Accounting: process of systematically collecting, analyzing, and reporting financial information.
Private accountant: employed by a organization
Private Accountants provide the following services:
General accounting: recording business transactions and preparing financial statements
Budgeting: Develop budgets for sales and operating expenses.
Cost Accounting: Determining the cost of producing specific products or services.
Tax Accounting: Planning tax strategy and preparing tax returns for the firm.
Public Accountant: an accountant whose services may be hired on a fee basis by individuals or firms.
Chartered accountant (CA) or Certified general accountant (CGA), Certified management accountant (CMA): an individual who has met requirements for accounting education and experience and has passed a set of accounting examinations from their respective professional organization.
Assets: the resources that the firm owns
Liabilities: firms debts and obligation- what it owes to others
Owners Equity: the difference between a firms assets and its liabilities
Accounting Equation: the basis for the accounting process:
assets = liabilities + owners’ equity
Revenues: dollar amounts received by a firm
Expenses: the costs incurred in operating a business.
Double-entry book-keeping: a system in which each financial transaction is recorded as two separate accounting entries to maintain the balance shown in the accounting equation.
General journal: a book of original entry in which typical transactions are recorded in order of their occurrence.
General Ledger: book of accounts containing a separate sheet or section for each account.
Posting: process of transferring journal entries to the general ledger.
Trial Balance: a summary of the balances of all general ledger accounts at the end of the accounting period.
Balance Sheet: summary of the dollar amounts for a firm’s assets, liabilities, and owners’ equity accounts at a particular time.
Liquidity: the ease which an asset can be converted into cash.
Current assets: cash and other assets can be converted into cash or that will be used in a year or less.
Prepaid expenses: assets that have been paid for in advance, but not been used.
Fixed assets: assets that will be held or used for a period longer than one year.
Depreciation: process of apportioning the cost of a fixed asset over the period during which it will be used.
Intangible assets: do not exist physically but have a value based on legal rights or advantages that they confer on a firm.
Goodwill: value of a firm’s reputation, location, earning capacity, and other, intangibles that make the business a profitable concern.
Current liabilities: debts that will be repaid in one year or less.
Accounts Payable: short-term obligations that arise as a result of making credit purchases.
Notes Payable: Obligations that have been secured with promissory notes.
Long-term liabilities: debts that need not be repaid for at least one year.
Income Statement: a summary of a firm’s revenues and expenses during an accounting period.
Gross sales: the total dollar amount of all goods and services sold during the accounting period.
Net Sales: the actual dollar amount received by a firm for the goods and services it has sold, after adjustments for returns, allowances, and discounts.
Cost of Goods sold: sold during the accounting period; equal to beginning inventory plus net purchases less ending inventory.
Cost of goods sold = beginning + net - ending
Inventory purchases inventory
Gross profit on sales: net sales – cost of goods sold
Net income: profit earned (or the loss suffered) by a firm during an accounting period, after all expenses have been deducted from revenue.
Statement of cash flows: illustrates the effect on cash of the operating, investing, and financing activities of a company for an accounting period.
Financial ratio: a number that shows the relationship between two elements of a firms financial statements
Net profit margin = Net income after taxes
Return on equity = net income after taxes
Earnings per share = Net income after taxes
Working Capital: difference between current assets and current liabilities.
Current Ratio = current assets
acid-test ratio = current assets – inventory
accounts receivable turnover = net sales
Debts-to-assets ratio = total liabilities
Debt-to-equity ratio = total liabilities
Word Count: 687