Session:14 Using Financial Information and Accounting
Key Terms
Entrepreneurship | Leadership Development – Micro-Learning Session
Rice University 2020 | Michael Laverty, Colorado State University Global Chris Littel, North Carolina State University| https://openstax.org/details/books/introduction-business
- accounting
- The process of collecting, recording, classifying, summarizing, reporting, and analyzing financial activities.
- acid-test (quick) ratio
- The ratio of total current assets excluding inventory to total current liabilities; used to measure a firm’s liquidity.
- activity ratios
- Ratios that measure how well a firm uses its assets.
- annual report
- A yearly document that describes a firm’s financial status and usually discusses the firm’s activities during the past year and its prospects for the future.
- assets
- Things of value owned by a firm.
- auditing
- The process of reviewing the records used to prepare financial statements and issuing a formal auditor’s opinion indicating whether the statements have been prepared in accordance with accepted accounting rules.
- balance sheet
- A financial statement that summarizes a firm’s financial position at a specific point in time.
- certified management accountant (CMA)
- A managerial accountant who has completed a professional certification program, including passing an examination.
- certified public accountant (CPA)
- An accountant who has completed an approved bachelor’s degree program, passed a test prepared by the American Institute of CPAs, and met state requirements. Only a CPA can issue an auditor’s opinion on a firm’s financial statements.
- cost of goods sold
- The total expense of buying or producing a firm’s goods or services.
- current assets
- Assets that can or will be converted to cash within the next 12 months.
- current liabilities
- Short-term claims that are due within a year of the date of the balance sheet.
- current ratio
- The ratio of total current assets to total current liabilities; used to measure a firm’s liquidity.
- debt ratios
- Ratios that measure the degree and effect of a firm’s use of borrowed funds (debt) to finance its operations.
- debt-to-equity ratio
- The ratio of total liabilities to owners’ equity; measures the relationship between the amount of debt financing (borrowing) and the amount of equity financing (owner’s funds).
- depreciation
- The allocation of an asset’s original cost to the years in which it is expected to produce revenues.
- double-entry bookkeeping
- A method of accounting in which each transaction is recorded as two entries so that two accounts or records are changed.
- earnings per share (EPS)
- The ratio of net profit to the number of shares of common stock outstanding; measures the number of dollars earned by each share of stock.
- expenses
- The costs of generating revenues.
- financial accounting
- Accounting that focuses on preparing external financial reports that are used by outsiders such as lenders, suppliers, investors, and government agencies to assess the financial strength of a business.
- Financial Accounting Standards Board (FASB)
- The private organization that is responsible for establishing financial accounting standards in the United States.
- fixed assets
- Long-term assets used by a firm for more than a year such as land, buildings, and machinery.
- generally accepted accounting principles (GAAP)
- The financial accounting standards followed by accountants in the United States when preparing financial statements.
- gross profit
- The amount a company earns after paying to produce or buy its products but before deducting operating expenses.
- gross sales
- The total dollar amount of a company’s sales.
- income statement
- A financial statement that summarizes a firm’s revenues and expenses and shows its total profit or loss over a period of time.
- intangible assets
- Long-term assets with no physical existence, such as patents, copyrights, trademarks, and goodwill.
- inventory turnover ratio
- The ratio of cost of goods sold to average inventory; measures the speed with which inventory moves through a firm and is turned into sales.
- liabilities
- What a firm owes to its creditors; also called debts.
- liquidity
- The speed with which an asset can be converted to cash.
- liquidity ratios
- Ratios that measure a firm’s ability to pay its short-term debts as they come due.
- long-term liabilities
- Claims that come due more than one year after the date of the balance sheet.
- managerial accounting
- Accounting that provides financial information that managers inside the organization can use to evaluate and make decisions about current and future operations.
- net loss
- The amount obtained by subtracting all of a firm’s expenses from its revenues, when the expenses are more than the revenues.
- net profit (net income)
- The amount obtained by subtracting all of a firm’s expenses from its revenues, when the revenues are more than the expenses.
- net profit margin
- The ratio of net profit to net sales; also called return on sales. It measures the percentage of each sales dollar remaining after all expenses, including taxes, have been deducted.
- net sales
- The amount left after deducting sales discounts and returns and allowances from gross sales.
- net working capital
- The amount obtained by subtracting total current liabilities from total current assets; used to measure a firm’s liquidity.
- operating expenses
- The expenses of running a business that are not directly related to producing or buying its products.
- owners’ equity
- The total amount of investment in the firm minus any liabilities; also called net worth.
- private accountants
- Accountants who are employed to serve one particular organization.
- profitability ratios
- Ratios that measure how well a firm is using its resources to generate profit and how efficiently it is being managed.
- public accountants
- Independent accountants who serve organizations and individuals on a fee basis.
- ratio analysis
- The calculation and interpretation of financial ratios using data taken from the firm’s financial statements in order to assess its condition and performance.
- retained earnings
- The amounts left over from profitable operations since the firm’s beginning; equal to total profits minus all dividends paid to stockholders.
- return on equity (ROE)
- The ratio of net profit to total owners’ equity; measures the return that owners receive on their investment in the firm.
- revenues
- The dollar amount of a firm’s sales plus any other income it received from sources such as interest, dividends, and rents.
- Sarbanes-Oxley Act
- Legislation passed in 2002 that sets new standards for auditor independence, financial disclosure and reporting, and internal controls; establishes an independent oversight board; and restricts the types of non-audit services auditors can provide audit clients.
- statement of cash flows
- A financial statement that provides a summary of the money flowing into and out of a firm during a certain period, typically one year.