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Flanagan MB 200 Quiz 8-10
Flanagan MB 200 Quiz Chapters 8-10
36
Business
Undergraduate 2
11/04/2010

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Term
Users of accounting information
Definition
Managers, Stockholders, Employees, Creditors, Suppliers, Government Agencies (Internal Revenue Service [IRS], Securities and Exchange Commission)
Term
Managerial vs. Financial Accounting
Definition
Managerial=information to internal stakeholders (managers of specific divisions or departments; info not available to general public)
Financial= information to external stakeholders (stockholders, creditors, government regulators; info IS available to general public)
Term
Generally Accepted Accounting Principles (GAAP)
Definition
adopted by those within the accounting profession as a set of standards used in the preparation of financial statements
Term
Financial Accounting Standards Board (FASB)
Definition
Private board of 5 members that establishes the GAAP used in the practice of financial accounting. Members required to sever all ties with any firms or institutions they served prior to joining the board.
Term
FASB top priorities in upholding GAAP (4)
Definition
Relevant, Reliable, Consistent, Comparable
Term
3 Basic Financial Statements
Definition
balance sheet, income statement, and statement of cash flows
Term
balance sheet
Definition
Financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owner's equity (at a specific point in time).
Term
accounting equation
Definition
Found in a balance sheet;
Assets = Liabilities + Owner's Equity
Term
assets
Definition
resources owned by a firm;
usually classified into two major categories: Current Assets (cash and assets the firm expects to use up or convert into cash within a year) and Property, Plant and Equipment (land, buildings, machinery, equipment, and long-term assets)
Term
liabilities
Definition
claims that outsiders have against a firm's assets;
two broad categories: Current Liabilities (debts that come due within a year of the date on the balance sheet [wages]) and Long-term Liabilities (debts that don't come due until more than a year after date on balance sheet)
Term
owner's equity
Definition
claims a firm's owners have against their company's assets;
Common and Retained (earnings reinvested in company rather than paid to owners)
Term
income statement
Definition
reports revenues, expenses, and net income that resulted from a firm's operations over an accounting period (over a given period of time)
Term
income statement organization (equation)
Definition
Revenue - Expenses = Net Income
Term
revenues
Definition
increase in the amount of cash and other assets the firm earns in a given time period as the result of its business activities
Term
expenses
Definition
the cash a firm spends, or other assets it uses up , to carry out the business activities necessary to generate its revenue
Term
gross profit
Definition
difference between the firm's revenue and its cost of goods sold
Term
net operating income
Definition
difference between gross profit and operating expenses
Term
net income
Definition
profit or loss the firm earns in the time period covered by the income statement; "bottom line" of income statement
Term
statement of cash flows
Definition
Financial statement that identifies a firm's sources and uses of cash in a given accounting period (how and why the firm's cash position changed)
Term
3 activities covered in statement of cash flows
Definition
operating activities, investing activities, financing activities
Term
statement of cash flows equation
Definition
operating cash flows (related to producing and selling) + investing cash flows (cash flows from the purchase and sale of long-term assets) + financing cash flows (cash flows related to long-term financing activities) = Total Cash Flow
Term
Sarbanes-Oxley Act of 2002
Definition
Law creating the Public Company Accounting Oversight Board (PCAOB) and containing provisions to improve external auditing procedures; also bans relationships between CPA firms and the companies they audit.
Term
horizontal analysis
Definition
using comparative statements to identify changes in key account values over time
Term
activity-based costing (ABC)
Definition
aids managerial accountants in allocating costs; assigns product costs based on the links between activities that drive costs and the production of specific products
Term
incremental analysis
Definition
tool used by managerial accountants evaluating the financial impact of different alternatives in a decision-making situation to determine whether a firm should: make parts and components itself, or buy them from suppliers; repair its existing equipment or buy new equipment; eliminate or sell off an existing product line
Term
budgeting
Definition
tool in developing of budgets for managerial accountants, explicitly shows how firms will acquire and use the resources it needs to achieve its goals over a specific time period
Term
two different approaches to budget preparation
Definition
top-down budgeting (top management preparing budget with little or no input from middle and supervisory managers) and bottom-up or participatory budgeting (allowing middle and supervisory managers to actively participate in budget creating)
Term
Two broad classes of budget documents
Definition
operating and financial
Term
operating budgets
Definition
communicate an organization's sales and production goals and the resources needed to achieve these goals;
starts with sales budget ends with budgeted income statement (expected net income)
Term
financial budgets
Definition
focus on firm's financial goals and identify the resources needed to achieve those goals;
includes cash budget and capital expenditure budget
Term
brings together all documents in the operating and financial budgets into a unified whole
Definition
master budget
Term
Four categories of financial ratios
Definition
liquidity ratios, asset management ratios, leverage ratios, profitability ratios
Term
liquidity ratio includes
Definition
current ratio, which tells liquidity and how quickly you can pay short term liabilities
Term
asset management ratios include
Definition
inventory turnover ratio, can indicate a firm's products are moving quickly
Term
leverage ratio includes
Definition
debt-to-equity ratio, determines how much a company depends on debt to get along
Term
profitability ratio includes
Definition
return-on-equity, which measures the income earned per dollar invested by stockholders.
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