Card Set Information

2014-12-07 23:41:30

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  1. Accounting
    Recording measurement and interpretation of financial info
  2. GAAP
    Generally accepted accounting principles
  3. Accounting equation
    Assets = liabilities + owners equity
  4. Assets
    A firms resources such as cash, inventory, land, equipment, buildings , and tangible/intangible things
  5. Liabilities
    Debts that a firm owes
  6. Owners equity
    Assets - liabilities
  7. Double entry bookkeeping
    • System of recording and classifying business transactions that maintains balance of accounting equation
    • Balance- keep accounting equation in balance , transaction must be recorded two separate accounts
    • Classification- transactions classified as assets, liabilities or owners equity
    • Breakdown- break down accounts into cash, inventory, and equipment
  8. Accounting cycle
    • Examine source documents
    • Record transactions
    • Post transactions
    • Prepare financial statements
  9. Income statement
    Financial report that shows an organizations profitability over a period of time
  10. Balance sheet
    An organizations financial position at a given moment
  11. Statement of cash flows
    Explains how the companys cash changed from the beginning of the accounting period to the end
  12. Three categories of cash flow
    • Operating activities
    • Investing activities
    • Financing activities
  13. Liquidity ratio
    • Ratios that measure the speed with which a company can turn its assets into cash to meet short term debt
    • / current ratio
  14. Current ratio
    Current assets divided by current liabilities
  15. Profit margin
    • Net income/ revenue
    • High profit margin means more profitable company
  16. Inventory turnover
    • Ratio Showing how many times a company inventory is sold and replaced over time
    • sales/inventory
  17. Finance
    Study of money, how its made, how its lost, how its managed
  18. Functions of money
    • Medium of exchange - Used in place of bartering
    • Trade money for goods and services
    • Measure of value-value of items
    • Store of value- accumulate wealth
  19. Characteristics of money
    • Acceptability
    • Divisibility
    • Portability
    • Stability
    • Durability
    • Difficult to counterfeit
  20. Federal reserve
    • Controls money supply with monetary policy
    • Regulates financial situations
    • Manages regional and national check clearing procedures
    • Supervises federal deposit insurance of commercial banks in federal reserve system
  21. Monetary policy
    Fed controls amount of money available in economy
  22. Monetary policy tool - reserve requirement
    • Percentage of deposits a bank must hold in reserve
    • Requirements up = interest rate up, money supply down, econ act down,
    • Restrictive policy
    • Requirements up = expansionary policy
  23. Monetary policy tool - discount rate
    • Rate of interest the fed charges to loan money to banksLowering discount rate encourages borrowing and expand money supply vice versa
    • Discount rate up = interest up, money supply down, activity down, 
    • Restrictive policy
  24. Monetary policy tool - open market operations
    • Decisions to buy or sell u.s treasury bill in open marketBuying securities increase money supply vice versa
    • Govt buy bond, money supply up,econ activity up, expansionary policy
    • Sells bond = restrictive monetary policy
  25. Banking institutions
    • Commercial banks - checking and savings accounts
    • Savings and loan associations - offers saving accounts and make long term loans
  26. Nonbanking institutions
    • Diversified firms- traditionally nonfinancial firms have expanded into financial field
    • Insurance companies - protects clients against lossesPension funds- investment to retirement income for members
    • Mutual fund
    • Brokerage firm
    • Investment bank
    • Finance companies
  27. Managing current assets
    • Transaction balances - cash to pay daily expenses like wages and bills for supplies
    • Marketable securities
    • Treasury bills
  28. Managing current liabilities
    • Accounts payable
    • Line of credit
    • Secured loans
  29. Bonds
    Debt instruments that large companies sell to raise long term funds
  30. Equity financing - retained earnings
    Earnings after expenses and taxes are reinvested
  31. Investment banking - Primary market
    Where firms raise financial capital
  32. Investment banking - secondary markets
    Where investors can trade their securities with others
  33. Investment banking
    Sales of stocks and bonds for corporations