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Chapter 8
Accounting & Financial Information
| Term | Definition |
|---|---|
| Accounting Equation | The relationship among assets, liabilities, and owners' equity. Assets = Liabilities + Owners' Equity |
| Accounting | The recording, classifying, measuring, and interpreting of financial transactions and events |
| Activity Ratios | A class of ratios that measure how well managers are creating value from organizational assets |
| Annual Report | A yearly summary of the financial health, progress, and future projections of an organization |
| Assets | Resources or items of avlue owned or controlled by an organization |
| Auditing | A type of accounting that involves reviewing and evaluating the financial information that is used to prepare an organization's financial statements |
| Balance Sheet | A financial report that shows a snapshot of an organization's cumulative financial condition on a specific date |
| Book Value | The cost of an asset less any accumulated depreciation |
| Bookkeeping | The routine, daily categorization and recording of financial transactions |
| Breakeven Analysis | The unit volume at which gross sales equal total expenditures |
| Budget | An internal financial plan to forecast income and expenses over a set period of time |
| Cash Ratio | A ratio that measures whether an organization can pay its short-term debts with cash and marketable securities only |
| Cost of Goods Sold (CGS) | The costs expended to buy or produce a product or service |
| Current Assets | Short-term assets that can be converted to cash within a year |
| Current Liabilities | Financial obligations with repayment terms less than one year |
| Current Ratio | A liquidity ratio that measures whether an organization has the resources available to meet its short-term debt. Calculated by dividing total liabilities by total assets |
| Debt-to-asset Ratio | A leverage ratio that measures the percentage of an organization that is financed by debt and by equity. Calculated by dividing total liabilities by total assets |
| Depreciation | An accounting procedure that expenses the cost of a tangible asset over its useful life, rather than in the year of acquisition or purchase, and has both tax and accounting implications |
| Direct Costs | The costs used directly in production (labor/materials) |
| Dividends Per Share (DPS) | Earning paid to stockholders by the corporation from earnings after taxes for each share owned. It is calculated by dividing dividends paid by the number of shares outstanding |
| Double-entry Bookkeeping | A system of bookkeeping that uses at least two accounting entries to record a financial transaction to an asset, liability, equity, revenue, or expense account |
| Earnings Per Share (EPS) | Measures the wealth of stockholders and is calculated by dividing net income by the number of stock shares outstanding |
| Financial Accounting | A type of accounting that provides financial information to individuals inside an organization, as well as stakeholders outside the organization |
| Financial Statements | Reports that summarize the financial transactions that have occurred within an organization over a period of tiem to indicate an organization's financial health and stability |
| Fixed Assets | Long-term assets that are relatively permanent |
| Generally Accepted Accounting Principles (GAAP) | Rules, standards, and practices used by the U.S. accounting industry to prepare and standardize financial reports and statements |
| Income Statement | A financial report that shows an organization's profitability or bottom line over a period of time |
| Intangible Assets | Long term assets with no physical form |
| Integrity | Professional conduct that exemplifies strong moral principles, such as honesty, candidacy, transparency, accuracy, and truthfulness |
| Internal Rate of Return | A calculation of the profitability of a long-term investment |
| Inventory Turnover | An activity ratio that measures how efficiently managers are turning over inventory to minimize the cost of carrying excess inventory. It is calculated by dividing the cost of goods sold by inventory |
| Journal | A general record book or computer program for recording all accounts |
| Ledger | A specialized record book or computer program for recording totals to a single account |
| Leverage Ratios | A class of ratios that measure the degree to which managers use debt (borrow money) or equity (issue stock shares) to finance operations. Also called debt ratios. |
| Liabilities | Debts of an organization owed to others |
| Liquidity Ratios | A class of ratios that measure how well organizational resources can meet short-term debts |
| Long-term Liabilities | Financial obligations with repayment terms that extend beyond one year |
| Managerial Accounting | A type of accounting that provides financial information to managers inside an organization to assist them with decision-making. Also called cost accounting. |
| Margin | The amount of profit generated from the sale of a product or service |
| Net Income | The total profit or loss after all costs, expenses, and taxes, have been deducted from the revenue |
| Nonprofit Accounting | A type of accounting that involves organizations that do not exist to make a profit but to address the needs of society |
| Operating Expenses | The costs incurred in the daily operations of an organization |
| Overhead | The general costs of doing business |
| Owners' Equity | The sum of all money invested and earned in a business that does not have to be repaid. |
| Per Share Data | A valuation used by investors to compare the performance of one organization to another on an equal-per-share basis |
| Private Accountant | An accounting professional hired by an organization or government agency to prepare and analyze financial statements internally for the organization |
| Profit Margin | A profitability ratio that measures the overall percentage of profits earned by an organization from sales and is computed by dividing net income by sales. Also called operating margin |
| Profitability Ratios | A class of ratios that measure how efficiently managers use an organization's resources (assets, sales, and owners' equity) to generate profits |
| Public Accountant | An independent professional who provides fee-based accounting services to an unrelated organization |
| Quick Ratio | A liquidity ratio that measures whether an organization can pay its short-term debts without liquidating its inventory, the least liquid current asset. It is calculated by dividing current assets less inventory by current liabilities. |
| Ratio Analysis | Calculations that measure specific aspects of an organization's financial performance and serve as indicators of the organizations financial health |
| Receivables Turnover | An activity ratio that measures how quickly an organization collects its accounts receivable (outstanding credit sales) and is calculated by dividing sales by accounts receivable |
| Return on Equity (ROE) | A profitability ratio that measures how efficiently an organization is managing the money that investors have contributed by dividing net income by shareholders' equity. Also called return on net worth. |
| Return on Investment (ROI) | A profitability ratio that measures the overall percentage of profits earned for every dollar invested in assets. It is computed by dividing net income by total assets. Also called return on assets. |
| Revenues | Monies received or promised from: 1. The sale of products and services 2. Fundraising/ donations/ grants 3. Leasing receipts/ commissions/ royalties/ investment returns/ etc. |
| Single-entry Bookkeeping | A system of bookkeeping that uses a single accounting entry to record a financial transaction to either an income or an expense account |
| Statement of Cash Flows | A financial report that shows changes in an organization's cash from the beginning of an accounting period to the end, usually for a period of one year. |
| Tax Accounting | A type of accounting that focuses on accounting for tax purposes, rather than on the preparation of analysis of financial statements |
| Times Covered Ratio | A leverage ratio that measures the safety margin an organization has with respect to the interest it owes on debt. It is calculated by dividing earnings (income) before interest and taxes by total interest charges. |
| Total Asset Turnover | An activity ratio that measures how well an organization uses its assets to generate sales. It is calculated by dividing sales by total assets. |
| Trial Balance | A periodic check that is made to ensure the accounting equation is in balance that involves summing the balances of all of the accounts in the ledger. |
Created by:
aferrari11
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