| A | B |
|---|
| Asset | Something that has or produces value and is owned |
| Fixed asset | Tangible asset that is generally used to generate profit and will not be turned into cash within the year |
| Variable asset | May be transformed to cash sooner and will include the inventory of the actual product |
| Intangible asset | “Not tangible, it’s not physical Includes recognition of the brand name as well as intellectual property like logos trademarks and patents” |
| Liquidity | Refers to how easily an asset can be bought or sold on the market at the same price and also refers to being able to make an asset become cash easily and quickly |
| Cash flow | Refers to the actual cash that is going in and out of a business such as revenues or expenses due to business activities |
| Depreciation | Refers to how things lose value as time goes on |
| Equity | shows what the owner of a business has contributed in addition to the retained earnings |
| GAAP | “Generally accepted accounting principles, provide a set of standards for how accounting figures and statements such as income statements, balance sheets, and cash flow statements are prepared” |
| SEC | “US Securities and Exchange Commission, including small businesses” |
| FASB | “Financial Accounting Standards Board, issues GAAP through pronouncements” |
| Cash accounting | “Transactions are counted when the money is actually received or the expenses are paid out, regardless of when an item was ordered or delivered” |
| Accrual method | “Transactions are counted when the orders are made or delivered, even if no cash has actually exchanged hands” |
| Fundamental accounting equation | States that all assets = liabilities + owners’ equity |
| Accounting cycle | Describes the steps taken in the accounting process |
| 2 important components of the accounting cycle | Ledgers and journals |
| Journal | Transactions go in a journal based on when they occur and can be for something specific like sales or purchases or go in the general journal |
| Ledger | “Contains different accounts like asset accounts, revenue accounts, expense accounts, liability accounts and equity accounts Very important because documents such as income statements and balance sheets are produced from them” |
| Double-entry bookkeeping | Two columns are used All debits placed on the left and credits go on the right |
| Debts | “Recorded in the debit column as debits making assets and expense accounts go up and income, liability and equity accounts go down” |
| Credits | “Make liability, income and equity accounts go up and asset and expense accounts go down” |
| In accounting, Debits and credits | Must always equal each other |
| Accounting equation | Assets = liabilities + owner’s equity |
| Trial balance | A document showing the ending balances of ledger accounts |
| Income statements | Important financial documents which shows company profitability for a period of time |
| Operating revenues | Also known as primary activities |
| Balance sheet | “One of the major financial documents, showcasing a moment in time Lists assets, liabilities” |
| Statement of retained earnings | Financial document required when income statements and comparative balance sheets are given |
| Retained earnings | Business’ accumulated net income with the dividends that were given to stockholders subtracted |
| Final retained earnings | Retained earnings + net income - stockholder dividends |
| Cash flow statement | A major accounting document that outlines the influx and outflow of cash from a company and covert the business’ net income to cash basis with the balance changes in the current liability and current assets accounts |
| Operating activities | Convert the business’ net income to cash basis with the balance changes in the current liability and current assets accounts |
| Investing activities | Include balance changes of long term assets like buildings and equipment |
| Financing activities | Includes balance changes in stockholders’ equity and long-term liability accounts like preferred stock |
| Supplemental information | Shows interest, income taxes and major non-cash |
| Liquidity ratios | Measure if a company can meet its obligations in the short term |
| Quick ratio formula | Quick ratio = (cash + marketable or short-term securities)/(current liabilities) |
| Cash ratio formula | Cash = (cash + marketable or short-term securities)/(current liabilities) |
| Debt to equity ratio | Shows the company’s financial leverage = total liabilities/shareholders’ equity |
| ROE | Return on equity ratio is a percentage with the equation ROE = net income/shareholder’s equity |
| ROE shows | Profitability |
| Activity ratios show | How balance sheet accounts can be transformed into sales or cash and shows a firm’s efficiency |
| 2 popular activity ratios | Inventory turnover ratio and total assets turnover ratio |
| The 2 major inventory systems | Periodic and perpetual inventory systems |
| Perpetual inventory systems | Inventory changes and cost of goods sold are updated in real time as the item is sold Inventory changes such as returns are recorded immediately |
| Periodic system | Purchases account record is changed when the purchase is made and the cost of goods sold and inventory doesn’t change until the accounting period closes Popular with POS systems |
| FIFO method | The oldest cost is assigned to the first item sold then the next oldest cost to the next item sold |
| LIFO method | The most recent cost is assigned to the first items sold Used less often |
| 2 inventory costing methods | Average cost and specific identification method |
| Average cost method | Keeps a running average of inventory and assigns the items sold the current average |
| Specific identification method | Assigns the cost of a product with the actual cost paid for that specific product Used for low-volume/high dollar producers |
| Depreciation | “The concept that assets such as equipment, machinery, and cars have a useful life and will only be usable for a certain amount of time and therefore depreciate or lose value as time goes on” |
| Residual value | Value at the end |
| Straight line method of depreciation | They simply average the depreciation across the years |
| Management accounts | “Refers to the evaluation of information for the purpose of managers Includes the identification, measurement, evaluation, interpretation and communication of information” |
| Main goal of management accounting | Help managers make decisions about the business |
| Cost accounting | Useful for managers to help make decisions while planning and controlling |
| Cost accounting considers | Both the input costs of production and the fixed costs are considered |
| Types of Costs | “Direct, Indirect, Fixed and Variable” |
| Direct Costs | Costs that go directly into making a product Example: pen manufacturing company would have ink as a direct cost |
| Indirect cost | Incurred to the company as a whole and is necessary but not directly tied into that one product Example: Office Supplies |
| Fixed costs | Costs that stay the same Example: cost of salaried employee |
| Variable costs | Costs that can change Example: machine that takes more electricity when making more product |
| Cost-volume-profit analysis (CVP) | Part of managerial economics and looks at how alterations in the cost and sales volume change the profit of a company |
| Break-even analysis | Calculates when the expenses of a company are covered and there is a profit |
| General equation for breakeven point | “= fixed costs/(selling price of a unit, variable costs)” |
| ROI | “Return on investment ROI = (gain derived from investment, cost of the investment)/cost of the investment Answer is a percentage” |
| What does ROI show | “an investments efficiency and is used to compare different projects, would choose the one with higher ROI” |
| Investment options | “Securities, Bonds, Stocks, Mutual Funds” |
| Securities | “Financial assets that can be traded and are not tangible Examples: stocks, bonds, banknotes” |
| Debt securities | Investor is the lender |
| Equity securities | Stocks in which the investor purchases a small portion of a company |
| Securities range in | “Risk and return: the greater the risk, the greater the potential for a large return” |
| Bonds | Investor is loaning money to an institution which is borrowing money Borrower provides investor with a coupon and when bond reaches maturity the face value is given back to the investor |
| Advantage to bonds | Less risk/less reward form of investing than many other methods such as stocks |
| Disadvantage to bonds | The return does not generally have the potential to be a great as with stocks Bonds are limited in their payout potential |
| Stocks | Common form of investment where investors purchase a very small amount of the company |
| Mutual Funds | “Businesses that take money from a variety of investors and put it in a portfolio of bonds, stocks, securities, and assets” |
| Personal income taxes | “Taxes on the money a person earns, percentage of income after deductions and credits” |
| FICA | Federal Insurance Contributions Act |
| Credit cards | Allow people to make purchases in advance and then pay it back monthly but the interest is very high |
| Auto loans | Loans tied to cars |
| Mortgages | Loans made to let people purchase homes |
| Student loans | Help students pay for education |
| Foreclosure | Occurs if the mortgage loan is not repaid |
| Home equity loans | Loans in which the person’s home equity is put up as collateral in case the person defaults on the loan |
| Variable loan | “A loan in which the interest rate changes along with the market interest rate, changing the payments” |
| Fixed interest rate loan | Has the interest rate stay the same during the life of the loan |
| Interest rate and length | How high the rate and length of the loan is determined by this |
| APR | Annual Percentage Rate |
| Types of Bankruptcy | “Chapter 7, 11 and 13” |
| Life Insurance | A type of coverage people buy that pays out upon a person’s death Whole life insurance is also an investment |
| Term life insurance | Does not have an investment component Bought for a certain amount of time and pay a monthly premium |
| Rider | Changes provisions or clauses of the insurance policy |
| Beneficiary | The person who receives the money upon the insured person’s death |
| Annuities | Give someone a regular income |
| Actuarial tables | “Show the chances that someone will pass away before their birthday, used by life insurance companies when developing plans and pricing” |
| Automobile insurance | Covers drivers in the case of an occurrence that causes some sort of damage or harm |
| Collision coverage | For cars involved in an accident |
| Premiums | The amount a driver pays monthly or regularly to maintain coverage |
| Comprehension insurance | Covers cars damaged without a collision such as from vandalism or weather-related events |
| Property insurance | “Provides coverage against a wide variety of risks and includes fire insurance, earthquake insurance, home insurance, and flood insurance” |
| Open perils | “A type of insurance that includes all causes except those exempted, whereas named perils lists the types of causes for the insurance” |
| Replacement insurance | Gives benefits so people can replace lost items |
| Health insurance | Very important for individuals and families to help pay for medical expenses |
| PPO | Preferred provide plan , generally gives greater benefits if an individual sees someone “in network” as compared to “out of network” |
| HMO | Contracts physicians, hospitals and other providers and gives benefits based on that |
| Frequency distributions | Tables that show how often specific results emerged |
| Mean | Simply the average of a group of numbers |
| Mode | Simply the number that appears the most |
| Median | “The number that would appear in the middle if the numbers were put in order Example: 1,3,5,7,9 , Mode would be 5” |
| Standard deviation | “Calculate mean first, then take each number and subtract the mean, then get the squared difference by squaring the result. Finally, take all the squared differences in the group and find their average” |
| Line graph | Shows the connection between information and is used to show changes over time |
| Scatter plots | Show how two variables are related to each other |
| Bar graphs | Used to show data in a way that is clear and easy to understand |
| Circle graphs | Useful visual aids that show a variety of data |
| Formula for Area for square | “A = W x L, where W = width and L = length” |
| Formula for Area of a triangle | “A = ½ x b x h, where b = base and h = height” |
| Formula for Area of a circle | Pie x r2 where r = radius |
| Volume of a rectangular prism | “V = L x W x H, where L = length, w = width and h = height” |
| Volume of a cylinder | Multiply pie x r2 x h |
| Formula for weight | W = m x g, where m = mass and g = acceleration of gravity, which on earth is 98 m/s2 |
| Compound interest | When interest gets added back to the principal and then interest is calculated on that additional amount when the next compounding period happens |
| Formula for compound interest | A = P(1 + r/n)^nt A is the investments future value (with interest) P is the principal or initial investment R is the annual interest rate expressed as a decimal N represents how many times the interest is compounded annually T is how long the money has been invested (in years) |
| Probability sampling | Every individual has a chance of getting selected in a known probability |
| Nonprobability sampling | Some units may not have a chance of selection or the probability isn’t known |
| Simple random sampling | “The best probability method, but is often very difficult to achieve” |
| Systemic sampling | “Also known as Nth name selection technique, takes every Nth individual from the population” |
| Stratified sampling | Population is divided into stratums or groups with a shared characteristic such as gender or age |
| Convenience sampling | “Researcher finds a convenient sample, not as accurate as other methods” |
| Judgment sampling | Researcher uses his judgment to find the sample |
