Financial Accounting: In an Economic Context

KEY TERMS

Note: Definitions for these terms are provided in the glossary at the end of the text.

Accounts payable (p. 42)

Accounts receivable (p. 39)

5Bonds payable (p. 43)

Capital employed (p. 45)

Classified balance sheet (p. 36)

Contributed capital (p. 43)

Cost of goods sold (p. 47)

Current assets (p. 38)

Current liabilities (p. 42)

Current maturities of long-term debts (p. 42)

Earned capital (p. 44)

Fees earned (p. 46)

Financing activities (p. 35)

Financing cost (p. 63)

Intangible assets (p. 41)

Investing activities (p. 35)

Liquidity (p. 36)

Long-term investments (p. 40)

Merchandise inventory (p. 39)

Mortgage payables (p. 43)

Net book value (p. 41)

Notes payable (p. 43)

Operating activities (p. 35)

Owners' equity (p. 45)

Plant and equipment (p. 41)

Prepaid expenses (p. 39)

Property (p. 40)

Retained earnings (p. 44)

Sales (p. 46)

Service revenue (p. 46)

Shareholders' equity (p. 43)

Short-term investments (p. 38)

Turnover (p. 54)

ETHICS in the Real World

For years German and Swiss accounting rules allowed management to “manage” earnings through discretionary adjustments. For the most part, the adjustments “smooth out” earnings variability across time, and many were used to German and Swiss managers argued that such adjustments were in the best interest of the firm, its shareholders, and the overall economy.

Many of these companies have since adopted International Financial Reporting Standards (IFRS), which makes it more difficult to “manage” earnings. Many believe that these ...