D196 WGU

Sales Budget

A sales budget is a schedule of projected sales over the budget period, which often includes a measure of revenue earned and cash collected from its customers.

What are Indirect and Direct Costs?

Indirect Cost(Common Costs): Indirect costs are costs that are usually shared among segments of an organization. Examples: Salaries, depreciation, and quality control costs. Direct Costs: Direct costs are costs that are traceable to a business unit or segment of an organization. Examples: Direct Labor, and Direct Materials

What are the three main functions of accounting?

The 3 main functions of accounting are: Analyzing, Bookkeeping, and Evaluating(ABE).

What are differential costs?

costs are future costs that can change based off the decision made.

Can you use the Excel charting abilities to show the effects to 'manage' cash receipts and cash disbursements? Steps to creating a Cash flow Chart:

1) Click on "Insert" 2) Choose a chart 3) Select a data range in "Chart Design" 4) Input data 5) Edit horizontal axis labels 6) Remove the legend, and add a title 7) Add data labels, by going to chart design(1), add chart elements(2), add data labels(3).

Can you define and explain the purpose of the Balance Sheet and its components?

A balance sheet is the statement of the company's financial position at a certain period, and records the company's assets, liabilities, and owners' equity. The purpose of a balance sheet is to report the resources of a company, the company's obligations, and the owners' equity. The components of a balance sheet are: Assets, Liabilities, and Owner's equity. -) The balance sheet equation: Assets=Liabilities+Equity(ALE). -) Classified Balance Sheet: A balance sheet that distinguishes between current and long-term assets.

What exactly is a budget and why do we prepare these?

A budget is a quantitative expression of a plan that shows how a firm or organization will acquire and use resources. We prepare a budget so we can plan how we spend or receive our money, so we don't go into debt or go over the budget.

Can you identify and explain what cash receipts(cash inflows) are?

A cash receipt is taking account and acknowledging the cash transactions being received by the company.

What is cost variance?

A cost variance is the difference between the actual cost and the budgeted cost

Direct Labor Budget

A direct labor budget is a schedule of direct labor requirements for the budget period

Direct Materials Budget

A direct materials budget is a schedule of direct materials to be used and purchased during the budget period.

Can you explain what a fixed cost is and why it's important to Cost-Volume-Profit(C-V-P) Analysis?

A fixed cost is a cost that remains constant in total no matter the activity level. This is important because a fixed cost doesn't fluctuate, so you just need to figure out how much money is needed to break-even without figuring out the losses and profits of the company. Examples of Fixed Costs: Rent, Salaries, Insurance, and property taxes

Manufacturing Overhead Budget

A manufacturing overhead budget is a schedule of production costs other than those for direct labor and direct materials. This includes both fixed and variable manufacturing overhead costs.

Explain what a master budget is and why it's important?

A master budget is a network of many separate schedules and budgets that together constitute the overall operating and financing plan for the upcoming period. A master budget is important because it is used to compare the budgeted performance to the actual performance.

What is a predetermined overhead rate?

A predetermined overhead rate is the rate used to apply manufacturing overhead to work-in-process inventory. The predetermined overhead rate is calculated before the period begins.

The Governmental Accounting Standards Board(GASB)

A private, non governmental organization who sets accounting and financial reporting standards for state and local governments

What is a product line and how is that information used?

A product line is one item a company puts together on the same report as other products, but is separated by each individual product or segment. The information is used to show the profitability of each product made by the same company on the same chart, and to show which product is meeting the standards or not. Example: How Coca-Cola mainly sells sodas, but they also have a branch off and sell minute maid.

Production Budget

A production budget is a schedule of production requirements for the budget period.

Can you explain how segment margin statements work and what purpose do they serve in performance evaluation?

A segment margin statement works by showing the profits and losses that are directly chargeable to a segment and divides them into variable and fixed cost behavior patterns. A segment margin statements purpose in performance evaluation is to give a good picture of the strengths and weaknesses of a company.

Selling and Administrative Budget

A selling and administrative budget is a schedule of all nonproduction spending expected to occur during the budget period. Examples: Cost of office supplies, salaries of sales managers, and the depreciation of administrative office buildings.

Can you define and explain the purpose of the Statement of Cash Flows and the components that it contains?

A statement of cash flows reports the amount of cash collected and cash paid out by a company in operating, investing, and financing operations during a period of time. The purpose of a statement of cash flows is to provide information of cash inflows(receipts) and cash outflows(payments).The components of a statement of cash flows are: -) Operating activities: Which are normal business activities a) Examples of operating activities: Paying employees, paying rent, and collecting cash from customers. -) Investing activities: Associated with buying and selling long-term assets a) Examples of investing activities: Buying/selling land, Buying/selling equipment, etc. -) Financing activities: The activities in which cash is collected from or repaid to investors and creditors. a) Examples of financing activities: Borrowing money, repaying loans, and paying dividends

Can you define and explain the purpose of the Statement of Retained Earnings and the components that it contains?

A statement of retained earnings identifies the changes in accumulated investments made by owners, and the losses/profits of a business since day one. The purpose of a statement of retained earnings is to identify changes in investments made by owners from the beginning of the statement to the end. The components of a statement of retained earnings are: Retained Earnings from the previous period, Net Income, and Dividends.

What are stepped fixed costs?

A stepped fixed cost is a cost that doesn't change within a certain set threshold of activity but will change if that threshold is broken.

Can you explain what a variable cost is and why it's important to C-V-P Analysis?

A variable cost is a cost that changes in total direct proportion to changes in the activity level but doesn't change on a per unit level. This is important because a variable cost varies, so it will be harder to find your break-even point for a variable cost. Examples of Variable Costs: Direct Labor, Direct Materials, and Variable Overhead.

What is an Aging Schedule?

An aging schedule is an analysis of past cash flow patterns to reveal the expected timing of future cash collections

Who uses process costing?

An example of companies who use process costing is food production businesses, or paint manufacturers.

Who uses Job-order Costing?

An example of someone who uses job-order costing is a construction business, a mechanic, or a production job.

Can you define and explain the purpose of the Income Statement and the components that it contains?

An income statement is the statement of earnings, and records the amount of revenue(profits) generated, and costs incurred(expenses) by a company during a period of time(a month, a quarter, a year). The purpose of an income statement is to assess a company's profitability by looking at the company's profits, and expenses. The income statement also summarizes the company's operations at a certain period. The components of an income statement are: revenues, expenses, and net income.

Liabilities

An obligation to pay cash, transfer other assets, or provide services to someone. A) Liabilities are what we OWE. B) Common Liabilities: -) Accounts Payable -) Taxes Payable -) Mortgage Payable -) Unearned Revenue

The Financial Accounting Standards Board(FASB)

An organization responsible for studying accounting issues and establishing standards a) Private group b) Public process c) Establishes GAAP

· What is the Accounting Equation?

Assets=Liability+Equity(ALE)

Can you explain and determine applied overhead?

Applied overhead is the amount of overhead assigned to the goods produced. You can determine applied overhead by multiplying the predetermined overhead rate by the actual level of activity in the period. Predetermined overhead rate X actual level of activity

Can you explain the 'expanded' accounting equation?

Assets=Liabilities+(Capital Stock+Cumulative Net Income-Cumulative Dividends)

What are the four financial statements covered in this module?

Balance Sheet, Income Statement, Statement of Cash Flows, Statement of Retained Earnings

· What is the role of ethics in accounting?

Being an accountant requires honesty and integrity, as well as professional judgement. So having ethics in accounting is very important.

Can you explain break-even in sales dollars and in units and how they are calculated?

Break-Even in Sales: When a company needs to earn a certain amount of money to get back to $0, so they can break-even. Break-Even in Sales calculation: Total Fixed Costs/Contribution Margin Ratio

Internal Revenue Service(IRS)

Collects and regulates income taxes

· What are common-size financial statements and how are they used?

Common-Size Financial Statements are included in most of the main statements and reduces figures to be more easily understood(such as reducing numbers to percentages). Horizontal and Vertical analysis is used to analyze a company's performance over a certain period of time.

When TO NOT use Job-order Costing:

Companies such as gas companies, chemical companies, paper and plastic companies, and food companies should NOT use job-order costing.

· What is the contribution margin ratio and how is it calculated?

Contribution Margin Ratio is the percentage of net sales revenue left after variable costs are deducted. Contribution Margin Ratio calculation: Contribution Margin/Sales Revenue

· What is contribution margin and how is it calculated?

Contribution Margin is the difference between total sales and variable costs. Contribution Margin calculation: Sales Revenue-Variable Costs=Contribution Margin

Fixed Costs

Contribution Margin-Net Income

Tax Calculation

Earnings before Taxes X Tax Rate

Can you explain and determine the estimated overhead?

Estimated overhead is the amount of overhead costs that are budgeted for in the upcoming production period estimated overhead is determined by doing: Estimated overhead/Estimation of expected level of activity

Variable Cost

Fixed Cost/Price Per Unit

Variable Cost per unit

Fixed Cost/(Selling price per unit-Variable Cost)=Break-Even

What is horizontal analysis and what information does it provide?

Horizontal analysis is a method of analysis that compares a firm's results from year to year by comparing percentages of the company. It provides information on what is driving a company's financial performance and will note trends of a company's financial performance. This is mainly used by investors.

· What are the important influences on accounting?

Important influences on accounting is the development of the "generally accepted accounting principles"(GAAP), international business and ethical consideration.

Percentage of Sales

Income Statement amount/Sales Example: =F4/$F$4

Can you identify indirect materials and indirect labor and how they are handled in a manufacturing business?

Indirect labor: Indirect labor is easier to identify in administration, management, safety, and maintenance workers. They're all contributing to the manufacturing, but they never touch the product itself, thus being "indirect". Examples: Security Guards, or Supervisors Indirect Materials: Indirect materials is anything used in the production process but doesn't end up with the customer after being manufactured. Example: When making a chair, the brushes and sandpaper used on the chair don't end up with the customer, thus being an "indirect" material.

Who provides accounting information?

Internal users such as employees, managers, and accountants

What is Managerial Accounting and how does it differ from Financial Accounting?

Managerial Accounting: The gathering of information for internal decision making(secret information not released to the public). Financial Accounting: The gathering, analyzing, and reporting of information for the benefit of external users(such as investors and creditors). Financial accounting information is prepared according to the GAAP The way these two differ is that managerial accounting is information for the inside, only for the business to know about. Whereas financial accounting is made for anyone to know, such as the external users(Investors).

Can you describe and differentiate a manufacturing, a service, and a merchandising business from one another?

Manufacturing Business: A manufacturing business is any organization whose main economic activity involves using raw materials to make finished goods for sale to customers. Examples: Apple, or Boeing Service Business: A service business is any organization whose main economic activity involves producing a nonphysical product that provides value to a customer. Examples: Hospitals, or Law Firms Merchandising Business: A merchandising business is any organization whose main economic activity involves purchasing finished goods and reselling them to customers. Examples: Walmart, Kroger, or Home Depot The difference between these is that a manufacturing company builds their products, whereas a merchandising business sells the products bought from a manufacturer. Another difference is the costs and how the costs are tracked.

Can you describe the flow of product costs for a manufacturing, a merchandising, and a service business?

Manufacturing(EXAM): In manufacturing, product costs are accumulated in a work-in- process inventory, then are transferred to a finished goods inventory, and finally to cost of goods sold. Merchandising: In merchandising, inventory costs come into the business when goods are purchased from suppliers. There is no production process, so the same costs flow out as cost of goods sold when inventory is sold to customers.

How are product costs handled by a manufacturing, a merchandising, and a service business?

Manufacturing: In manufacturing, product cost is divided into three categories and handled through these categories: Direct Materials, Direct Labor, and Manufacturing Overhead. Merchandising: In merchandising, product cost is handled when an inventory is sold, the cost of the inventory is credited from the merchandise inventory and then debited to cost of goods sold. Service: Service businesses use direct labor, and large amounts of overhead costs that are allocated to individual products. Service businesses add value through the creativity and the effort of people(direct labor).

What are mixed costs?

Mixed costs are costs containing both variable and fixed costs. Examples of mixed costs: water and electric bills, cable bill, and phone bill

When TO USE Job-order Costing:

On Home Improvement A) Tracking Material B) Tracking Labor C) Allocating Overhead When fixing a car

What are opportunity costs?

Opportunity costs are the benefits lost or forfeited because of choosing one option over the other.

· What are organizational segments?

Organizational segments are parts of an organization that require a separate report for evaluation by management.

What are out of pocket costs?

Out of Pocket costs are costs that require cash or other resources as payment.

· What is overapplied and underapplied overhead?

Overapplied Overhead: Overapplied overhead is the excess of APPLIED manufacturing overhead costs over the actual manufacturing costs(applied/actual). Underapplied Overhead: Underapplied overhead is the excess of ACTUAL manufacturing overhead costs over the applied overhead costs(actual/applied). Over=Excess of applied Under=Excess of actual

The Public Company Accounting Oversight Board(PCAOB)

Oversees all accounting firms.

What are period costs?

Period costs are costs not directly related to a product. Period costs are costs OUTSIDE the factory such as Company HQ costs(Rent) or selling costs(advertising). Period costs are Non-Manufacturing costs. Examples of period costs: CEO Salaries, Sales and marketing costs, and administrative personnel costs

Can you explain the concepts of planning, evaluating, and controlling, as it relates to decision-making?

Planning: Outlining activities that need to be performed for an organization to achieve its objective. Evaluating: Analyzing results, providing feedback, rewarding performances, and identifying problems. Controlling: Tracking the performance of a company.

· Who uses accounting information and why?

Potential investors and creditors use accounting information, but basically everyone uses accounting information. They use it to make internal and external business decisions.

Total Sales Revenue

Price Per Unit X Units Sold

What is process costing?

Process costing is a method of product costing whereby costs are accumulated by process or work centers and averaged over all products manufactured in a center or department during a production period.

When does process costing work best?

Process costing works best in a business or environment that has a continuing cycle of repetitive tasks, or when things are mass-produced.

What are product costs?

Product costs are costs associated with a product or service being offered. Product costs are costs INSIDE the factory such as material costs, and wages of workers directly involved with the production. Product costs are manufacturing costs. Direct materials: Materials that become part of the product and is traceable to it. Direct labor: Wages paid to those who physically work on direct materials to transform them into a finished product and are traceable to specific products. Manufacturing overhead: All costs incurred in the manufacturing process other than direct materials and direct labor. Examples: Rent expenses, Utility Expenses, and Supervisory staff

· How are product and period costs recorded?

Product costs are recorded in the income statement as part of cost of goods sold to a customer and are held in inventory until they're sold.Period costs are recorded and reported immediately as an expense on the income statement in the period they incurred.

What are profit and cost centers and why do they matter?

Profit Center: A profit center is an organizational unit in which a manager has control over and is held accountable for BOTH cost and revenue performances. Cost Center: A cost center is an organizational unit in which a manager has control over and is held accountable for ONLY cost performance, and only for what a manager can control. Both matter because it gives the managers control of what to do with the money, and any mistake they make could hurt the business.

Can you identify specific examples of each?

Profit Center: An example of a profit center is a store manager for a fast-food restaurant. Cost Center: An example of a cost center is a department supervisor in a factory

Securities and Exchange Commission(SEC)

Regulates stock exchanges a) Has legal authority to regulate financial markets and accounting b) Usually defers to the FASB on accounting matters

How do costs and products flow for a manufacturer in Job-order costing?

Raw Materials, Work-in-process inventory, finished goods, and cost of goods sold

What is responsibility accounting and how does it impact an organization?

Responsibility accounting is a system of evaluating a performance in which managers are held accountable for the costs, revenues, assets, or other elements in which they have control over. Responsibility accounting impacts an organization because it gives complete accountability of cost loss and cost profit to the manager

What do responsibility centers represent?

Responsibility centers represent Profit and Cost centers.

Net income equation

Revenues - Expenses = Net Income

What is the role and purpose of accounting ?

Role: To help track income and expenditures, and to provide investors, management, and government with financial information. Purpose: To accumulate, measure, and communicate financial information about businesses and other organizations.

· What is the C-V-P equation?

Sales Revenue-Variable Costs-Fixed Costs=Profit

Gross Profit

Sales-Cost of Goods Sold

Can you explain Target Net Income and how it works with C-V-P?

Target net income is defined as an income goal that management wants to reach. Target net income works with C-V-P because it puts all the aspects of the income(fixed costs, variable costs, etc.) into one equation and helps find the wanted income.

International Accounting Standards Board(IASB)

The FASB of the world(except the USA)

What is the Accounting Cycle and how does it work?

The accounting cycle is the procedure for analyzing, recording, summarizing, and preparing the transactions of a business. The accounting cycle works by turning transactions into financial statements through these steps: Step 1: Analyze Transactions Step 2: Record the effects of transactions Step 3: Summarize the effects Step 4: Prepare reports

Expenses

The amount of assets consumed through business operations; The costs incurred in normal business operations to generate revenue. Expenses are a DECREASE in a company's net assets because of what a company does.

Revenue

The amount of assets created through the sale of goods and services. Revenue is an INCREASE in a company's net assets because of what the company does.

Can you describe the cash budgeting process and why it is important to any organization?

The cash budgeting process is a schedule of charting your expected cash inflows and cash outflows during a certain period. It is important for an organization because it gives the company a knowledge and expectation of where their money is going and how to handle their money, as well as noticing times of cash shortages and cash surpluses.

Can you explain the importance of Notes to the Financial Statements and what is included in these notes?

The importance of Notes to the Financial Statements is that they give the information that is important, but not listed in the other statements, giving additional information we'd like to know. The notes of financial statements include a summary of Significant accounting policies, Additional information about the summary totals, Disclosure of information NOT recognized in the financial statements, and Any additional information

· Can you describe the master budgeting process for a manufacturing firm?

The master budgeting process for a manufacturing firm is broken down into quarterly sales based off how many items were sold.

Break Even in Units

The number of units required to be sold to at least get back to $0 rather than being negative. Break-Even in Units calculation: Total Fixed Costs/Contribution Margin per unit

Owners Equity

The owners share of earnings. A) Sources of equity: -) Capital/Common Stock -) Retained Earnings

Total Variable Costs

Variable Cost Per Unit X Units Sold

Variable Cost Ratio

Variable cost / Sales

What is vertical analysis and what information does it provide?

Vertical analysis is used to compare percentages at the same point in time across companies in the same industry. It provides information on how a company's financial value or financial gain/loss compares to another similar company.

Equations for vertical and horizontal analysis charts:

Year to year change: =(Account Current-Account Previous)/Account Previous OR =(Year 2-Year 1)/Year 1.

What is Job-order costing?

a method that is used to determine the cost of manufacturing each product. It's used when products are made based off specific customer orders.

Can you explain and determine the actual overhead?

any manufacturing cost other than direct labor and direct materials. Actual Overhead is determined by doing: Indirect costs/Direct costs X 100.

Assets

assets are what we OWN. Common Assets: -) Cash -) Accounts receivable -) Inventory -) Buildings -) Prepaid

Contribution Margin per unit

contribution margin / units sold

What are sunk costs?

costs that have incurred in the past and cannot be changed no matter the future decision.

Who uses accounting information?

people who use accounting information are bankers, stakeholders, investors, and managers.