intro to bus 2 chapter 15 understanding accounting and fin sys - Details

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The process of measuring intrepreting, and communicating financial information to support internal and external business decision making

Accounting

- owners stock holders, potential investors, creditors - to evaluate operations of the firm to make investment decisions - management - to plan and control - employees, union officials - to use in contract negotiations - lenders, suppliers - to evaluate credit ratings Government agencies, economic planners and consumer groups

Users and applications of accounting

Is sharing sensitive financial information with employees and teaching them how to understaand and use financial statements - viewing financial information may help them better understand how their work contributes to the companies success - outsiders use financial data to evaluate investment opportunities

Open book management

Activities provide necessary funds to start a business and expand it after it begins operating

Financing

Activities provide valuable assets requires to run a business

Investing

Activities focus on selling goods and services, but they also consider expenses as important elements of sound financial management

Operating

An accountant who provides accounting services to other organizations - auditing tax preparation, consulting - provided to individuals or business firms a fee - charteres accountants (CA)

Public accountants

- an individual who provide timely relevant, accurate, and concise information that executives can use to operate their firms profitably and effectively

Management accountants

Principles that outline the conventions, rules and procedures for deciding on the acceptable accounting practices at a particular time require a cruel accounting

Generally accepted accounting principles

The organization that intreprets and modifies GAAP in Canada for private and not-for-profot businesses - canadian public companies are required to use international financial reporting standards. These standards allow for financial statements to be more easily compared from country to country - senior executives must personally certify that the financial information reported by the company is correct

Accounting standards board

A federal law that prohibits Canadian citizens and companies from bribing foreign officials to win or continue business

Corruption of foreign public officials act

The set of activities involved in concerting information and individual transactions into financial statements

Accounting cycle

Anything with future benefit owned or controlled by a firm

Asset

A claim against a firms assets by creditors

Liability

The funds that owners invest in the business plus any profits not paid to owners in the forms of cash dividends

Owners equity

The relationship that should reflect a firm's financial position at any time: assets should always equal the sum of liabilities and owners equity assets = liabilities + owners equity

Accounting equation

Receipts, invoices, and other source documents related to each transaction are assembles to justify making an entry in the firms accounting records

Transactions

Transactions are recorded, usually electronically, in chronological order in books called journals, along with a brief explanation for each entry

Record

Journal entries are transferred, or posted, usually electronically, to individual accounts kept in a ledger. All entries involving cash are brought together in the ledgers cash account, all entires involving sales are recorded in the ledgers sales account

Classify

All accounts in the ledger are summarized at the end of the accounting period, and financial statements are prepared from these account summaries

Summary of transaction shit

The process used to record accounting transactions; each individual transaction is always balanaced by another transaction

Double-entry bookkeeping

A statement of a firms financial position - what it owns and the claims against it assets - at a particular point in time - photograph of a firms assets together with its liabilities and owners equity - follows the accounting equation

Balance sheet

A financial record of a company's revenues expenses, and profits over a specific period of time - reports profit or loss - focus on revenues and costs associated with revenues

Income statement

A record of the change in the equity from the end of one fiscal period to the end of the next fiscal period - begins with the amount of equity shown on the balance sheet - net income is added, and cash dividends paid to owners are subtracted

Statement of changes in equity

A record of the sources and uses of cash during a period of time the red indicated money out

Statement of cash flows

An accounting method that records revenue and expenses when they occur, not when cash actually changed

Accrual accounting

Is a tool for measuring a firm's liquidity, profitability, and reliance on debt financing, and how effectively management uses the firms resources

Ratio analysis

Measure a firm's ability to meet its short-term obligations

Liquidity ratios

Compares current assets to current liabilities current ratio = current assets/liabilities if its bigger then 2.0 then its good rule of thumb

Current ratio

Measures the ability of a firm to meet its debt payments on short notice acid test ratio = current assets - inventory / current liabilities it needs to be more then 1.0 - rule of thumb

Acid-test or quick ratio

Measure how effectively management uses the firm's resources

Activity ratios

Indicates the number of times merchandise moves through business inventory turnover = cost of goods sold/ average inventory

Inventory turnover ratio

Indicates how much in sales each dollar invested in assets generates

Total asset turnover ratio also

Measure the organizations overall financial performance by evaluating its ability to generate revenues in excess operating costs and other expenses

Profitability ratios

Measure how much a firm relies on debt financing a total liabilities to total assets ratio (debt ratio) greater then 50 percent indicates that a firm is relying more on borrowed money than owner' equity

Leverage ratios

An organization's plans for how it will raise and spend money during a specific period of time - shows the firm's expenses sales revenues, operating expenses, cash receipts and cash expenses - budgets are financial blueprint that serves as a financial plan

Budget

Tracks the firm's cash inflows and outflows and its so important because you can never run out of cash or you will not be able to pay your debts and you will go bankrupt

Cash budget

Accounting procedures and practices must be adapted to accommodate an international business environment

International accounting

Are the value of one country's currency in terms of the currencies of other countries - consolidated financial statements must reflect gains and losses due to changes in exchange rates - can have significant impact on financial statement

Exchange rates

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