accounting
The recording, measurement, and interpretation of financial information.
certified public accountant (CPA)
An individual who has been state certified to provide accounting services ranging from the preparation of financial records and the filing of tax returns to complex audits of corporate financial records.
private accountants
Accountants employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements.
certified management accountants (CMAs)
Private accountants who, after rigorous examination, are certified by the National Association of Accountants and who have some managerial responsibility.
managerial accounting
The internal use of accounting statements by managers in planning and directing the organization's activities.
cash flow
The movement of money through an organization over a daily, weekly, monthly, or yearly basis.
budget
An internal financial plan that forecasts expenses and income over a set period of time.
annual report
Summary of a firm's financial information, products, and growth plans for owners and potential investors.
assets
A firm's economic resources, or items of value that it owns, such as cash, inventory, land, equipment, buildings, and other tangible and intangible things.
liabilities
Debts that a firm owes to others.
owners' equity
Equals assets minus liabilities and reflects historical values.
accounting equation
Assets equal liabilities plus owners' equity.
double-entry bookkeeping
A system of recording and classifying business transactions that maintains the balance of the accounting equation.
accounting cycle
The four-step procedure of an accounting system: examining source documents, recording transactions in an accounting journal, posting recorded transactions, and preparing financial statements.
journal
A time-ordered list of account transactions.
ledger
A book or computer file with separate sections for each account.
income statement
A financial report that shows an organization's profitability over a period of time--month, quarter, or year.
revenue
The total mount of money received from the sale of goods or services, as well as from related business activities.
cost of goods sold
The amount of money a firm spent to buy or produce the products it sold during the period to which the income statement applies.
gross income (or profit)
Revenues minus the cost of goods sold required to generate the revenues.
expenses
The costs incurred in the day-to-day operations of an organization.
depreciation
The process of spreading the costs of long-lived assets such as buildings and equipment over the total number of accounting periods in which they are expected to be used.
net income
The total profit (or loss) after all expenses, including taxes, have been deducted from revenue; also called net earnings.
balance sheet
A "snapshot" of an organization's financial position at a given moment.
current assets
Assets that are used or converted into cash within the course of a calendar year.
accounts receivable
Money owed a company by its clients or customers who have promised to pay for the products at a later date.
current liabilities
A firm's financial obligations to short-term creditors, which must be repaid within one year.
accounts payable
The amount a company owes to suppliers for goods and services purchased with credit.
accrued expenses
An account representing all unpaid financial obligations incurred by the organization.
statement of cash flows
Explains how the company's cash changed from the beginning of the accounting period to the end.
ratio analysis
Calculations that measure an organization's financial health.
profitability ratios
Ratios that measure the amount of operating income or net income an organization is able to generate relative to its assets, owners' equity, and sales.
profit margin
Net income divided by sales.
return on assets
Net income divided by assets.
return on equity
Net income divided by owners' equity; also called return on investment (ROI).
asset utilization ratios
Ratios that measure how well a firm uses its assets to generate each $1 of sales.
receivables turnover
Sales divided by accounts receivable.
inventory turnover
Sales divided by total inventory.
total asset turnover
Sales divided by total assets.
liquidity ratios
Ratios that measure the speed with which a company can turn its assets into cash to meet short-term debt.
current ratio
Current assets divided by current liabilities.
quick ratio (acid test)
A stringent measure of liquidity that elminates inventory.
debt utilization ratios
Ratios that measure how much debt an organization is using relative to other sources of capital, such as owners' equity.
debt to total assets ratio
A ratio indicating how much of the firm is financed by debt and how much by owners' equity.
times interest earned ratio
Operating income divided by interest expense.
per share data
Data used by investors to compare the performance of one company with another on an equal, per share basis.
earnings per share
Net income or profit divided by the number of stock shares outstanding.
dividends per share
The actual cash received for each share owned.