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comprehensive system for collecting, analyzing and communicating financial information to owners, employees, the public and regulatory agencies


Recording of accounting transactions

Accounting Information System

Organized procedure for identifying, measuring, recording and retaining financial information for use in accounting statements and management reports

Financial Accounting

Field concerned with external information users: consumer groups, unions, stockholders, suppliers, creditors and government agencies. Prepare income statements — balance sheets that focus on company as a whole.

Managerial Accounting

Serves internal users by providing information to make decisions, monitor projects and plan future activities.

Certified Public Accountants

Licensed by the state and work as individual practitioners, or may join or form partnerships. They provide auditing, tax and management services.

Private accountants

Salaried person hired by a business to carry out day-to-day financial activities

Management accountants

Type of private accountant who provides financial services to support managers in various business activities within a firm. Receive CMA designation from IMA.

Forensic accountants

Accounting for legal purposes like investigative work and litigation support.

Certified Fraud Examiners

Those with qualifications for a specialty area within forensic accounting, hired by firms to prevent fraud from within.

Sarbanes-Oxley Act of 2002

Enactment of federal regulations to restore public trust in accounting practices by imposing new requirements on financial activities in publicly traded corporations. Restricts nonaudit services, encourages independent audits,

The accounting equation

assets = liabilities + owner's equity or assets - liabilities = owner's equity


Any economic resource expected to benefit a firm or an individual who owns it. Ie, land, buildings or equipment


debt owed by a firm to an outside organization or individual

owner's equity

amount of money owners would receive if they sold all assets and paid all liabilities. More of this = better security for investors. Includes the original investment and profits made.

Financial Statements

Any of several types of reports summarizing a company's financial status to stakeholders and to aid in managerial decision making.

Balance sheets

Financial statement that supplies detailed information about a firm's assets, liabilities and owner's equity. Statement of financial position.

Current assets

Those that will or can be converted into cash in one year.


Ease of converting an asset into cash. Includes cash itself, marketable securities and merchandise inventory

Fixed assets

Those with long-term use or value, ie land, buildings or equipment


method for distributing cost of an asset over its useful life.

Intangible assets

Nonphysical, ie patent or trademark that has economic value in the form of expected benefit


Amount paid for an existing business above value of other, tangible assets.

Current liabilities

Debt that must be paid within one year. Accounts payable - bills, wages, taxes.

Long term liabilities

Debt not due for at least one year. These have interest.


Type of owner's equity, money invested in a company by its owners

Retained earnings

Type of owner's equity, kept by a firm for use rather than paid out as dividends to shareholders

Income statement

Profit and loss statement that covers a period of time, like a video. Revenues - expenses = profit


One aspect of income statement, funds flowing into a business for sale of goods or services.

Cost of revenues

One aspect of income statement, incurred to obtain revenues from other companies. Includes cost of goods sold (money paid for intermediate goods) and gross profit (quick to calculate. firms revenues - cost of revenues)

Operating expenses

One aspect of income statement, money it takes to run the business

Operating income

One aspect of income statement equaling gross profit - operating expenses

Net income

Gross profit - operating expenses and income taxes

Statement of cash flows

Discribes firms' yearly cash receipts and cash payments from operations, investing and financing. Like a photo


detailed statement of estimated receipts and expenditures for a future period of time. (Either one, three or five years)

Revenue recognition

Formal recording and reporting of revenues at end of earnings cycle.

Full disclosure

Guideline that financial statements should not include just numbers alone but should also furnish management's interpretations and explanations.

Solvency ratio

Financial ratio, either short or long term, for estimating the borrower's ability to repay debt

Profitability ratio

Financial ratio for measuring a firm's potential earnings

Activity ratio

Financial ratio for evaluating management's efficiency in using a firm's assets

Short-term solvency ratio

Financial ratio for measuring a company's ability to pay immediate debts

Current ratio

Financial ratio for measuring a company's ability to pay current debts out of current assets. Current assets/Current liabilities


A company's total liabilities


Ability to finance an investment through borrowed funds

Earnings per share

Profitability ratio measuring the net profit that the company earns for each share of outstanding stock. Net income/Number of common shares outstanding

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