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| Pregunta | Respuesta |
| The Accounting Equation | Assets = Liabilities + Owner's Equity |
| Types of Business Organisations | Sole Proprietorship Partnership Corporate Company |
| ARR Average Rate of Return | Total Cash flow LESS Initial investment = Profit Avg. Profit (divide by # yrs) Avg. Investment (inv at start + inv at end)/2 Avg. Profit/Avg. Investment *100 = % |
| NPV Net Present Value | work out NPV for each year referring to NPV table Add them up Subtract initial investment Choose project with higher NPV (or at least a positive NPV) |
| Is financial accounting mostly concerned with external reporting to parties outside the firm? | Yes. And managerial accounting is mostly concerned with providing information for internal management. |
| Owner's equity (a.k.a. stockholder's equity) usually consists of... | ...owner investments in capital stock, and additional amounts through earnings that have not been paid out to shareholders as dividends |
| Dividends are... | ...distributions to shareholders as a return on their investments |
| Revenue is... | ...the enhancement resulting from providing goods or services to customers. (Revenue will contribute to income, and income is added to retained earnings.) |
| Income = | Revenue - Expenses |
| The 3 Cash Flows Sections are... | 1) operating activities 2) investing activities 3) financing activities |
| Sole Proprietorship (+/-) | Advantages (+) Simplest business type Not required to submit financial statements or reports to any authority Disadvantages (-) Heavily reliant on owner funding = limits expansion of business Not considered a separate legal entity to owner |
| Partnership (+/-) | Advantages (+) more than one person involved no statutory requirement to submit financial statements to any authority do not pay tax on their profits Disadvantages (-) not considered separate legal entity to the owners required to submit tax return on a special partnership form |
| Corporate company (+/-) | Advantages (+) suitable for companies that need large amount of capital permitted to raise funds from public ownership spread widely with an unrestricted number of shareholders ownership & control is separate |
| Debits and Credits describe... | ...the change that is necessitated by a particular transaction. |
| Debits = Credits | for every transaction |
| D-E-A-D | Debits increase Expenses, Assets, and Dividends |
| C-L-E-R | Credits increase Liabilities, Equity, and Revenues (Income) |
| Accruals are... | ...expenses and revenues that gradually accumulate throughout an accounting period. |
| Examples of Accrued Expenses: | * Salaries * Interest * Rent * Utilities |
| Example of Accrued Revenues: | events such as client services that are based on hours worked |
| Current Assets include... | ....cash and those assets that will be converted into cash or consumed in a relatively short period of time |
| The Operating Cycle is... | ...the period of time it takes a particular company to convert cash back into cash (i.e. purchase inventory, sell the inventory on account, and collect the receivable). Usually less than 1 year. |
| Long-term investments include... | ....land purchased for speculation, funds set aside for plant expansion program, funds redeemable from insurance policies (e.g. cash surrender value of life insurance), and investment in other entities |
| Property, Plant and Equipment includes... | ...the land, buildings, and equipment productively in use by the company |
| Intangible Assets.... | ...lack physical existence, and include items like purchased paents and copyrights, "goodwill" (the amount by which the fair value of a purchased business exceeds the entity's identifiable net assets), rights under a franchise agreement, and similar terms |
| Current Liabilities are... | ...those obligations that will be liquidated within 1 year or the operating cycle, whichever is longer. Normally current liabilities are paid with current assets. |
| Long-term liabilities relate to... | ...any obligation that is not current, and include bank loans, mortgage notes, certain deferred taxes, and the like. |
| Direct Write-Off Method | This is the method to account for uncollectible accounts. A specific Account Receivable is removed from the accounting records and added to the Uncollectible Accounts Expense |
| FIFO | With first in, first out, the oldest cost (i.e. the first in) is matched against revenue and assigned to cost of goods sold. Most recent purchases are assigned to units in ending inventory. FIFO gives highest inventory value. |
| LIFO | Last in, first out is the reverse of FIFO. Here recent costs are assigned to goods sold while the oldest costs remain in inventory. LIFO gives lowest inventory value, and tends to depress profits. (Companies might want to do this for lower tax bill.) |
| Weighted Average | This method relies on average unit cost to calculate cost of units sold and ending inventory. Weighted Average gives middle (average) value of inventory. |
| Inventory Turnover Ratio = | Cost of Goods Sold / Average Inventory The best run companies will minimise their investment in inventory. Inventory is costly and involves potential for loss and spoilage. But being out of stock may result in lost customers... |
| Good liquidity suggests... | ...that the company has no problem in meeting obligations, the debt is manageable, receivables and inventory are turning well, and profits are good. |
| Balance Sheet looks like... | |
| Income Statement looks like.... | |
| Financial Ratios for Firm Liquidity | CurrentRatio Acid-Test Ratio Average Collection Period Accounts Receivable Turnover Inventory Turnover |
| Financial Ratios for Operating Profitability | Operating Income Return on Investment Operating Profit Margin Total Asset Turnover Accounts Receivable Turnover Inventory Turnover Fixed Asset Turnover |
| Financial Ratios for Financing Decisions | Debt Ratio Times Interest Earned |
| Definition of "Cost" | Cost is the 'sacrifice' a business makes in manufacturing something or providing a service. |
| Definition of Fixed Cost | A cost which remains the same irrespective of changes in output |
| Definition of Variable costs | variable costs vary with output |
| Bad debt is.. | ...an expense |
| Definition of Indirect Cost | A cost which is not directly attributable to a cost object (e.g. a project, function or project) |
| Definition of Product Cost | Product cost refers to the costs used to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead. Product cost can also be considered the cost of the labor required to deliver a service to a customer. |
| Definition of Period Cost | A period cost is any cost that cannot be capitalized into prepaid expenses, inventory, or fixed assets. A period cost is more closely associated with the passage of time than with a transactional event |
| Definition of Job Costing | Job costing involves the calculation of costs involved in a construction "job" or the manufacturing of goods done in discrete batches. |
| Definition Process Costing | Process costing is a method of assigning costs to units of production in companies producing large quantities of homogeneous products. Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. |
| Definition of Just-In-Time Costing | An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. |
| Definition of Activity Based Costing (ABC) | A costing methodology that identifies activities in an organization and assigns the cost of each activity with resources to all products and services according to the actual consumption by each. |
| Definition of Variable Costing | costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. |
| What is Managerial Decision Making? Planning, Directing, and Controlling | STEPS: * Identify decision alternatives * Log relevant costs/benefits of each one * Evaluate qualitative issues * Select the most desirable option - based on judgemental balancing of quantitative and qualitative factors |
| Definition of Cost Control | The practice of managing and/or reducing business expenses. Cost controls start by the businesses identifying what their costs are and evaluating whether those costs are reasonable and affordable. |
| Definition of Budget | A budget is a quantitative expression of a plan for a defined period of time. It may include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows. |
| Definition of Inventory Control | "the activity of checking a shop's stock". More specifically inventory control may refer to: In operations management, logistics and supply chain management, the technological system and the programmed software necessary for managing inventory. |
| Definition of Trade Discount | a discount on the retail price of something allowed or agreed between traders or to a retailer by a wholesaler. (usually bulk sales) |
| Definition of Cash Discount | A cash discount is an incentive offered by a seller to a buyer for paying an invoice ahead of the scheduled due date. |
| Definition of Master Budget | The master budget is the aggregation of all lower-level budgets produced by a company's various functional areas, and also includes budgeted financial statements, a cash forecast, and a financing plan. |
| Description of Operating Budget | An operating budget is a combination of known expenses, expected future costs, and forecasted income over the course of a year. Operating budgets are completed in advance of the accounting period, which is why they require estimated expenses and revenues. |
| Definition of Asset | Something that will give you some kind of future economic benefit |
| Definition of a Liability | Something with an (economic) obligation to someone else |
| Definition of Equity | Equity is what you own or what you are left with after all your assets and liabilities are resolved = your net worth. A.k.a. Owner's equity/Stockholder's or Shareholder's equity |
| Beginning Inventory + New Purchases - Ending Inventory = ? | Cost of Goods Sold (COGS) |
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