EXAM 2 STUDY GUIDE � chapters 14

EXAM 2 STUDY GUIDE � chapters 14 - EXAM 2 STUDY...

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EXAM 2 STUDY GUIDE – chapters 14, 15, 16 and appendix C, and “American Dream” Chapter 14: Accounting – the recording, measurement, and interpretation of financial information Accounting cycle – the four-step procedure of an accounting system: examining source documents, recording transactions in an accounting journal, posting recorded transactions, and preparing financial statements Accounting equation – assets = liabilities + owners’ equity Accounts receivable – money owed a company by its clients or customers who have promised to pay for the products at a later date Annual report – summary of a firm’s financial information, products, and growth plans for owners and potential investors Assets – a firm’s economic resources, or items of value that it owns, such as cash, inventory, land, equipment, buildings, and other tangible and intangible things Balance sheet – a “snapshot” of an organization’s financial position at a given moment Ratios (debt, liquidity, profitability, etc.) Double-entry bookkeeping – a system of recording and classifying business transactions that maintains the balance of the accounting equation Gross income – revenues - the cost of goods sold required to generate the revenues Income statement – a financial report that shows an organization’s profitability over a period of time – month, quarter, or year Liabilities – debts that a firm owes to others Owners’ equity = assets - liabilities and reflects historical values Return on equity = net income / owner’s equity – also called return on investment (ROI) Revenue
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