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 receivable (p. 251)

Aging schedule (p. 262)

Allowance method (p. 257)

Cash (sales) discounts (p. 255)

Compensating balances (p. 249)

Current asset (p. 243)

Current ratio (p. 245)

Escrow (p. 249)

Exchange rate (p. 269)

Exchange rate loss (p. 269)

Gross method (p. 255)

Hedging (p. 269)

Markdown (p. 255)

Multinational corporations (p. 269)

Net realizable value (p. 254)

Open accounts (p. 0251)

Operating cycle (p. 243)

Percentage-of-credit-sales approach (p. 258)

Petty cash (p. 250)

Physical control (p. 251)

Quantity discount (p. 255)

Quick ratio (p. 245)

Record control (p. 251)

Window dressing (p. 247)

Working capital (p. 245)

ETHICS in the Real World

Allied Bancshares, a Houston-based group of banks, reported a string of 31 quarterly earnings increases. In an interview with three Goldman Sachs security analysts, one of the bank's senior officers explained that the bank intentionally overstates its bad debt expense in good quarters and understates it in poor quarters. In this manner, the fluctuations in earnings from one quarter to the next can be smoothed out. The bank's auditors have written clean opinions on the bank's financial statements over this time period, and this strategy maximizes the bonuses paid to the bank's executives. In addition, presumably it is in the best interest of the bank's shareholders, partly because it helps the bank maintain its legal reserve requirements. ...