Chapter 13

fixed costs

Costs that do not vary with production or sales level

activity based cost estimates

an accounting method which assigns cost based on the different types of work a business does in order to sell a particular product or service.

MACRS rate

an internal revunue service acronym for the Modified Accelerated Cost Recovery System. THe MACRSapproach lets taxayers depreciate more of the cost earlier in the life of capital expense.

Internal Cost Factors

aspects of or choice within the business which could cause the businesses's cost to change.

External Cost Factors

aspects of the world outside the business which could cause the business's costs to change.

Business entity Concept

concept that a business has an existence separate from that of its owners

Current ratio

current assets/current liabilites

economy of scale

economic philosophy during the industrial revolution that understood that volume of production lessens the costs to produce and drives down prices and increases demand.

variable costs

expenses that change with the number of products produced

pro forma

financial presentation of hypothetical events; for example, how much debt would a company have to acquire if it grows ten percent per year?

Cost

value measured by what must be given or done or undergone to obtain something

Cash flow statement

A financial summary for a specific period that shows the beginning balance on hand, the receipts and disbursements during the period, and the balance on hand at the end of the period.

Financial Strength

A measure of a company's competitive position, market success, and ability to invest in its future. Ex. Strong balance sheet; excellent cash flow.

master budget

A number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals and that culminates in a cash budget, budgeted income statement, and budgeted balance sheet.

going concern

Accounting concept that a business is expected to continue in existence for the forseeable future

Operating Activities

Activities involved in producing and selling goods and services

Investing activities

Deals or transactions involving sale or purchase of equipment, plants, properties, securities, or other assets generally not held for immediate resale.

Financial Statements

Financial reports that summarize the financial condition and operations of a business

Financial Accounting

Formal rule based set of accounting principles and procedures intended to use by outside owners, investors, banks, and regulators

GAAP

Generally Accepted Accounting Principles, a collection of rules and procedures and conventions that define accepted accounting practice

Liabilities

Legal obligations to give up things of value in the future

Tax Accounting

Preparation of income tax returns and anticipating the tax effects of business transactions and structuring them in such a way as to minimize the income tax burden.

variance analysis

Process of examining differences between actual and budgeted revenues or costs and describing them in terms of price and quantity differences.

Articulate

The concept that info flows from the income statement through the statements of retained earnings and owners' equity to the balance sheet

Owners' Equity

The difference between assets and liabilities of a business

Bankrupt

The financial state of having more debt than assets, such that net worth is negative

Accounting Equation

The statement that assets equal liabilities plus owner's equity (assets= liabilities+ owners' equity)

Financial Activities

Transactions with owners and creditors that include obtaining cash from issuing debt, repaying amounts borrowed, and obtaining cash from or distributing cash to owners.

Expense

a decrease in owner's equity resulting from the operation of a business

depreciation

a decrease in price or value

Income statement

a financial document that shows how much money (revenues) came in and how much money (expenses) was paid out

favorable/unfavorable variance

a label applied to variances to indicate their effect upon the income statement; favorable variances would result in profits being greater than budgeted, all other things being equal; unfavorable variances would result in profits being less than budgeted, all other things being equal.

Cost volume profit analysis

a managerial accounting technique which looks at the fixed and variable costs of a business to arrive at a number of unit sales (volume) to maximize profits.

Costs of goods sold budget

a merchandisers budget that computes the cost of goods sold, the amount of desired ending inventory, and amount of merchandise to be purchased.

Balance Sheet

a record of the financial situation of an institution on a particular date by listing its assets and the claims against those assets

Managerial Accounting

accounting used to provide information and analyses to managers inside the organization to assist them in decision making

Liquidity

measure of how quickly a company can raise money through internal sources by converting assets to cash

Retained earnings

the accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends

Financial Flexibility

the capacity to adapt to favorable and unfavorable changes in operating conditions. For example, this may enable an enterprise to undertake a new investment or to introduce a new product line. When change has an adverse effect, THIS may be critical to the survival of an enterprise

Opportunity Cost

the cost of the next best use of time and money when choosing to do one thing or another

variance

the difference between an actual and budgeted revenue or cost

breakeven point

the point at which the costs of producing a product equal the revenue made from selling the product