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MGTA02H3 (363)
Chapter 4

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Department
Management (MGT)
Course
MGTA02H3
Professor
Bill Mc Conkey
Semester
Winter

Description
Chapter 4: Understanding Accounting Issues Terms: Accounting: a comprehensive system for collecting, analyzing, and communicating financial information Bookkeeping: recording accounting transactions Accounting Information System (AIS): an organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports Controller: the individual who manages all the firm’s accounting activities Financial Accounting System: the process whereby interested groups are kept informed about the financial condition of a firm Managerial (Management) Accounting: internal procedures that alert managers to problems and aid them in planning and decision making Chartered Accountant (CA): an individual who has met certain experiences and education requirements and has passed a licensing examination; acts as an outside accountant for other firms Certified General Accountant (CGA): an individual who has completed an education program and passed a national exam; works in private industry or a CGA firm Certified Management Accountant (CMA): an individual who has completed a university degree, passed a national examination, and completed a strategic leadership program; works in industry and focusses on internal management accounting Audit: an accountant’s examination of a company’s financial records to determine if it used proper procedures to prepare tis financial reports Forensic Accountant: an accountant who tracks down hidden funds in business firms, usually as part of a criminal investigation Generally Accepted Accounting Principles (GAAP): standard rules and methods used by accountants in preparing financial reports Management Consulting Services: specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other areas Private Accountant: an accountant hired as a salaried employee to deal with a company’s day-to-day accounting needs Asset: anything of economic value owned by a firm or individual Liability: any debt owned by a firm or individual to others Owner’s Equity: any positive difference between a firm’s assets and its liabilities; what would remain for a firm’s owners if the company were liquidated, all its assets were sold, and all its debts were paid Double Entry Accounting System: a bookkeeping system, developed in the fifteenth century and still in use, that requires every transaction to be entered in two ways – how it affects assets and how it affects liabilities and owners’ equity – so that the accounting equation is always in balance Financial Statements: any of several types of broad reports regarding a company’s financial status; most often used in reference to balance sheets, income statements, and/or statements of cash flows Balance Sheet: a type of financial statement that summarizes a firm’s financial position on a particular date in terms of its assets, liabilities, and owner’s equity Current Assets: cash and other assets that can be converted into cash within a year Liquidity: the ease and speed with which an asset can be converted to cash; cash is said to be perfectly liquid Accounts Receivable: amount due to the firm from customers who have purchased goods or services on credit; a form of current asset Merchandise Inventory: the cost of merchandise that has been acquired for sale to customers but is still on hand Prepaid Expenses: includes supplies on hand and rent paid for the period to come Fixed Assets: assets that have long-term use or value to the firm such as land, buildings, and machinery Depreciation: distributing the cost of a major asset over the years in which it produces revenues; calculated by each year subtracting the asset’s original value divided by the number of years in its productive life Intangible Assets: non-physical assets such as patents, trademarks, copyrights, and franchise fees that have economic value but whose precise value is difficult to calculate Goodwill: the amount paid for an existing business beyond the value of its other assets Current Liabilities: any debts owed by the firm that must be paid within one year Accounts Payable: amounts due from the firm to its suppliers for goods and/or services purchased on credit; a form of current liability Long-term Liabilities: any debts owed by the firm that are not due for at least one year Paid-in Capital: any additional money invested in the firm by the owners Retained Earnings: a company’s net profits less any dividend payments to shareholders Income (profit-and-loss) statement: a type of financial statement that describes a firm’s revenues and expenses and indicates whether the firm has earned a profit or suffered a loss during a given period Revenues: any monies received by a firm as a result of selling a good or service or from other sources such as interest, rent, and licensing fees Cost of Goods Sold: any expenses directly involved in producing or selling a good or service during a given time period Gross Profit (gross margin): a firm’s revenues (gross sales) less its cost of goods sold Operating Expenses: costs incurred by a firm other than those included in cost of goods sold Operating Income: compares the gross profit from business operations against operating expenses Net Income (net profit or net earnings): a firm’s gross profit less its operating expenses and income taxes Statement of Cash Flows: a financial statement that describes a firm’s generation and use of cash during a given period Budget: a detailed financial plan for estimated receipts and expenditures for a period of time in the future, usually one year Solvency Ratios: ratios that e
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