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BusAd101 ch.15

Ball State Business

Accounting is the process of measuring, interpreting, and communicating financial information to enable people inside and outside the firm to make informed decisions.
Open Book Management believe that allowing employees to view financial information helps them better understand how their work contributes to the company's success, which, in turn, benefits them.
Financing Activities provide necessary funds to start a business and expand it after it begins operating.
Investing Activities provide valuable assets required to run a business.
Open Book Management focus on selling goods and services, but they also consider expenses as important elements of sound financial management.
Accounting provides accounting services to individuals or business firms for a fee. Most public accounting firms provide three basic services to clients: auditing, or examining, financial records; tax preparation, planning, and management consulting.
Forensic Accountants (Fraud Busters) accounting performed in preparation for legal review. Forensic accountants take the skeptical view, investigating below the surface of an organization's accounting system to find out what actually happened.
Public Accountant demonstrate their accounting knowledge by meeting state requirements for education and experience and successfully completing a number of rigorous tests in accounting theory and practice, auditing, law, and taxes.
Management Accountant An accountant employed by a business other than a public accounting firm is called a management accountant. Such a person collects and records financial transactions and prepares financial statements used by the firm's managers in decision making.
Certified Management Accountant gained through experience and passing a comprehensive examination.
Generally Accepted Accounting Principles (GAAP) These principles encompass the conventions, rules, and procedures for determining acceptable accounting and financial reporting practices at a particular time.
Asset anything of value owned or leased by a business.
Financial Accounting Savings Board (FASB) primarily responsible for evaluating, setting, or modifying GAAP.
Owner's Equity the owner's initial investment in the business plus profits that were not paid out to owners over time in the form of cash dividends.
Accounting Equation Assets = Liabilities + Owner's Equity
Double-Entry Bookkeeping process by which accounting transactions are recorded. Because assets must always equal liabilities plus equity, each transaction must have an offsetting transaction
Financial Statements provide managers with essential information they need to evaluate the liquidity position of an organization—its ability to meet current obligations and needs by converting assets into cash; the firm's profitability; and its overall financial health.
Balance Sheet shows a firm's financial position on a particular date.
Income Statement represents the flow of resources that reveals the performance of the organization over a specific time period.
Bottom Line The final figure on the income statement—net income after taxes
Statement of Owner's (or Shareholder's) Equity designed to show the components of the change in equity from the end of one fiscal year to the end of the next.
Statement of Cash Flows provides investors and creditors with relevant information about a firm's cash receipts and cash payments for its operations, investments, and financing during an accounting period.
Accrual Accounting recognizes revenues and costs when they occur, not when actual cash changes hands.
Cash Flow the lifeblood of every organization is evidenced by the business failure rate. Many former owners of failed firms blame inadequate cash flow for their company's demise.
Ratio Analysis one of the most commonly used tools for measuring a firm's liquidity, profitability, and reliance on debt financing, as well as the effectiveness of management's resource utilization.
Liquidity Ratios Current Assets / Current Liabilities
Acid-test Ratio (Current Assets - Inventory) / Current Liabilities
Activity Ratio measure the effectiveness of management's use of the firm's resources.
Profitability Ratio measure the organization's overall financial performance by evaluating its ability to generate revenues in excess of operating costs and other expenses
Leverage Ratio measure the extent to which a firm relies on debt financing
Budget shows sales revenues, operating expenses, and cash receipts and outlays. It quantifies plans for a specific period, it reflects management estimates of expected sales, cash inflows and outflows, and costs, and a short‐term financial plan
Cash Budget usually prepared monthly, tracks the firm's cash inflows and outflows.
Exchange Rate the ratio at which a country's currency can be exchanged for other currencies.
International Accounting Standards Board IASB - set of accounting standards and interpretations
International Financial Reporting Standards the standards and interpretations adopted by the IASB
Foreign Corrupt Practices Act a federal law that prohibits U.S. citizens and companies from bribing foreign officials in order to win or continue business
Accounting Cylce recording, classifying, and summarizing transactions.
Sarbanes-Oxley Act created the Public Accounting Oversight Board. The five‐member board has the power to set audit standards and to investigate and sanction accounting firms that certify the books of publicly traded firms.
Created by: aburris



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