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  • International Financial Reporting Standards (IFRS)

    A set of worldwide accounting rules and guidelines used by companies to prepare financial statements that can be compared with those of other countries.

    Sarbanes Oxley Act (SOX)

    A federal law enacted to encourage ethical corporate behavior and discourage fraud and other wrongdoing.

    Account Payable

    Record of cash owed to sellers from whom a business has purchased products on credit.

    Account Receivable

    Record of cash that will be received from a customer to whom a business has sold products on credit.


    System for measuring and summarizing business activities, interpreting financial information, and communicating the results to management and other decision makers.

    Accounting Equation

    Accounting tool showing the resources of a business (assets) and the claims on those resources (liabilities and owner's equity).

    Accrual Accounting

    Accounting system that records transactions when they occur, regardless of when cash is paid or received.


    Resource from which a business expects to gain some future benefit.


    Accountant's examination of and report on a company's financial statements.

    Balance Sheet

    Report on a company's assets, liabilities, and owner's equity at a specific point in time.

    Breakeven Analysis

    Method of determining the level of sales at which the company will break even (have no profit or loss).

    Breakeven Point In Units

    Number of sales units at which net income is zero.

    Capital Structure

    Relationship between a company's debt (funds acquired from creditors) and its equity (funds invested by owners).

    Certified Public Accountant (CPA)

    Accountant who has met state-certified requirements for serving the general public rather than a single firm.

    Classified Balance Sheet

    Balance sheet that totals assets and liabilities in separate categories.

    Comparative Income Statement

    Financial statement showing income for more than one year.

    Contribution Margin per Unit

    Excess of revenue per unit over variable cost per unit.

    Cost of Goods Sold

    Cost of the products that a business sells to customers.

    Current Asset

    Asset that a business intends to convert into cash within a year.

    Current Liability

    Liability that a business intends to pay off within a year.

    Current Ratio

    (current assets/ current liabilities) Financial ratio showing the relationship between a company's current assets and current liabilities. companies should have enough liquid assets to meet the their obligations but not too many

    Debt To-Equity Ratio (Or Debt Ratio) -

    (total liabilities/ total equity) Financial ratio showing the relationship between debt (funds acquired from creditors) and equity (funds invested by owners). a high debt to equity ratio means it might be hard for a company to borrow money, less is better

    Depreciation Expense

    Costs of a long-term or fixed asset spread over its useful life. (store signs, displays, furniture, and equipment)


    Costs incurred by selling products to customers.

    Financial Accounting

    Branch of accounting that furnishes information to individuals and groups both inside and outside the organization to help them assess the firm's financial performance.

    Financial Condition Ratio

    Financial ratio that helps to assess a firm's financial strength.

    Financial Statements

    Financial reports—including the income statement, the balance sheet, and the statement of cash flows—that summarize a company's past performance and evaluate its financial health.

    Financing Activity

    Activity that creates cash inflows or outflows through the obtaining or repaying of borrowed or invested funds.

    Fiscal Year

    Company's designated business year.

    Fixed Costs

    Costs that don't change when the amount of goods sold changes.

    Generally Accepted Accounting Principles (GAAP)

    Uniform set of rules for financial reporting issued by an independent agency called the Financial Accounting Standards Board (FASB).

    Gross Profit (Or Gross Margin)

    Positive difference between revenues and cost of goods sold.

    Income Statement

    Financial statement summarizing a business's revenues, expenses, and net income.

    Interest Coverage Ratio

    (operating income/ Interest expenses) Financial ratio showing a company's ability to pay interest on its debts from its operating income. HIgher is better


    Goods that a business has made or bought and expects to sell in the process of normal operations.

    Inventory Turnover Ratio

    (Sales ÷ Inventory)

    Higher is better
    Financial ratio that shows how efficiently a company turns over its inventory
    More inventory is costly

    Investing Activity

    Activity that creates cash inflows or outflows through the selling or buying of long-term assets.


    Debt owed by a business to an outside individual or organization.


    Speed with which an asset can be converted into cash.

    Long Term Asset (Or Fixed Asset)

    Asset that a business intends to hold for more than a year before converting it to cash.

    Long Term Liability

    Liability that a business need not pay off within the following year.

    Management Accounting

    Branch of accounting that provides information and analysis to decision makers inside the organization to help them operate the business.

    Management Effectiveness Ratio

    Financial ratio showing how effectively a firm is being run and measuring its overall performance.

    Management Efficiency Ratio

    Financial ratio showing how efficiently a company's assets are being used.

    Net Income (Or Net Profit)

    Positive difference between gross profit and total expenses.

    Operating Activity

    Activity that creates cash inflows or outflows through day-to-day operations.

    Operating Expenses

    Costs of selling products to customers, not including cost of goods sold.

    Owner's Equity

    Amount which is invested in a business by its owners and which owners can claim from its assets.

    Private Accountant

    Accountant who works for a private organization or government agency.

    Profit Margin Ratio

    Financial ratio showing how much of each sales dollar is left after certain costs are covered.

    Ratio Analysis

    Technique for financial analysis that shows the relationship between two numbers.


    Amount of money earned by selling products to customers.


    Parties who are interested in the activities of a business because they're affected by them.

    Statement of Cash Flows

    financial statement reporting on cash inflows and outflows resulting from operating, investing, and financing activities.

    Statement of Owner's Equity

    A financial statement that details changes in owner's equity for a specified period of time.

    Variable Costs

    Costs that vary, in total, as the quantity of goods sold changes but stay constant on a per-unit basis.

    Vertical Percentage Analysis

    Analysis of an income statement treating the relationship of each item as a percentage of a base (usually sales).

    Business Ethics

    Application of ethical behavior in a business context.

    Code Of Conduct

    Statement that defines the principles and guidelines that employees must follow in the course of all job-related activities.

    Conflict Of Interest

    Situation in which an individual must choose between the promotion of personal interests and the interests of others.

    Corporate Social Responsibility

    Approach that an organization takes in balancing its responsibilities toward different stakeholders when making legal, economic, ethical, and social decisions.


    Ability and willingness to distinguish right from wrong and when you're practicing one or the other.

    Ethical Decision

    Decision in which there is a right (ethical) choice and a wrong (unethical or illegal) choice.

    Ethical Dilemma

    Morally problematic situation.

    Ethical Lapse

    Situation in which an individual makes a decision that's unmistakably unethical or illegal.

    Fiduciary Responsibility

    Duty of management to safeguard a company's assets and handle its funds in a trustworthy manner.

    Insider Trading

    Practice of buying or selling of securities using important information about the company before it's made public.


    Parties who are interested in the activities of a business because they're affected by them.


    The principle of providing products today that don't compromise the ability of future generations to meet their needs.

    Whistle Blower

    Individual who exposes illegal or unethical behavior in an organization.


    Schedule by which you'll reduce the balance of your debt.


    Wealthy individual willing to invest in start-up ventures.


    A document that itemizes the sources of income and expenditures for a future period (often a year).

    Capital Budget

    Budget that shows anticipated expenditures for major equipment.

    Cash Budget

    Financial plan that projects cash inflows and outflows over a period of time.

    Cash Flow Management

    Process of monitoring cash inflows and outflows to ensure that the company has the right amount of funds on hand.


    Specific business or personal assets that a bank accepts as security for a loan.

    Financial Plan

    Planning document that shows the amount of funds a company needs and details a strategy for getting those funds.

    Initial Public Offering (IPO)

    Process of taking a privately held company public by selling stock to the public for the first time.


    Cost charged to use someone else's money.

    Intermediate Loan

    Loan issued with a maturity date of one to five years.

    Investment Banking Firm

    Financial institution that specializes in issuing securities.

    Lines Of Credit

    Commitment by a bank that allows a company to borrow up to a specified amount of money as the need arises.

    Long Term Loan

    Loa issued with a maturity date of five years or more.


    Period of time for which a bank loan is issued.


    Collateral pledged to secure repayment of a loan.

    Short Term Loan-Loan

    issued with a maturity date of less than one year.

    Trade Credit

    Credit given to a company by its suppliers.

    Unsecured Loan

    Loan given by a bank that doesn't require the borrower to put up collateral.

    Venture Capitalist

    Individual who pools funds from private and institutional sources and invests them in businesses with strong growth potential.

    financial manager

    determines how much money the company needs, how and where it will get the necessary funds, and how and when it will repay the money that it has borrowed, what the company should do with its funds,what investments should be made in plant and equipment, how much should be spent on research and development, and how excess funds should be invested

    Where do Small Business get funding?

    Owners' personal assets (personal savings, credit cards, home mortgages), Loans from families and friends, Bank loans (including those guaranteed by the Small Business Development Center)

    What are the negatives of going public (IPO)

    -going public is quite costly—often exceeding $300,000
    - time-consuming
    -financial results would be public information
    -responsible to shareholders who will want to see the kind of short-term performance results that boosts stock prices

    Examples of investment banking firms

    Goldman Sachs or Morgan Stanley

    Steps for going public

    - initial public offering (IPO),
    - help investment banking firm—a financial institution (such as Goldman Sachs or Morgan Stanley) that specializes in issuing securities.
    - investment banker advises you that now's a good time to go public and determines the best price at which to sell your stock.
    - approval of the Securities and Exchange Commission (SEC), .

    Securities and Exchange Commission (SEC

    the government agency that regulates securities markets.

    Gantt Chart

    Graphical tool for determining the status of projects.

    ISO 14000

    Set of international standards for environmental management established by the International Organization for Standardization.

    ISO 9000

    Set of international quality standards established by the International Organization for Standardization.

    PERT Chart

    Tool for diagramming the activities required to produce a product, specifying the time required to perform each activity in the process, and organizing activities in the most efficient sequence.


    Practice of comparing a company's own performance with that of a company that excels in the same activity.


    Maximum number of products that a facility can produce over a given period under normal working conditions.

    Cellular Layout

    Layout in which teams of workers perform all the tasks involved in building a component, group of related components, or finished product.

    Computer Aided Design (CAD)

    System using computer technology to create models representing the design of a product.

    Computer Aided Manufacturing (CAM)-

    System using computer technology to control production processes and equipment.

    Computer Integrated Manufacturing (CIM)

    System in which the capabilities of a CAD/CAM system are integrated with other computer-based functions.

    Continuous Improvement

    Company's commitment to making constant improvements in the design, production, and delivery of its products.

    Electronic Data Interchange (EDI)

    Computerized exchange of business transaction documents.

    Fixed Position Layout

    Layout in which workers are moved to the product, which stays in one place.

    Flexible Manufacturing System (FMS)

    System in which computer-controlled equipment is programmed to handle materials used in manufacturing.

    Industrial Robot

    Computer-controlled machine used to perform repetitive tasks that are also hard or dangerous for human workers.

    Inventory Control

    Management of inventory to ensure that a company has enough inventory to keep operations flowing smoothly but not so much that money is being wasted in holding it.

    Just In-Time Production

    System for reducing inventories and costs by requiring suppliers to deliver materials just in time to go into the production process.


    Arrangement in a facility of equipment, machinery, and people to make a production process as efficient as possible.

    Make To-Order Strategy

    Production method in which products are made to customer specification.

    Manufacturing Resource Planning (MRP II)

    System for coordinating a firm's material requirements planning activities with the activities of its other functional areas.

    Mass Customization

    Production method in which fairly high volumes of customized products are made at fairly low prices.

    Mass Production (Or Make To-Stock Strategy)

    Production method in which high volumes of products are made at low cost and held in inventory in anticipation of future demand.

    Master Production Schedule (MPS)

    Timetable that specifies which and how many products will be produced and when.

    Material Requirements Planning (MRP)

    Technique of using a computerized program to calculate the quantity of materials needed for production and to reschedule inventory ordering.

    Materials Management

    All decisions pertaining to the purchase of inputs, the inventory of components and finished products, and the scheduling of production processes.

    Operations Management (OM)

    Management of the process that transforms resources into products.


    Practice of using outside vendors to manufacture all or part of a company's actual products.

    Process Layout

    Layout that groups together workers or departments that perform similar tasks.

    Product Layout

    Layout in which products are produced by people, equipment, or departments arranged in an assembly line.


    Process of acquiring materials and services to be used in production.


    Ability of a product to satisfy customer needs.

    Quality Circle

    Employees who perform similar jobs and work as teams to identify quality, efficiency, and other work-related problems; to propose solutions; and to work with management in implementing their recommendations.

    Statistical Process Control

    Technique for monitoring production quality by testing sample outputs to ensure that they meet specifications.

    Total Quality Management (TQM) (Or Quality Assurance)

    All the steps taken by a company to ensure that its products satisfy customer needs.

    Gross Profit Margin

    (Gross Profit ÷ Sales
    Turnover) × 100%

    The positive difference between sales and cost of goods sold

    higher = better

    Net Profit margin

    (net profit ÷ sales)
    is the money that a company earns after paying all its expenses

    (including the costs of buying or making its products, running its operations, and paying interest and taxes)

    lower is bad

    Return on Assets

    (Net Profit ÷ Total Assets) x100 return on assets must exceed the funding resources cost for those assets

    balance sheet

    Shows assets and liabilities the business has and the amount that the owner/ investor have invested in the business

    Statement of Owner's Equity

    Show changes in the business equity over a specific period of time

    Statement of Cash Flows

    Shows how much cash the business has coming in and going out

    net income or profit

    The positive difference between sales and cost of goods sold
    also known as "bottom line"

    gross profit

    the amount left after subtracting cost of goods sold from sales

    Operating Expenses

    the costs of doing business other than the cost of products sold

    How to make more money in the business ?

    1. Reduce your cost of goods sold (say, package four toys instead of five)
    2. Reduce your operating costs (salaries, advertising, table rental)
    3. Increase the quantity of units sold


    the resources from which it expects to gain some future benefit

    accounting equation

    assets = liabilities + owner's equity

    Balance sheet is based off ?

    The accounting equation


    the debts that it owes to outside individuals or organizations

    Owner's Equity

    your investment in your business

    What orders do financial Statement go in?

    1. Income statement
    2. Statement of owner's equity
    3. Balance sheet

    How do financial statements relate to one another?

    Because financial statements are interrelated: numbers generated on one financial statement appear on other financial statements

    ex. if assets and liabilities are listed correctly, then the balance sheet will balance: Total assets will equal the total of liabilities plus owner's equity.

    income taxes

    appears on your income statement after the subheading net income before income taxes
    -it's subtracted from income before income taxes before you arrive at your "bottom line," or net income.

    Interest Expense

    is a cost of financing your business and appears on your income statement after the subheading operating income.

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