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61 Cards in this Set

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  • Back


the act of collecting, organizing, and analyzing data


keeping the financial records of a firm

certified public accountant (CPA)

an individual who passes an exam and meets specific requirements in order to become an accountant

types of accounting

financial, management, governmental, tax, project

financial accounting

used for external reporting

management accounting

used by management for internal decision making

governmental accounting

used in the public sector

tax accounting

used for tax preparation

project accounting

used to track the progress of a subject

financing activities

transactions directly involved with financing the company from startup to expansion

operating activities

day-to-day business operations of an orginization

investing activities

transactions used for investing purposes

internal users

primary users within an organization

management (internal user)

use information to examine the organization's performance and make decisions

employees (internal user)

use information to see how profitable the company is and how its performance might affect employees future compensation and job security

owners (internal user)

use information to analyze data and take action when profits or sustainability need to be adjusted

external users

secondary users outside of an organization

creditors (external user)

use information to determine if a business is able to repay money borrowed from sources such as suppliers, banks, or other lenders

usually the credit terms set by creditors reflect the financial health of the business

tax authorities (external user)

the IRS uses this information to determine if tax returns filed on behalf of the company are trustworthy

investors (external users)

use information to determine if it makes financial sense to invest in a company

regulatory authorities (external user)

use information such as annual or government reports to be sure the organization complies with rules and regulations

Financial Accounting Standards Board (FASB)

establishes accounting standards for financial reporting

Generally Accepted Accounting Principles (GAAP)

generally accepted accounting principles used for reporting financial information

accounting cycle

identifying, collecting and analyzing documents and transactions to create financial statements

accounting cycle diagram

source documents --> journals --> ledger --> trial balance --> financial statements --> source documents (etc.)


valuable items that are owned by a business


debt that businesses owe to others

owner's equity

amount owner has invested plus profits not distributed

accounting equation

Assets = liabilities + owner's equity

double-entry bookkeeping

transactions are recorded in two areas that offset one another

balance sheet

summarizes a company's assets, liabilities, and owner's equity

income statement

profit and loss statement

statement of owner's equity

displays owner's equity in the firm

statement of cash flows

reports cash generate and used in a specific time period

ratio analysis

using ratios to calculate the financial health of the organization

liquidity ratios

ratios used to measure the ability of a firm to pay short-term debt

current ratio

compares ratio of assets to liabilities in an organization

acid test (quick ratio)

measures ability to convert assets into cash

leverage ratios

ratios used to measure how much a firm relies on debt to operate the business

debt ratio

measures how much debt a company has for each dollar in assets


measures relationship between liabilities and the owner's capital

profitability ratios

ratios used to measure how well managers use available resources to make a profit


income after costs and expenses are deducted from sales revenue

gross margin

shows what percentage of each dollar results in profit after expenses are paid

return on sales (operating margin)

shows how well a firm generates income from sales

return of equity (ROE)

shows how much a company earns on each dollar invested by shareholders of the company

activity ratios

measure how effectively management uses organizational assets

average collection period

shows how long a company waits to collect money from customers

inventory turnover rate

measures how long it takes to convert inventory into sales

International Accounting Standards Board (IASB)

Board developed to promote consistent financial reporting around the globe

International Financial Reporting Standards (IFRS)

international reporting standards

financial plan

plan to determine funding needs of the organization

financial manager

individual who examines plans, assesses and manages financial functions of the organization

role of financial manager

1) raising capital

2) allocating funds

3) forecasting profits

4) understanding capital markets

short-term financing

funds needed for less than one year

sources of short-term financing

1) personal equity

2) trade creditors

3) factoring

4) line of credit

5) short-term loan

commercial paper

short-term debt issued by a corporation to raise money

long-term financing

funds needed for more than one year

debt financing

borrowing money that must be repaid

equity financing

investments by others for an exchange of ownership in the business


not having enough capital to operate or expand a business