Understanding Principles of Accounting

business essentials -- part 13 -- terms

accounting -- comprehensive system for collecting, analyzing, and communicating financial information
bookkeeping -- recording of accounting transactions
accounting information system (AIS) -- organized means by which financial information is identified, measured, recorded, and retained for use in accounting statements and management reports
controller -- person who manages all of a firms accounting activities (chief accounting officer)
financial accounting system -- the field of accounting concerned with external users of a company's financial information
managerial (or management) accounting system -- field of accounting that's serves internal users of a company's financial information
certified public accountant (CPA) -- accountant licensed by the state and offering services to the public
audit -- systematic examination of the companies accounting system to determine whether its financial reports fairly represents its operations
generally accepted accounting principles (GAAP) -- excepted rules and procedures governing the content and form of financial reports
management advisory services -- specialized accounting services to help managers resolve a variety of business problems
private accountant -- salaried accountant hired by a business to carry out its day-to-day financial activities
certified management accountant (CMA) -- professional recognition of management qualifications awarded by the Institute of Management Accountants
asset -- any economic resource expected to benefit a firm or an individual who owns it
liability -- debt owned by a firm to an outside organization or individual
owners equity -- amount of money that owners would receive if they sold all of the firm's assets and paid all of its liabilities
double-entry accounting system -- bookkeeping system that balances the accounting equation by recording the dual effects of every financial transaction
financial statement -- any of several types of reports summarizing a company's financial status and measuring its financial health
balance sheet -- financial statement detailing a firm's assets, liabilities, and owners equity
current asset -- asset that can or will be converted into cash within the following year
liquidity -- ease of which which an asset can be converted into cash
accounts receivable -- amount due from a customer who has purchased goods on credit
merchandise inventory -- cost of merchandise that has been acquired for sale to customers and is still on hand
prepaid expenses -- expense, such as prepaid rent, that is paid before the upcoming period in which it is due
fixed asset -- assets with long-term use or value, such as land, buildings and equipment
depreciation -- process of distributing the cost of an asset over its life
intangible asset -- nonphysical asset, such as a patent or trademark, that has economic value in the form of expected benefit
goodwill -- amount paid for an existing business above the value of its other assets
current liability -- debt that must be paid within the year
accounts payable -- current liability consisting of bills owed to suppliers, plus wages and taxes due within the upcoming year
long-term liability -- debt that is not due for more than one year
paid-in capital -- additional money, above proceeds from stock sale, paid directly to the firm by its owners
retained earnings -- earnings retained by a firm for its use rather than paid as dividends
income statement (or profit-and-loss statement) -- and financial statement listing a firm's annual revenues and expenses so that a bottom-line shows a annual profit or loss
revenues -- funds that flow into a business from the sale of goods or services
cost of goods sold -- total cost of obtaining materials for making the products sold by a firm during the year
gross profit (or gross margin) -- revenues obtained from goods sold minus cost of goods sold
operating expenses -- costs, other than the cost of goods sold, incurred in producing a good or service
operating income -- gross profit minus operating expenses
net income (or net profit or net earnings) -- gross profit minus operating expenses and income taxes
statement of cash flows -- financial statement describing a firm's yearly cash receipts and cash payments
budget -- detailed statement of estimated receipts and expenditures for a period of time in the future
solvency ratio -- financial ratio, either short or long-term, for estimating the risk in investing in a firm
profitability ratio -- financial ratio for measuring a firms potential earnings
activity ratio -- financial ratio for evaluating management's use of a firm's assets
liquidity ratio -- solvency ratio measuring a firm's ability to pay its immediate debts
current ratio -- solvency ratio that determines a firm's creditworthiness by measuring its ability to pay current liabilities
working capital -- difference between a firm's current assets and current liabilities
debt ratio -- solvency ratio measuring a firm's ability to meet its long-term debts
debt-to-owners equity ratio -- solvency ratio describing the extent to which a firm is financed through borrowing
debt -- a firm's total liabilities
leverage -- ability to finance an investment through borrowed funds
return on equity -- profitability ratio measuring income earned for each dollar invested
earnings per share -- profitability ratio measuring the size of the dividend that firm can pay shareholders
inventory turnover ratio -- activity ratio measuring the average number of times that inventory is sold and restocked during the year
foreign currency exchange rate -- value of a nations currency as determined by market forcesor