Chapter 16 Key Terms

Question	Answer
Accounts Payable	Amounts owed to creditors for services or items purchased.
Accounts Receivable	Amounts owed by customers to a business from previous sales.
Acid Test	Current assets less inventory less prepaid expenses divided by current liabilities.
Asset Turnover	Net sales divided by total assets.
Assets	Things of value owned by a business.
Balance Sheet	Financial report that lists assets, liabilities, and equity. Report reflects the financial position of the company as of a particular date.
Capital	Owners' investment in the business.
Common Stock	Units of ownership called shares.
Comparative Statement	Statement showing data from two or more periods side by side.
Corporation	Company with many owners or stockholders. Equity of these owners is called stockholders' equity.
Cost of Merchandise (goods) Sold	Beginning inventory + Net purchases - Ending inventory.
Current Assets	Assets that are used up or converted into cash with 1 year or operating cycle.
Current Liabilities	Obligations of a company due within 1 year.
Current Ratio	Current assets divided by current liabilities.
Expenses	Cost of doing business; found on the income statement.
Gross Profit From Sales	Net sales - Cost of goods sold.
Gross Sales	Total earned sales before sales returns and allowances or sales discounts.
Horizontal Analysis	Method of analyzing financial reports where each total this period is compared by amount of percent to the same total last period.
Income Statement	Financial report that lists the revenues and expenses for a specific period of time. It reflects how well the company is performing.
Liabilities	Amounts business owes to creditors.
Long-Term Liabilities	Debts or obligations that company does not have to pay within 1 year.
Merchandise Inventory	Cost of goods for resale.
Mortgage Note Payable	Debt owed on a building that is a long-term liability; often the building is the collateral.
Net Income	Gross profit less operating expenses.
Net Purchases	Purchases - purchase discounts - purchase returns and allowances.
Net Sales	Gross sales - sales discounts - sales returns and allowances.
Operating Expenses (overhead)	Regular expenses of doing business. These are not costs.
Partnership	Business with two or more owners.
Plant and Equipment	Assets that will last longer than 1 year.
Prepaid Expenses	Items a company buys that have not been used are shown as assets.
Purchase Discounts	Savings received by buyer for paying for merchandise before a certain time.
Purchase Returns and Allowances	Cost of merchandise returned to store due to damage, defects, and so on An allowance is a cost reduction that results when buyer keeps or buys damaged goods.
Purchases	Merchandise for resale; found on the income statement.
Quick Assets	Current assets - Inventory - Prepaid expenses.
Quick Ratio	(Current assets - inventory - prepaid expenses) 4 current liabilities.
Ratio Analysis	Relationship of one number to another.
Retained Earnings	Amount of earnings that is kept in the business.
Return on equity	Net income divided by stockholders' equity.
Revenues	Total earned sales (Cash or Credit) less any sales discounts, returns, or allowances.
Salaries Payable	Obligations that a company must pay within 1 year for salaries earned by unpaid.
Sales (not trade) Discounts	Reductions in selling price of goods due to early customer payment.
Sales Returns and Allowances	Reductions in price or reductions in revenue due to goods returned because of product defects, errors, and so on.
Sole proprietorship	A business owned by one person.
Stockholders' Equity	Assets less liabilities.
Trend Analysis	Analyzing each number as a percentage of a base year.
Vertical Analysis	Method of analyzing financial reports where each total is compared to one total.

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Chapter 16 Key Terms

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