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Understanding Accounting And Financial Information - Coggle Diagram
Understanding Accounting And Financial Information
Accounting Disciplines
Accounting: Recording, classifying, summarizing, and interpreting financial events and transactions to provide management.
Managerial Accounting: Used to provide information and analyses to managers inside the organization to assist them in decision making.
Certified management accountant (CMA): Accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants.
Financial accounting: Accounting information and analyses prepared for people outside the organization.
Annual report: Yearly statement of the financial condition, progress, and expectations of an organization.
Private accountant: Accountant who works for a single firm, government agency, or nonprofit organization.
Public accountant: Accountant who provides accounting services to individuals or businesses on a fee basis.
Certified public accountant (CPA): Accountant who passes a series of examinations established by the American Institute of Certified Public Accountants.
Auditing: Reviewing and evaluating the information used to prepare a company’s financial statements.
Independent audit: An evaluation and unbiased opinion about the accuracy of a company’s financial statements.
Certified internal auditor (CIA): Accountant who has a degree and two years of experience in internal auditing, and who has passed the Institute of Internal Auditors exam.
Tax accountant: Accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
Government and not-for-profit accounting: Accounting system whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
The Accounting Cycle
Six-step procedure that results in the preparation and analysis of the major financial statements.
Bookkeeping: The recording of business transactions.
Journal: The record book or computer program where accounting data are first entered.
Double-entry bookkeeping: Writing every business transaction in two places.
Ledger: Accounting book or computer program that has information from accounting journals in specific categories so that there is information about one account in the same place.
Trial balance: Summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
Understanding Key Financial Statements
Financial statement: Summary of all the financial transactions that have occurred over a particular period.
Balance sheet: Reports financial condition at a specific time and is composed of assets, liabilities, and owners’ equity.
Assets: Things of value owned by a firm.
Liquidity: Ease with which an asset can be converted into cash.
Current assets: Can or will be converted into cash within one year.
Fixed assets: Relatively permanent, ex: land, buildings.
Intangible assets: Long-term assets that have no physical form but do have value.
Liabilities: Business' debts.
Accounts payable: Current debts to others for merchandise or services purchased on credit.
Notes payable: Short or long-term debts promised to be repay by a certain date.
Bonds payable: Long-term debts that must be paid back.
Owners’ equity: Amount of the business that belongs to the owners minus any debt.
Retained earnings: Earnings that were reinvested in the business and not paid out to stockholders in dividends.
Income statement: Shows profit after costs, expenses, and taxes; summarizes all of the revenue, expenses, and the resulting net income or net loss.
Net income or net loss: Revenue left after all costs and expenses are paid.
Cost of goods sold/manufactured: Cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
Gross profit: Earnings by buying (or making) and selling merchandise.
Operating expenses: Costs involved in operating a business.
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Statement of cash flows: Reports cash receipts and disbursements related to operations, investments, and financing.
Cash flow: Difference between cash coming in and cash going out.
Analyzing Financial Performance Using Ratios
Ratio analysis: Assessment of a firm’s financial condition using calculations and interpretations of financial ratios developed from the firm’s financial statements.
Liquidity Ratios
Leverage Ratios
Performance Ratios
Activity Ratios