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71 Cards in this Set
- Front
- Back
accounting |
the recording, classifying, summarizing & interpreting of financial events to provide management & other interested parties the financial information they need to make good decisions |
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accounting system consists of |
inputs, processing and outputs |
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Inputs include |
accounting documents, sales docs, purchasing docs, shipping docs, payroll records, bank records, travel records, entertainment records |
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processing includes |
1. entries are made into journals; recording 2. the effects of these journal entries are transferred or posted into ledgers; classifying 3. all accounts are summarized |
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outputs includes |
financial statements, balance sheet, income statement, cashflow statement, other reports |
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major purposes of the accounting system |
-help managers make well informed decisions -report financial information about the firm to interested stake holders, eg employees, owners, creditors etc |
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5 key working areas of accounting |
managerial accounting, financial accounting, compliance (auditing), tax accounting, governmental & non-for-profit accounting |
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managerial accounting |
provides information & analyses to managers inside the organization to assist them in decision making |
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financial accouting |
information & analyses it generates are for people primarily outside the oranization |
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annual reports |
yearly statement of the financial condition, progress & expectations of an organization |
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compliance |
reviewing & evaluating the records used to prepare a company's financial statements |
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independent audit |
an evaluation & unbiased opinion about the accuracy of a company's financial statements |
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people interested in audit |
public, governments, owners & financial institutions, forensic accounting; new area of accounting that focuses its attention on fraudulent activity |
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tax accounting |
an accountant trained in tax law & responsible for responsible for preparing tax returns or developing tax strategies |
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governmental & not-for-profit accounting |
support organizations that don't generate profit but rather serve rate payers tax payers & others according to a duly approved budget |
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private accountants |
an accountant who works for a single firm, government agency or non-profit organization |
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public accountant |
an accountant who provides his or her accounting services to individuals or businesses on a fee basis |
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3 types of accounting designations |
chartered accountant, certified management accountant, certified general accountant |
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6 steps of the accounting cycle |
1. analyze source documents (sales, slips, travel, records, etc) 2. record transactions in journals 3. transfer journal entries to ledger 4. take a trial balance 5. prepare financial statements |
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bookkeeping |
the recording of business transactions |
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accountants |
classify & summarize financial data provided by bookkeepers & then interpret the data & report the information to management |
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journal |
record book where accounting data are first entered |
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double-entry bookkeeping |
concept of every business transaction affecting at least two accounts |
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accounts |
different types of assets, liabilities, & owners' equity |
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fundamental accounting equation |
assets= liabilities + owners' equity |
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ledger |
specialized accounting book in which information from accounting journals is accumulated into accounts & posted so that managers confined all of the information about a specific account in one place |
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trial balance |
a summary of all of the data in the account ledgers to show whether the figures are correct & balanced |
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financial statements |
a summary of all of the transactions that have occurred over a particular period |
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key financial statements |
balance sheet, income statement, cash flow statement |
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balance sheet |
reports firm's financial position on a specific date, end of period |
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income statement |
summarizes revenues, cost of goods & expenses for specific period of time & highlights profit at loss for firm during this period |
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cashflow statements |
provides summary of money coming into & out of firm during period |
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assests |
economic resources (things of value) owned by a firm |
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liduidity |
how fast an asset can be converted into cash |
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3 categories of liquidity |
current assets, capital assets, intangible asssets |
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current assets |
items that can or will be converted into cash |
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capital assets |
assets that are relatively permanent, such as land, buildings, & equipment |
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intangible assests |
long-term assets, that have no real physical form |
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liabilities |
what the company owes to others |
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4 types of liabilities |
1. accounts payable 2. notes payable 3. bonds payable 4. taxes payable |
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accounts payable |
current liabilities are bills a company owes to others for merchandise or services purchased on credit but not yet paid for |
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notes payable |
short-term or long-term liabilities that a business promises to repay by a certain date |
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bonds payable |
are long-term liabilities that represent money lent to a firm that must be paid back |
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taxes payable |
include sales takes GST & HST collected & income tax payable |
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owners' equity |
amount of the business that belongs to the owners minus any liabilities owed by the business |
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retained earnings |
accumulated earnings from a firm's profitable operations that remains in the business & not paid out to shareholders as dividends |
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income statement |
shows firm's profit after costs, expenses, & taxes' summarizes all of the resources that have been earned, all of the resources that were used up & the resulting net income |
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net income or net loss |
revenue left over after all costs & expenses, including taxes are paid |
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net sales equation |
net sales= gross sales-returns, discounts & allowances |
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cost of goods sold |
a measure of the cost of merchandise sold or cost of raw materials & supplies used for producing items for resale |
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operating expenses |
costs involved in operating a business, such as rent, utilties & salaries |
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bottom line |
net income the firm incurred from revenue minus sales returns, costs, expenses & taxes over a period of time |
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operations |
cash transactions associated with running the business |
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investing |
cash used in or provided by the firm's investing activities |
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financing |
cash raised from the issuance of new debt or equity capital or cash used to repay loans or company dividends |
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cash flow |
difference between cash coming in & cash going out of the business |
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amortization |
the systematic write off of the cost of a tangible asset over its estimated useful life |
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matching principle |
revenues are recorded with earned & expenses are recorded when incurred |
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FIFO (first in first out) |
accounting method for calculating cost of inventory; it assumes that the first goods to come in are the first to go out |
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LIFO (last in first out) |
accounting method for calculating cost of inventory; it assumes that the last goods to come in are the first to go out |
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ratio analysis |
assessment of a firm's financial condition & performance through calculations & interpretations of financial ratios developed from the firm's financial statements |
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liquidity |
how fast an asset can be converted to cash |
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current ratio equation |
=current assets/current liabilities (2 is considered safe) |
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acid-test ratio equation |
=(cash+marketable securities+receivables)/current liabilities (1:1 ratio is ideal) |
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leverage (debt) ratios |
degree which a firm relies on borrowed funds in operations |
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debt to owner's equity |
=total liabilities/ owners' equity |
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Basic earnings per share ratio |
=net income after taxes/ avg number of common shares outstanding |
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diluted EPS |
profit earned for each share of outstanding common stock but considers stock options, warrants, preferred stock & convertible debt securities, converted into common stock |
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return on sales |
=net income/ net sales |
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return on equity |
=net income/ avg total owner's equity |
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inventory turnover |
=cost of goods sold/ avg inventory |