accounting information system (AIS): An organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports.

accounting: A comprehensive system for collecting, analyzing, and communicating financial information.

accounts payable: Amounts due from the firm to its suppliers for goods and/or services purchased on credit; a form of current liability.

accounts receivable: Amounts due to the firm from customers who have purchased goods or services on credit; a form of current asset.

activity ratios: Measures of how efficiently a firm uses its resources; used by investors to assess their probable returns.

asset: Anything of economic value owned by a firm or individual.

audit: An accountant's examination of a company's financial records to determine if it used proper procedures to prepare its financial reports.

balance sheet: A type of financial statement that summarizes a firm's financial position on a particular date in terms of its assets, liabilities, and owners' equity.

bookkeeping: Recording accounting transactions.

budget: A detailed financial plan for estimated receipts and expenditures for a period of time in the future, usually one year.

certified general accountant (CGA): An individual who has completed an education program and passed a national exam; works in private industry or a CGA firm.

certified management accountant (CMA): An individual who has completed a university degree, passed a national examination, and completed a strategic leadership program; works in industry and focuses on internal management accounting.

chartered accountant (CA): An individual who has met certain experience and education requirements and has passed a licensing examination; acts as an outside accountant for other firms.

controller: The individual who manages all the firm's accounting activities.

cost of goods sold: Any expenses directly involved in producing or selling a good or service during a given time period.

current assets: Cash and other assets that can be converted into cash within a year.

current liabilities: Any debts owed by the firm that must be paid within one year.

current ratio: A form of liquidity ratio calculated as current assets divided by current liabilities.

debt ratios: Measures of a firm's ability to meet its long-term debts; used to analyze the risks of investing in the firm.

debt-to-owners'-equity ratio: A form of debt ratio calculated as total liabilities divided by owner's equity.

debt: A company's total liabilities.

depreciation: Distributing the cost of a major asset over the years in which it produces revenues; calculated by each year subtracting the asset's original value divided by the number of years in its productive life.

double-entry accounting system: A bookkeeping system, developed in the fifteenth century and still in use, that requires every transaction to be entered in two ways–how it affects assets and how it affects liabilities and owners' equity–so that the accounting equation is always in balance.

earnings per share: A form of profitability ratio calculated as net income divided by the number of common shares outstanding.

financial accounting system: The process whereby interested groups are kept informed about the financial condition of a firm.

financial statement: Any of several types of broad reports regarding a company's financial status; most often used in reference to balance sheets, income statements, and/or statements of cash flows.

fixed assets: Assets that have long-term use or value to the firm such as land, buildings, and machinery.

foreign currency exchange rate: What buyers are willing to pay for a given currency.

forensic accountant: An accountant who tracks down hidden funds in business firms, usually as part of a criminal investigation.

generally accepted accounting principles (GAAP): Standard rules and methods used by accountants in preparing financial reports.

goodwill: The amount paid for an existing business beyond the value of its other assets.

gross profit (gross margin): A firm's revenues (gross sales) less its cost of goods sold.

income (profit-and-loss) statement: A type of financial statement that describes a firm's revenues and expenses and indicates whether the firm has earned a profit or suffered a loss during a given period.

intangible assets: Non-physical assets, such as patents, trademarks, copyrights, and franchise fees, that have economic value but whose precise value is difficult to calculate.

inventory turnover ratio: An activity ratio that measures the average number of times inventory is sold and restocked during the year.

leverage: Using borrowed funds to make purchases, thus increasing the user's purchasing power, potential rate of return, and risk of loss.

liability: Any debt owed by a firm or individual to others.

liquidity ratios: Measures of a firm's ability to meet its immediate debts; used to analyze the risks of investing in the firm.

liquidity: The ease and speed with which an asset can be converted to cash; cash is said to be perfectly liquid.

long-term liabilities: Any debts owed by the firm that are not due for at least one year.

management consulting services: Specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other areas.

managerial (management) accounting: Internal procedures that alert managers to problems and aid them in planning and decision making.

merchandise inventory: The cost of merchandise that has been acquired for sale to customers but is still on hand.

net income (net profit or net earnings): A firm's gross profit less its operating expenses and income taxes.

operating expenses: Costs incurred by a firm other than those included in cost of goods sold.

operating income: Compares the gross profit from business operations against operating expenses.

owners' equity: Any positive difference between a firm's assets and its liabilities; what would remain for a firm's owners if the company were liquidated, all its assets were sold, and all its debts were paid.

paid-in capital: Any additional money invested in the firm by the owners.

prepaid expense: Includes supplies on hand and rent paid for the period to come.

private accountant: An accountant hired as a salaried employee to deal with a company's day-to-day accounting needs.

profitability ratios: Measures of a firm's overall financial performance in terms of its likely profits; used by investors to assess their probable returns.

retained earnings: A company's net profits less any dividend payments to shareholders.

return on equity: A form of profitability ratio calculated as net income divided by total owners' equity.

revenues: Any monies received by a firm as a result of selling a good or service or from other sources such as interest, rent, and licensing fees.

solvency ratios: Ratios that estimate the financial risk that is evident in a company.

statement of cash flows: A financial statement that describes a firm's generation and use of cash during a given period.

working capital: The difference between a firm's current assets and current liabilities.

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