded by the Institute of Management Accountants in recognition of management accounting qualifications

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Certified Fraud Examiner (CFE)

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Professional designation administered by the Association of Certified Fraud Examiners in recognition of qualifications for a specialty area within forensic accounting

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Sarbanes-Oxley Act Of 2002 (SARBOX)

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Enactment of federal regulations to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations

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Accounting Equation

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Assets = Liabilities + Owners' Equity; used by accountants to balance data for the firm's financial transactions at various points in the year

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Asset

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Any economic resource expected to benefit a firm or an individual who owns it

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Liability

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Debt owed by a firm to an outside organization or individual

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Owners' Equity

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Amount of money that owners would receive if they sold all of a firm's assets and paid all of its liabilities

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What do accountants do to fulfill their duties?

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Accountants prepare performance reports for owners, the public, and regulatory agencies. Accountants keep records of taxes paid, income received, and expenses incurred, and they assess the effects of these transactions on business activities.

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How do business managers use AIS?

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develop goals and plans, set budgets, and evaluate future prospects.

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How do employees and unions use AIS?

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Plan for and receive compensation and such benefits as health care, vacation time, and retirement pay

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How do investors and creditors use AIS?

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estimate returns to stockholders, determine growth prospects, and decide whether a firm is a good credit risk

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How do tax authorities use AIS?

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Use it to plan for tax inflows, determine the tax liabilities of individuals and businesses, and ensure that correct amounts are paid on time

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In any company there are two fields of accounting, what are they?

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1. Financial Accounting
2. Managerial Accounting

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Name and describe the 1st Core Competency for Accounting

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Strategic and Critical Thinkings Skills: The accountant can provide competent advice for strategic action by combining data, knowledge, and insight.

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Name and describe the 2nd Core Competency of Accounting

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Communications and Leadership Skills: The accountant can exchange information meaningfully in a variety of businesses situations with effective delivery and interpersonal skills.

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Name and describe the 3rd Core Competency of Accounting

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Focus on the Customer, Client, and Market: The accountant can meet the changing needs of clients, customer, and employers better than the competition and can anticipate those needs better than competitors.

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Name and describe the 4th Core Competency of Accounting

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Skills in Interpreting Converging Information: The accountant can interpret new meaning by combining financial and non-financial information into a broader understanding that adds more business value.

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Name the 5th Core Competency of Accounting

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Technology Skills: The accountant can use technology to add value to activities performed for employers, customers, and clients.

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Forensic Accounting

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The practice of accounting for legal purposes

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CFE Examination covers four areas, what are they?

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1. Criminology and ethics - Includes theories of fraud prevention and ethical situations.

2. Financial transactions - Examines types of fraudulent financial transactions incurred in accounting records.

3. Fraud Investigation - Pertains to tracing illicit transactions, evaluating deception, and interviewing and taking statements.

4. Legal elements of fraud - Includes rules of evidence, criminal and civil law, and rights of the accused and accuser.

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Financial Statement

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Any of several types of reports summarizing a company's financial status to stakeholders and to aid in managerial decision making

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Balance Sheet

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Financial statement that supplies detailed information about a firm's assets, liabilities, and owners' equity

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Current Asset

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Asset that can or will be converted into cash within a year

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Liquidity

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Ease of which an asset can be converted into cash

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Fixed Asset

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Asset with longterm use or value, such as land, buildings, and equipment

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Depreciation

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Accounting method for distributing the cost of an asset over its useful life

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Intangible Asset

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nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit

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Goodwill

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Amount paid for an existing business above the value of its other assets

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Current Liability

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Debt that must be paid within one year

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Accounts Payable (Payables)

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Current liability consisting of bills owed to suppliers, plus wages and taxed due within the coming year

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Long-Term Liability

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Debt that is not due for at least one year

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Paid-In Capital

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Money that is invested in a company by its owners

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Retained Earnings

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Earnings retained by a firm for its use rather than paid out as dividends

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Income Statement (Profit-And-Loss Statement)

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Financial statement listing a firm's annual revenues and expenses so that a bottom line shows annual profit or loss

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Revenues

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Funds that flow into a business from the sale of goods or services

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Cost of Revenues

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Costs that a company incurs to obtain revenues from other companies

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Costs Of Goods Sold

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Costs of obtaining materials for making the products sold by a firm during the year

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Gross Profit

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A preliminary, quick-to-calculate profit figure calculated from the firm's revenues minus its cost of revenues (the direct costs of getting the revenues)

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Operating Expenses

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Costs, other than the cost of revenues, incurred in producing a good or service

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Operating Income

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Gross profit minus operating expenses

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Net Income (Net Profit, Net Earnings)

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Gross profit minus operating expenses and income taxes

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Statement of Cash Flows

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Financial statement describing a firm's yearly cash receipts and cash payments

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Budget

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Detailed statement of estimated receipts and expenditures for a future period of time

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Revenue Recognition

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Formal recording and reporting of revenues at the appropriate time

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Full Disclosure

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Guideline that financial statements should not include just numbers but should also furnish management's interpretations and explanations of those numbers

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Solvency Ratio

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Financial ratio, either short or long-term, for estimating the borrower's ability to repay debt

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Profitability Ratio

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Financial ratio for measuring a firm's potential earnings

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Activity Ratio

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Financial ratio for evaluating management's efficiency in using a firm's assets

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Short-Term Solvency Ratio

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Financial ratio for measuring a company's ability to pay immediate debts

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Current Ratio

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Financial ratio for measuring a company's ability to pay current debts out of current assets

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How is long term solvency calculated?

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DEBT divided by Owners' equity

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Leverage

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Ability to finance an investment through borrowed funds

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Earnings Per Share

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profitability ratio measuring the net profit that the company earns for each share of outstanding stock

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Code of Professional Conduct

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The code of ethics for CPAs as maintained and enforced by the AICPA (American Institute of Certified Public Accountants)

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Name the three basic financial statements

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Balance Sheets
Income Statement
Statement of Cash Flows