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75 Cards in this Set
- Front
- Back
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financial accounting
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the communication of information about a business or other type of organization (such as a charity or government) so that individuals can assess its financial health and prospects
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managerial accounting
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the communication of information within an organization so that internal decisions (such as whether to buy or rent a building) can be made in an appropriate manner
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incorporation
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legal process by which owners of an organization apply to a state government to have it identified as an entity legally separate from its owners (a corporation); corporations are the legal form of most businesses of any size in the United States
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corporation
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an organization that has been formally recognized by the state government as a legal entity so that it can sell ownership shares to raise money for capital expenditures and operations; business is legally separate from its owners through incorporation
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sole proprietorship
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a business created, owned, and operated by a single individual; business is not legally separate from its owner through incorporation
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partnership
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a business created, owned, and operated by more than one individual; business is not legally separate from its owners through incorporation
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stockholders/shareholders
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individuals or organizations that hold the ownership shares of stock of a corporation
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equity/capital stock
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ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations
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New York Stock Exchange
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organized stock market that efficiently matches buyers and sellers of capital stock at a mutually agreed-upon price allowing ownership in companies to change hands easily
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board of directors
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a group that oversees the management of a corporation; the members are voted to this position by stockholders; it hires the management to run the company on a daily basis and then meets periodically to review operating and financing results and also approve policy and strategy
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NASDAQ (National Association of Securities Dealers Automated Quotations)
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an electronic market that allows for the trading of equity securities in approximately 4,000 companies, providing instantaneous price quotations to efficiently match buyers and sellers allowing ownership in companies to change hands
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long-term capital gain or loss
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occurs when certain investments are held for more than twelve months before being sold; a favorable tax treatment can result when gains are earned
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dividends
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distributions made by a corporation to its shareholders as a reward when income has been earned; shareholders often receive favorable tax treatment when cash dividends are collected
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inventory
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a current asset bought or manufactured for the purpose of selling in order to generate revenue
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representational faithfulness
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agreement between a measure or description and the situation it purports to represent; in simpler terms, information that conveys an appropriate picture of underlying events or amounts
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presents fairly
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financial information that contains no material misstatements in accordance with U.S. generally accepted accounting principles (U.S. GAAP)
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financial statements
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quantitative reports and related verbal disclosures describing and detailing the operations, financial position, and cash flows of an organization
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materiality
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the magnitude of an omission or misstatement of accounting information that makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by that omission or misstatement
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misstatement
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an error or fraud that causes financial information to differ from U.S. generally accepted accounting principles
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error
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an unintentional misstatement of financial information
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fraud
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an intentional misstatement of financial information; it can result from misappropriation of assets (theft) or fraudulent financial reporting
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U.S. generally accepted accounting principles (U.S. GAAP)
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a recognized set of accounting rules used and followed in the United States of America
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assets
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future economic benefits owned or controlled by an organization
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liabilities
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future sacrifices of economic benefits arising from present obligations; the debts of an organization
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revenues
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measures of the increases in or inflows of net assets (assets minus liabilities) resulting from the sale of goods and services
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expenses
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measures of decreases in or outflows of net assets (assets minus liabilities) incurred in connection with the generation of revenues
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inventory
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a current asset bought or manufactured for the purpose of selling in order to generate revenue
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net assets =
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assets - liabilities
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working capital =
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current assets - current liabilities
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current ratio
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current assets/current liabilities
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stockholders' equity =
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capital stock + retained earnings
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retained earnings =
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total net income - total dividends paid
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assets =
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liabilities + stockholders' equity
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income statement
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a listing of all revenues earned and expenses incurred during a specific period of time; also called statement of operations or statement of earnings
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statement of retained earnings
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a reconciliation of a corporation’s retained earnings account from the beginning of a period to the end; the account is increased by net income and decreased by net loss and/or dividends declared
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balance sheet
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a listing of all asset, liability, and stockholders’ equity accounts at a specific point in time; also called statement of financial position
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statement of cash flows
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a listing of all cash inflows (sources) and cash outflows (uses) during a specific period of time categorized as operating activities, investing activities, and financing activities
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gross profit
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Difference between sales and cost of goods sold; also called gross margin or markup
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gross margin
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Difference between sales and cost of goods sold; also called gross profit or markup.
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markup
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Difference between sales price and cost of goods sold on an item of inventory; also called gross profit or gross margin.
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principle of conservatism
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Preference of accountants to avoid making an organization look overly good; when faced with multiple reporting options that are equally likely, the worse possible outcome is reported to help protect the decision maker from being too optimistic.
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capital stock
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Ownership (equity) shares of stock in a corporation that are issued to raise financing for capital expenditures and operations.
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common stock
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A type of capital stock that is issued by every corporation; it provides rights to the owner that are specified by the laws of the state in which the organization is incorporated.
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contributed capital
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Amounts invested in a corporation by individuals or groups in order to attain ownership interests; balance is reported within stockholders’ equity section of balance sheet to indicate the amount of the net assets that came from the owners.
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retained earnings
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Accumulated total of the net income earned by an organization during its existence in excess of dividends distributed to the owners; indicates the amount of the net assets currently held that came from operations over the life of the organization.
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accounting equation
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Assets = liabilities + stockholders’ equity. The equation balances because all assets must have a source: a liability, a contribution from an owner (contributed capital), or from operations (retained earnings).
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operating activities
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A statement of cash flow category used to disclose cash receipts and disbursements arising from the primary activities of the reporting organization.
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investing activities
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A statement of cash flow category used to disclose cash receipts and disbursements arising from an asset transaction other than one relating to the primary activities of the reporting organization.
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financing activities
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A statement of cash flow category used to disclose cash receipts and disbursements arising from a liability or stockholders’ equity transaction other than one relating to the primary activities of the organization.
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return on equity =
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net income/average shareholders' equity
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P/E ratio =
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current price of stock/latest EPS figure
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basic EPS =
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(net income – preferred stock dividend)/weighted average number of common shares outstanding
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mutual agency
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A characteristic of a partnership whereby any partner can obligate other partners to an agreement without their direct consent; does not have a parallel in corporate ownership.
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limited liability
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A legal characteristic associated with the ownership of a corporation whereby the maximum amount that can be lost is the owner’s capital investment; an attribute of the capital stock of a corporation that does not similarly exist with proprietorships or partnerships.
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double taxation
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A negative feature associated with the corporate form of organization; corporate earnings are taxed first when earned and then taxed again when distributed to owners in the form of dividends.
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common stock
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A type of capital stock that is issued by every corporation; it provides rights to the owner that are specified by the laws of the state in which the organization is incorporated.
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authorized shares
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The maximum number of shares that a corporation can issue based on the articles of incorporation approved by the state government at the time of incorporation.
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issued shares
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The number of shares of a corporation that have been sold or conveyed to owners.
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outstanding shares
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The number of shares of a corporation that are currently in the hands of the public; it is the shares that have been issued since operations first began less any treasury shares repurchased and still held by the corporation.
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par value
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A number printed on a stock certificate to indicate the minimum amount of money owners must legally leave in the business; generally set at a low amount to avoid legal complications.
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treasury stock
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Issued shares of a corporation’s own stock that have been reacquired; balance is shown within stockholders’ equity section of the balance sheet as a negative amount unless the shares are retired (removed from existence).
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date of declaration
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Date on which dividend payments are formally declared (approved) by the board of directors; it is the day on which a liability is recorded by the corporation.
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date of record
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Date on which stock must be held for a shareholder to be entitled to the receipt of a dividend; the date of record is specified by the board of directors when the dividend is declared.
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date of payment
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Date on which a cash dividend is distributed to those shareholders who held a corporation’s stock on the date of record; it is also known as the date of distribution.
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cumulative
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Feature attached to most types of preferred stock so that any dividend payments that are omitted one year must still be paid before the holders of common stock receive any dividends.
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stock split
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A division of each share of outstanding stock to increase the number of those shares; it is a method of reducing the market price of the stock; the process is carried out in hopes that a lower price will generate more market activity in the stock and, therefore, a faster rise in price.
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stock dividend
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A dividend distributed to shareholders by issuing additional shares of stock rather than cash; it increases the number of shares outstanding but each ownership percentage stays the same; as with a stock split, it reduces the price of the stock in hopes of stimulating market interest.
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capital in excess of par value
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Figure represents amount received by a corporation from the original issuance of capital stock that is in excess of par value; also called additional paid in capital.
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preferred stock
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A capital stock issued by some companies that has one or more specified preferences over common shareholders, usually in the form of cash dividends.
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diluted EPS
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Hypothetical computation that reduces basic earnings per share to reflect the possible dilution if outstanding convertible items were actually turned into common stock; it includes the potential impact of stock options, convertible bonds and convertible preferred stock to warn decision makers of the consequences if those convertibles are turned into common stock.
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cash equivalents
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Short-term, highly liquid investments with original maturities of ninety days or fewer that are readily converted into known amounts of cash.
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direct method
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A mechanical method of reporting the amount of cash flows that a company generates from its operating activities; it is preferred by FASB because the information is easier to understand but it is only rarely encountered in practice.
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indirect method
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A mechanical method of reporting the amount of cash flows that a company generates from its operating activities; it is allowed by FASB (although the direct method is viewed as superior) but it is used by a vast majority of businesses in the United States.
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callable
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can be paid in part or full by the debtor at face value before due date
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convertible
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the creditor can swap these debts for something else of value
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