Business - Chapter 9

Who may be interested in financial dealings of a business?

Creditors, government, investors and owners

What is inventory?

Inventory are the goods they had on hand to be sold.

What is the matching principle?

This is the process of matching expenses with the revenue they generate

What does it mean when an amount is written in a bracket?

This is when a net loss is reported on an income statement/balance sheet.

What is net income?

This is when the revenue exceeds total expenses, there is a profit that is referred to net income.

What are the 3 type of financial statements?

1) Balance sheet 2) Income statement 3) Statement of cash flow

What are the steps to creating a balance sheet?

1) Create statement heading 2) List assets 3) List liabilities 4) Calculate owners equity 5) Put it all together

What are some ways to increase cash flow?

1) Increase the price of goods 2) Minimize costs 3) Spread out expenses 4) Reduce inventory 5) Use the right kind of debt 6) Collect what is owed to the business 7) Shorten the deadline for accounts receivable 8) Stretch the deadline for accounts payable.

What are the steps for an income statement - service business

1) Statement heading - answers who, what, when. 2) Organize the revenue section 3) Organize the expenses section 4) Calculate net income or net loss

What are all the assets controlled by?

1) The owner(s) of the business 2) Owners equity, or the individuals or businesses to whom the business owes money (liabilities)

What is a balance sheet report format?

Another way of presenting info by using an up and down column than a side by side.

What is the equation to get net worth/owners equity?

Assets - Liabilities = Net Worth/Owners equity.

What are the 2 balance sheet equations?

Assets - liabilities = owners equity Assets = liabilities + owners equity

If the business doesn't have any debts what is the equation?

Assets = Owners equity

What do businesses have?

Assets and liabilities.

What is bookkeeping?

Bookkeeping is recording of all business transactions. Majority of businesses use accounting software packages to record/track financial info.

How is the cost of goods sold calculated?

By starting with the opening inventory figure goods and services purchased in previous months not yet used.

What is cash flow?

Cash flow is the movement of cash in and out of a business.

What is double-entry bookkeeping?

Double-entry bookkeeping is the principle that each transaction involves two changes. The transaction could have one increase and one decrease, or maybe two increases and two decreases.

What is a balance sheet?

Financial statement used in a business and prepared by accountants to show the financial position of that business on a particular date. IF THE INFO IS CORRECT, LEFT AND RIGHT SIDE WILL BALANCE (be equal in value)

What is a fiscal year?

It is a business year, any 12-month period.

What is gross profit?

It is the money left over after deducting the cost of goods sold from the revenue, but before deducting the business expenses that helped generate the revenue (Also called gross margin)

What is accounting?

It is the process of recording, analyzing, and interpreting the economic activities of a business.

What is personal equity or net worth?

It is what you have left over if you paid off all your debts.

When does a preauthorized payment occur?

It occurs when you have given prior permission for someone else to automatically take money from your bank account, normally on a regular basis.

What do many individuals do?

Keep personal records of transactions with a checkbook or a computer program. Each time they write a cheque it decreases the current checkbook balance.

What is the balance sheet equation method?

Left side always = to right side Left side is assets and the right side is liabilities + owners equity.

What is net income/profit?

Money left over after expenses are deducted from the gross profit

What is revenue?

Money or promise of money received from sales of goods or services

What is accounts receivable?

Money owed to a business

What is accounts payable?

Money that business owes

What is owners equity?

Net worth for a business.

What are some balance sheet conventions?

No abbreviations Never have corrections or changes on the final version Always take care to line up figures and dollar signs Underline when totalling a column and DOUBLE underline a final total.

What does a statement of cash flow do?

Reports on the flow of cash into and out of the business over a period of time. Helps business operators estimate the amount of cash that will flow in and out during a given period of time.

What are income statements for retail businesses?

Retail merchandising businesses, they need to take into account the cost of inventory.

What are the income statement equations? *for a retail business

Revenue - Cost of goods = gross profit Gross profit - expenses = net income

What are the income statement equations? *for a service business

Revenue - Expenses = Net income

What are assets?

Something that has value and is owned by a person.

What does a balance sheet do?

Summarizes info about assets, liabilities and owners equity. Shows how a business is doing on a given day, Both sides are balanced.

What does a income statement do?

Summarizes info about revenues and expenses. Indicates profit or loss over a given period. Shows how much a business lost or made over a period of time.

What is mortgage payable?

The debt owed on a building

How can a business be successful?

The return of the business should be equal to or greater than the return of a savings account, bond or mutual fund.

What are liabilities?

They are debts or amounts that are owed to others.

What do accountants do?

They are responsible for finding answers to these questions concerning financial sides of businesses.

What are wholesalers?

They buy inventory from manufacturers and resell to other companies/stores

What do some businesses do in regards to cashflow statements?

They generate a statement of cash flow to show a businesses cash flow over a stated period of time. Sources of cash moving into a business include sales, interest received from investments, accounts receivable that will be collected, the sales of capital equipment, new loans + investments.

Why do businesses prefer when people pay in cash or debit/credit cards?

They prefer this because the payment is there right away and then they can store that into their accounts

What are expenses?

Things like salaries, advertising, maintenance plus utilities are used to help make revenue.

What equation can be used to calculate profit?

Total revenue - total expenses = net income/profit.

What are transactions?

Transactions occur when something that has value is exchanged, can be paid in cash, cheque or by credit.

What are income statements?

Used to help a business calculate and report its profit or loss on business operations. It can show a business how much money it made/loss over the past week/month/quarter or year.

What are insufficient funds

When an account doesn't have enough money to cover the cheque.

What is cost principle?

When assets are recorded at the actual amount they cost the business.

When assets lose value over time it is called?

When assets lose value, it is called depreciation. The original price of the assets remains on the books.

What is net loss?

When total expenses exceed total revenue this is called net loss