The Role of Accountants
A comprehensive system for collecting, analyzing, and communicating financial information to a firm’s owners and employees, to the public, and to various regulatory agencies.
What is Accounting?
The 3 most important reports in a financial statement.
Balance sheets, Income Statements, and Statements of Cash Flows.
CPA stands for this.
What is Certified Public Accountant?
Assets = Liabilities + Owners Equity
What is the Accounting Equation?
The are the people who are responsible for collecting, analyzing, and communicating financial information to a firm’s owners and employees, to the public, and to various regulatory agencies.
Accountants
This is what the recording of transactions is called.
What is bookkeeping?
Part of the accounting equation, this refers to the amount of money that owners would receive if they sold all assets and paid all debts.
Owners Equity
A debt that the firm owes to an outside organization.
Assets - Liabilities = ?
Owners Equity
Name one of the "Big Four" Accounting firms.
Deloitte Touche, Ernst & Young, PricewaterhouseCoopers (PwC), and KPMG.
Name at least two users of accounting information.
Who are business managers, employees and unions, investors and creditors, tax authorities, and government regulatory agencies?
This financial statement shows a firm's financial condition at one point in time. It supplies information about assets, liabilities, and owners’ equity.
Balance Sheet
Any economic resource that is expected to benefit a firm or an individual who owns it.
Asset
Profit (or Loss) = ?
Profit (or Loss) = Revenues – Expenses
Another name for an Income Statement.
profit-and-loss statement
This is the title of the person who manages a firm’s accounting activities.
Who is the Controller?
Name one of the three categories of assets shown on the balance sheet.
Current Assets. Current assets include cash and assets that can be converted into cash within a year. Assets are normally listed in order of liquidity—the ease of converting them into cash. Typically, assets range from cash to marketable securities to merchandise inventory.
Fixed Assets. Fixed assets, including land, buildings, and equipment, have long-term use or value.
Intangible Assets. Intangible assets have monetary value in the form of expected benefits. These usually include the cost of obtaining rights or privileges, such as patents, trademarks, copyrights, and franchise fees.
This is the act of turning assets into cash.
Liquidating
This ratio shows the borrowers ability to repay debt.
Solvency Ratio
GAAP stands for this.
Generally Accepted Accounting Principles. The purpose is to give external users confidence in the accuracy and meaning of financial information.
The main difference between financial accounting and managerial accounting.
What is - financial accounting is concerned with serving external stakeholders while managerial accounting serves internal users.
Name one of the three types of liabilities found on the balance sheet.
Current liabilities are debts that must be paid within one year. Accounts payable are unpaid bills to suppliers for materials as well as wages and taxes that must be paid in the coming year. Long-term liabilities are debts that are not due for at least a year.
Accountants use this to spread the cost of an asset over the years of its useful life.
Depreciation
This major classification of ratios shows earnings power for owners.
Profitability Ratio
How does a CPA differ from an accountant working for a firm?
CPAs offer accounting services to the public, whether a business or individual client. They are independent from the clients they serve. They are licensed by a state after passing an exam prepared by the American Institute of Certified Public Accountants (AICPA).
This type of accountant is hired as a salaried employee of a firm who perform day-to-day activities.
Private accountants
Owners Equity is broken down into what two things?
Owners’ equity is broken down into paid-in capital and retained earnings.
Paid-in capital is additional money invested in the firm by its owners. Retained earnings are net profits kept by a firm rather than paid out as dividend payments to stockholders.
This is the amount paid for an existing business beyond the value of its other assets.
Goodwill
This is part of the Profitability Ratio.
Net Income / Number of Shares outstanding = ?
Earnings per Share
This determines the size of the dividend that a firm can pay shareholders. As the ratio goes up, stock value increases because investors know that the firm can better afford to pay dividends.
This financial statement is only required for firms who are publicly traded.
Statement of Cash Flow
This type of accounting is the use of accounting for legal purposes.
Forensic accounting.
Forensic accountants may be called on by law enforcement agencies, insurance companies, or law firms for investigative accounting and litigation support in crimes against companies, crimes by companies, and civil disagreements.
What does the Income Statement show?
Profit. Which is Revenue - Expenses.
This category of accountants includes accountants who do not take the CPA exam, who are preparing for it, or who are waiting for state certification.
Noncertified Public Accountants.
Current Assets / Current Liabilities = ?
Current Ratio.
Measures a company’s ability to meet current obligations out of current assets.
The higher the ratio, the lower the risk to investors. A 2:1 ratio is accepted as satisfactory.
What is a budget?
A detailed statement of estimated receipts and expenditures for a future period of time.
This Act was put in place to restore public trust in corporate accounting practices.
The Sarbanes-Oxley Act (2002)
On which statement can you find Cost of Revenues?
Income Statement.
Cost of Revenues (Cost of Goods Sold). The cost of revenues section shows the costs of obtaining the revenues from other companies during the year (used for service providers). Cost of goods sold are costs of obtaining materials to make products sold during the year (used for goods producers).
This is the formal recording and reporting of revenues in financial statements, which takes place after the earnings cycle is completed.
Revenue recognition.
This occurs when 1) the sale is complete and the product has been delivered; and 2) the sale price has been collected or is collectible (accounts receivable).
What does the Activity Ratio show?
The efficiency with which firms have used resources. These ratios are used for evaluating management’s use of assets.
What is the purpose of of ethics in accounting?
To maintain public confidence in business institutions, financial markets, and the products and services of the accounting profession.
Regarding compliance, what does the Sarbane-Oxley Act (Sarbox) require the CFO and CEO to pledge?
That the company’s finances are correct and must vouch for the methods and internal controls used to get those numbers.
Sarbox requires companies to provide a system that is safe for all employees to anonymously report unethical accounting practices and illegal activities without fear of retaliation.
This statement shows a company’s yearly cash receipts and cash payments.
Statement of Cash Flows
This term indicates that financial statements should not include just numbers; they should include management’s interpretations and explanations of those numbers.
full disclosure
Debt - Total Liabilities / Owners Equity = ?
Long-Term Solvency
This ratio illustrates the extent to which a firm is financed through borrowed money. The lower the debt, the lower the risk to investors and creditors.
Name one of the six ethics-related areas outlined by the AICPA in its Code of Professional Conduct.
Responsibilities, public interest, due care, integrity, objectivity and independence, and scope and nature of services.