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Business Principles
Finals Vocabulary Chapters 15, 16, and 17
| Term | Definition |
|---|---|
| owners’ equity | A claim against the assets of the business; excess of assets over liabilities |
| certified public accountant (CPA | is a professional who has met specified educational and experiential requirements, and passed a comprehensive examination on accounting theory and practice. |
| certified management account (CMA). | A certification for an accountant employed by a business other than a public accounting firm is called |
| asset | is defined as anything of value owned or leased by a business |
| Accounting | is the activity of measuring, interpreting, and communicating financial information for internal and external decision making. |
| Double-entry bookkeeping | is a process by which accounting records are recorded. |
| Liability | is the term that describes any creditor’s claims against the business |
| balance sheet | shows the financial position of an organization as of a given date and makes explicit the basic accounting equation |
| management accountant | A professional accountant employed by a firm to develop financial information used by the firm’s own management is called a(n |
| budget | is a planning and control tool that reflects projected revenues, operating expenses, cash receipts, and outlays for a future time period. |
| accounting cycle | is the method of converting information about individual transactions into financial statements. |
| public accountant. | An independent professional who provides accounting services for both business and individuals is a(n) |
| income statement | is the financial statement that reflects the income, expenses, and profits of a business over a period of time. |
| cash budget. | An important statement that tracks the firm’s inflows and outflows of money, indicating when loans may be needed or when there will be excess funds to invest, is the |
| Ratio analysis | involves the use of relative quantitative measures to evaluate various aspects of a firm’s financial performance |
| basic accounting equation. | The accounting concept upon which the balance sheet is based, in which Assets = Liabilities + Owners’ Equity is called the |
| leverage ratio | measures the extent to which a firm relies on debt financing in its operations. |
| activity ratio | measures the effectiveness of the firm’s use of its resources. |
| liquidity ratio | is used to measure a firm’s ability to meets it short-term debt obligations |
| profitability ratio | is used to measure the “bottom line” financial performance of a firm. |
| statement of cash flows | reports the firm’s cash receipts and cash payments, presenting information on the sources and uses of cash. |
| Accrual accounting | is the method of accounting that recognizes revenues and costs when they occur, not when actual cash changes hands. |
| open book management | believe that allowing employees to view financial information helps them better understand how their work contributes to the company’s success. |
| Financial Accounting Standards Board | is primarily responsible for evaluating, setting, or modifying GAAP. |
| Statement of owners' equity is | is designed to show the components of the change in equity from the end of one fiscal year to the end of the next. |
| cash flow. | The money from operations, less capital expenditures, measures a firm’s |
| International Financial Reporting Standards (IFRS) | are the standards and interpretations adopted by the IASB |
| generally accepted accounting principles (GAAP). | To provide reliable, consistent, and unbiased information to decision makers, accountants follow guidelines, or standards, known as |
| International Accounting Standards Board (IASB). | In 2001 the IASC became the |
| Foreign Corrupt Practices Act | is a federal law that prohibits U.S. citizens and companies from bribing foreign officials in order to win or continue business. |
| Federal Open Markets Committee (FOMC) | sets most policies concerning monetary policy and interest rates. |
| Financial markets | are markets in which securities are issued and traded. |
| Money market instruments | are short-term debt securities issued by governments, financial institutions, and corporations. |
| initial public offering (IPO). | When a company offers stock for sale to the general public for the first time it is known as |
| Investment-grade bonds | are bonds with ratings of BBB and above. |
| Federal Reserve System (Fed | is the central bank of the United States |
| Convertible securities | give the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock. |
| limit order | sets a maximum price (if the investor wants to buy) or a minimum price (if the investor wants to sell). |
| government bonds. | U.S. Department of the Treasury sells these types of bonds: |
| Common stock | is the basic form of corporate ownership. |
| Federal Deposit Insurance Corporation (FDIC). | The federal agency that insures deposits at commercial and savings banks is called the |
| mutual fund. | Financial intermediaries that raise money from investors by selling shares are called |
| market order | instructs the broker to obtain the best possible price, the highest price when selling, and the lowest price when buying. |
| financial system. | System process by which money flows from savers to users is called the |
| market. | The collection of financial markets in which previously issued securities are traded among investors is called a secondary |
| Securities | are financial instruments that represent obligations on the part of the issuers to provide the purchasers with expected stated returns on the funds invested or loaned. |
| stock market (exchange). | The market in which shares of stock are bought and sold by investors is called the |
| debenture | is an uninsured bond. |
| open market operations. | The technique of controlling the money supply growth rate by buying or selling U.S. Treasury securities is called |
| financial institution | is the intermediary between savers and borrowers, collecting funds from savers and then lending the funds to individuals, businesses, and governments. |
| subprime mortgage(s). | Loans made to borrowers with poor credit ratings are called |
| government bonds. | The use of material nonpublic information about a company to make investment profits is called |
| call provision | allows the issuer to redeem the bond before its maturity at a specified price |
| Municipal bonds | are bonds issued by state or local governments. |
| Primary market(s) | are the financial markets in which firms and governments issue securities and sell them initially to the general public. |
| Financial manager | is an executive who develops and implements the firm’s financial plan and determines the most appropriate sources and uses of funds. |
| financial plan. | The document that specifies the funds needed by a firm for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds is called |
| Marketable securities | are low-risk securities with short maturities. |
| private equity funds | Investment companies that raise funds from wealthy individuals and institutional investors and use the funds to make investments in both public and private companies are called |
| Leverage | is the process of increasing the rate of return on funds invested by borrowing funds. |
| Tender offer | is an offer made by a firm to the target firm’s shareholders specifying a price and the form of payment. |
| capital structure. | The mix of a firm’s debt and equity capital is called |
| Divestiture | is the sale of assets by a firm. |
| Dividends | are periodic cash payments to shareholders |
| leveraged buyout (LBO). | A transaction in which public shareholders are bought out and the firm reverts to private status is called |
| Sell-off | are assets sold by one firm to another. |
| trade credit. | This is extended by suppliers when a firm receives goods or services, agreeing to pay for them at a later date: |
| Equity capital | consists of funds provided by the firm’s owners when they reinvest earnings, make additional contributions, liquidate assets, issue stock to the general public, or raise capital from outside investors |
| Debt capital | consists of funds obtained through borrowing. |
| sovereign wealth funds. | Investment companies owned by governments are called |
| spin-off. | When a new firm is created from the assets divested, that activity is called a |
| risk-return trade-off. | The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return is called |
| factoring. | Short-term financing using accounts receivable is called |
| Finance | is planning, obtaining, and managing the company’s funds to accomplish its objectives as effectively and efficiently as possible |
| venture capitalist | raises money from wealthy individuals and institutional investors and invests the funds in promising firms. |
| hedge fund. | Private investment companies open only to qualified large investors are called |
| private placements. | When new stock or bond issues are not sold publicly but instead are sold to a small group of major investors, these types of sales are called |
| capital investment analysis. | The process by which decisions are made regarding investments in long-lived assets is called |
| synergy. | The notion that the combined firm is worth more than the buyer and the target firm individually is called |
| asset intensity. | When businesses need more assets than do other companies to support the same amount of sales, they experience |
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tiffanie1719
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