Bus151 Chapter #17 Understanding Accounting And Financial Information

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Accounting

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The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good descisions.

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Managerial Accounting

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Accounting used to provide information and analyses to managers inside the organization to assist them in decision making.

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Certified Management Accountant (CMA)

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A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and has been certified by the Institute of Certified Management Accountants.

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Financial Accounting

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Accounting information and analyses prepared for people outside of the organization.

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Annual Report

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A yearly statement of the financial condition, progress, and expectations of an organization.

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Private Accountant

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An accountant who works for a single firm, government agency, or nonprofit organization.

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Public Accountant

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An accountant who provides accounting services to individuals or businesses on a fee basis.

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Certified Public Accountant (CPA)

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AN accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA).

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Auditing

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The job of reviewing and evaluating the information used to prepare a company's financial statements.

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Independant Audit

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An evaluation and unbiased opinion about the accuracy of a company's financial statements.

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Certified Internal Auditor (CIA)

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An accountant who has a bachelor's degree and two years of experience in internal auditing, and who has passed an exam administered by the Institute of Internal Auditors.

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Tax Accountant

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An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.

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Government and not-for-profit accounting

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Accounting system for organizations whose purpose is not generating a profit, but serving ratepayers, taxpayers, and others according to a duly approved budget.

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Accounting Cycle

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A six-step procedure that results in the preparation and analysis of the major financial statements.

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Bookkeeping

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The recording of business transactions.

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Journal

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The record book or computer program where accounting data are first entered.

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Double-Entry Bookkeeping

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The practice of writing every business transaction in two places.

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Ledger

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A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all of the information about one account in the same place.

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Trial Balance

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A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.

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Financial Statement

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A summary of all of the transactions that have occurred over a particular period.

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Fundamental Accounting Equation

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Basis for the balance sheet

Assets=Liabilities+Owners Equity

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Balance Sheet

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Financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners' equity.

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Assets

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Economic resources (things of value) owned by a firm.

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Liquidity

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The ease with which an asset can be converted into cash.

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Current Assets

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Items that can or will be converted into cash within one year.

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Fixed assets

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Assets that are relatively permanent, such as buildings, land, and equipment.

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Intangible Assets

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Long-term assets (patents, trademarks, copyrights) that have no real physical form but do have value.

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Liabilities

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WHat the business owes to others (Debts)

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Accounts Payable

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Current liabilities are bills the company owes to others for merchandise or services purchased on credit but not yet paid for.

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Notes Payable

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Short-term or long-term liabilities that a business promises to repay by a certain date.

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Bonds Payable

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Long-term liabilities that represent money lent to the firm that must be paid back.

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Owners' Equity

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The amount of the business that belongs to the owners minus any liabilities owed by any business.

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Retained Earnings

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The accumulated earnings from a firms profitable operations that were reinvested into the business and not paid out to stockholders in dividends.

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Statement of cash flows

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Financial statement that reports cash receipts and disbursements related to a firms three major activities: Operations, Investments, and Financing.

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Cash Flow

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The difference between cash coming in and cash going out of a business.

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Ratio Analysis

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The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firms financial statements.