Understanding Accounting and Financial Information - Coggle Diagram
Understanding Accounting and Financial Information
THE ROLE OF ACCOUNTING INFORMATION
The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.
Accounting used to provide information and analyses to managers inside the organization to assist them in decision making.
certified management accountant (CMA)
A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants.
Accounting information and analyses prepared for people outside the organization.
A yearly statement of the financial condition, progress, and expectations of an organization.
An accountant who works for a single firm, government agency, or nonprofit organization.
An accountant who provides accounting services to individuals or businesses on a fee basis.
certified public accountant (CPA)
An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA)
The job of reviewing and evaluating the information used to prepare a company’s financial statements.
An evaluation and unbiased opinion about the accuracy of a company’s financial statements.
certified internal auditor (CIA)
An accountant who has a bachelor’s degree and two years of experience in internal auditing, and who has passed an exam administered by the Institute of Internal Auditors.
An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
government and not-for- profit accounting
Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
THE ACCOUNTING CYCLE
A six-step procedure that results in the preparation and analysis of the major financial statements.
The recording of business transactions.
The practice of writing every business transaction in two places.
The record book or computer program where accounting data are first entered.
A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.
A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
UNDERSTANDING KEY FINANCIAL STATEMENTS
A summary of all the financial transactions that have occurred over a particular period.
fundamental accounting equation
Assets 5 Liabilities 1 Owners’ equity; this is the basis for the balance sheet.
Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity.
Economic resources (things of value) owned by a firm.
The ease with which an asset can be converted into cash.
Items that can or will be converted into cash within one year.
Assets that are relatively permanent, such as land, buildings, and equipment.
Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.
Liabilities and Owners’ Equity Accounts
What the business owes to others (debts).
Current liabilities or bills the company owes to others for merchandise or services purchased on credit but not yet paid for
Short-term or long-term liabilities that a business promises to repay by a certain date.
Long-term liabilities that represent money lent to the firm that must be paid back.
The amount of the business that belongs to the owners minus any liabilities owed by the business.
The accumulated earnings from a firm’s profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
net income or net loss
Revenue left over or depleted after all costs and expenses, including taxes, are paid.
The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm (expenses), and the resulting net income or net loss.
Cost of Goods Sold/Operating Expenses
cost of goods sold (or cost of goods manufactured)
A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
gross profit (or gross margin)
How much a firm earned by buying (or making) and selling merchandise.
Costs involved in operating a business, such as rent, utilities, and salaries.operating expenses
Costs involved in operating a business, such as rent, utilities, and salaries.
The systematic write-off of the cost of a tangible asset over its estimated useful life.
statement of cash flows
Financial statement that reports cash receipts and disbursements related to a firm’s three major activities: operations, investments, and financing.
The difference between cash coming in and cash going out of a business.
PERFORMANCE USING RATIOS
The assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements.
four key categories of ratios
The four key categories of ratios are liquidity ratios, leverage (debt) ratios, profitability (performance) ratios, and activity ratios.