Business 101 Chapter 8

master budget

a presentation of an organization's operational and financial budgets that represents the firm's overall plan of action for a specified time period

generally accepted accounting principles (GAAP)

a set of accounting standards that is used in the preparation of financial statements

accounting

a system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization

activity-based costing

a technique to assign product costs based on links between activities that drive costs and the production of specific cost object

expenses

resources that are used up as the result of business operations

financial accounting

the branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders

Managerial Accounting

the branch of accounting that provides reports and analysis to managers to help them make informed business decisions

owners' equity

the claims a firm's owners have against their company's assets (often called "stockholders' equity" on balance sheets of corporations)

net income

the difference between the revenue a firm earns and the expenses it incurs in a given time period

income statement

the financial statement that reports the revenues, expenses, and net income that result from a firm's operations over an accounting period

implicit cost

the opportunity cost that arises when a firm uses owner-supplied resources

Financial Accounting Standards Board

the private board that establishes the generally accepted accounting principles used in the practice of financial accounting

cost

the value of what is given up in exchange for something

What are methods stakeholders can use to obtain useful insights from a company's financial statements?

An auditors's reports indicates whether the financial statements were prepared in accordance with GAAP and fairly present the financial the financial condition of the company. The management discussion provides insights by top management to put numbers in context

Accounting equation

Assets=Liabilities+Owners' Equity

liabilities

Claims that outsiders have against a firm's assets

Identify the purposes and goals of generally accepted accounting principles

Generally accepted accounting principles (GAAP) are rules that govern the practice of financial accounting. The goal of GAAP is to ensure that the information generated by financial accounting is relevant, reliable, consistent, and comparable.

revenue

Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income

How does the budget process help managers plan, motivate and evaluate their organization's performance?

It shows managers how a firm will acquire and use the resources needed to achieve its goals over a specific time period

How is accounting information used by a variety of stakeholder?

Owners want to know whether their firm made a profit or suffered a loss. Creditors want to make sure that the firm has the capacity to repay any loans they made. Employees want to know whether their company is performing well enough to provide job security and a good raise. The IRS wants to know the amount of taxable income the firm earns during each period

budgeting

a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific products

Assets

Resources owned by a firm

What is the role of managerial accounting and what are the various cost concepts identified by managerial accountants?

They provide information to an organization's mangers and other internal stakeholders so that they can make better decisions. Various concepts are classification and measurements of costs, explicit costs involve monetary payments, implicit costs, variable costs, direct costs

out of pocket cost

a cost that involves the payment of money or other resources

Balance Sheet

a financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities, and owners' equity

horizontal analysis

analysis of financial statements that compares account values reported on the these statements over 2 or more years to identify changes and trends

operating budgets

budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals

financial budgets

budgets that focus on the firm's financial goals and identify the resources needed to achieve these goals

direct costs

costs that are incurred directly as the result of some specific cost object

indirect costs

costs that are the result of a firm's general operations and are not directly tied to any specific cost object

fixed costs

costs that remain the same when the level of production changes within some relevant range

variable costs

costs that vary directly with the level of production