Intro To Business Chapter 5

Front 1

accounting

Back 1

the act of collecting, organizing, and analyzing data

Front 2

bookkeeping

Back 2

keeping the financial records of a firm

Front 3

certified public accountant (CPA)

Back 3

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

Front 4

types of accounting

Back 4

financial, management, governmental, tax, project

Front 5

financial accounting

Back 5

used for external reporting

Front 6

management accounting

Back 6

used by management for internal decision making

Front 7

governmental accounting

Back 7

used in the public sector

Front 8

tax accounting

Back 8

used for tax preparation

Front 9

project accounting

Back 9

used to track the progress of a subject

Front 10

financing activities

Back 10

transactions directly involved with financing the company from startup to expansion

Front 11

operating activities

Back 11

day-to-day business operations of an orginization

Front 12

investing activities

Back 12

transactions used for investing purposes

Front 13

internal users

Back 13

primary users within an organization

Front 14

management (internal user)

Back 14

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

Front 15

employees (internal user)

Back 15

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

Front 16

owners (internal user)

Back 16

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

Front 17

external users

Back 17

secondary users outside of an organization

Front 18

creditors (external user)

Back 18

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

Front 19

tax authorities (external user)

Back 19

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

Front 20

investors (external users)

Back 20

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

Front 21

regulatory authorities (external user)

Back 21

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

Front 22

Financial Accounting Standards Board (FASB)

Back 22

establishes accounting standards for financial reporting

Front 23

Generally Accepted Accounting Principles (GAAP)

Back 23

generally accepted accounting principles used for reporting financial information

Front 24

accounting cycle

Back 24

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

Front 25

accounting cycle diagram

Back 25

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

Front 26

assets

Back 26

valuable items that are owned by a business

Front 27

liabilities

Back 27

debt that businesses owe to others

Front 28

owner's equity

Back 28

amount owner has invested plus profits not distributed

Front 29

accounting equation

Back 29

Assets = liabilities + owner's equity

Front 30

double-entry bookkeeping

Back 30

transactions are recorded in two areas that offset one another

Front 31

balance sheet

Back 31

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

Front 32

income statement

Back 32

profit and loss statement

Front 33

statement of owner's equity

Back 33

displays owner's equity in the firm

Front 34

statement of cash flows

Back 34

reports cash generate and used in a specific time period

Front 35

ratio analysis

Back 35

using ratios to calculate the financial health of the organization

Front 36

liquidity ratios

Back 36

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

Front 37

current ratio

Back 37

compares ratio of assets to liabilities in an organization

Front 38

acid test (quick ratio)

Back 38

measures ability to convert assets into cash

Front 39

leverage ratios

Back 39

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

Front 40

debt ratio

Back 40

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

Front 41

debt-to-equity

Back 41

measures relationship between liabilities and the owner's capital

Front 42

profitability ratios

Back 42

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

Front 43

profit

Back 43

income after costs and expenses are deducted from sales revenue

Front 44

gross margin

Back 44

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

Front 45

return on sales (operating margin)

Back 45

shows how well a firm generates income from sales

Front 46

return of equity (ROE)

Back 46

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

Front 47

activity ratios

Back 47

measure how effectively management uses organizational assets

Front 48

average collection period

Back 48

shows how long a company waits to collect money from customers

Front 49

inventory turnover rate

Back 49

measures how long it takes to convert inventory into sales

Front 50

International Accounting Standards Board (IASB)

Back 50

Board developed to promote consistent financial reporting around the globe

Front 51

International Financial Reporting Standards (IFRS)

Back 51

international reporting standards

Front 52

financial plan

Back 52

plan to determine funding needs of the organization

Front 53

financial manager

Back 53

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

Front 54

role of financial manager

Back 54

1) raising capital

2) allocating funds

3) forecasting profits

4) understanding capital markets

Front 55

short-term financing

Back 55

funds needed for less than one year

Front 56

sources of short-term financing

Back 56

1) personal equity

2) trade creditors

3) factoring

4) line of credit

5) short-term loan

Front 57

commercial paper

Back 57

short-term debt issued by a corporation to raise money

Front 58

long-term financing

Back 58

funds needed for more than one year

Front 59

debt financing

Back 59

borrowing money that must be repaid

Front 60

equity financing

Back 60

investments by others for an exchange of ownership in the business

Front 61

undercapitalization

Back 61

not having enough capital to operate or expand a business