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PHAR 566: Week 8 - Financial Reports
Terms in this set (34)
Why keep financial records?
Service activity with the function to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions.
Accounting: Service activity with the function to provide (1)________ information, primarily (2)_______ in nature, about economic entities that is intended to be useful in making (3) _______.
3. Economic Decisions
Money needed to acquire assets.
Things that are owned and can be used to generate income.
Money owed to others.
The owner's own funds. Also known as net assets.
A = L + OE
Components of OE
Amounts received or to be received from customers for sales of products or services.
Amounts that have been paid or will be paid later for costs that have been incurred to earn revenue.
Increase or decrease OE: Owner investments in business.
Increase or decrease OE: Revenues
Increase or decrease OE: Withdrawals from business.
Increase or decrease OE: Expenses
Elements of General Ledger
General ledger shows the _____-sided effect of transactions.
Present condition of a business.
What's in a balance sheet?
Connects beginning and ending balance sheets in a given period by providing details of operating activities (sales/expenses). Takes into account non-cash too.
Gross profit =
Sales revenues - COGS
Cash flow sheet values fall into 3 categories
Connects beginning and ending balance sheets by indicating impact of company's investments, finances, and operations on cash flows.
Cash Flow Statement
Ratio that measures overall success in daily operations of a business.
Ratio that shows how quickly your company can liquidate its assets for cash/ability to meet short-term financial obligations.
Ratio that shows the efficiency with which an organization uses its assets.
Types of Profitability Ratios
1. Gross Profit Margin
2. Net Profit Margin
3. Return on Assets
4. Return on Equity/Investment (ROI)
Gross profit margin is typically ____ in retail.
Types of Liquidity Ratios
Current Liquidity Ratio =
What's a good ratio and what's not so good?
Current Assets/Current Liabilities
High >5 is good, but also could show that the company is too conservative
Low <2 is bad, could go bankrupt
Quick Liquidity Ratio (aka. ____ test) =
What do we want to achieve?
Quick Assets (assets easily converted to cash)/Current Liabilities
Want to achieve >1
Types of Turnover Ratios
Inventory Turnover Ratio =
Do higher/lower values mean that the inventory is too large?
Do higher/lower values mean that the store could stock out?
Lower (Value <6)
Receivable Turnover Ratio =
What does this measure?
Credit Sales/Average Accounts Receivable
How quickly receivables are turned to cash.
Recommended textbook explanations
Frank Hodge, Patricia A. Libby, Robert Libby
Financial Accounting plus MyAccountingLab with Pearson eText, Global Edition
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Horngren's Cost Accounting
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Introduction to Managerial Accounting with Connect Plus
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