Entrepreneurial Small Business 5th Edition; Chapter 12

Financial Accounting

A formula, rule-based set of accounting principles and procedures intended for use by outside owners, investors, banks, and regulators.

Assets

Something the business owns that is expected to have economic value in the future.

Financial Strength

The ability of a business to survive adverse financial events.

Going Concern Concept

The accounting concept that a business is expected to continue in existence for the foreseeable future.

Permanent Accounts

The accounts of assets, liabilities, and owners' equity, excluding accounts for revenue and expenses.

Master Budget

A budget, also referred to as a comprehensive budget, that consists of sets of budgets that detail all projected receipts and spending for the budgeted period.

Public Business

A business that has its stock bought and sold on an organized stock exchange, such as the New York Stock Exchange.

Financial Flexibility

A business's ability to manage cash flow in such a manner that the company can respond appropriately to unexpected opportunities and needs.

Expense

A decrease in owners' equity caused by consuming your product or service.

Budget

A financial plan for the future based on a single level of operations; a quantitive expression of the use of resources necessary to achieve a business's strategic goals.

LIquidity

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

Costs of Goods Sold Budget

A schedule that shows the predicted cost of product actually sold during the accounting period.

Cash Flow Statement

A statement of the sources and uses of cash in a business for a specific period of time.

Balance Sheet

A statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity).

Managerial Accounting

Accounting methods that are specifically intended to be by managers for planning, directing, and controlling a business.

Operating Activities

Activities involved in producing and selling goods and services.

Financing Activities

Activities through which cash is obtained from and paid to lenders, owners, and investors.

MARCS Rate

An Internal Revenue Service acronym for the Modified Accelerated Cost Recovery System. The MARCS approach lets taxpayers depreciate more of the cost earlier in the life of a capital expense.

Tax Accounting

An accounting approach based on specific accounting requirements set by governmental taxing agencies.

Activity-Based Cost Estimate

An accounting method that assigns costs based on the different type of work a business does in order to sell a particular product or service.

Revenue

An increase in owners equity caused by selling your product or service.

Internal (Cost) Factors

Aspects of or choices within the business that could cause the business's costs to change.

External (Cost) Factors

Aspects of the world outside the business that could cause the business's costs to change.

Financial Statements

Formula summaries of the content of an accounting system's records of transactions.

Current

In accounting, current means an asset that will be turned into cash in less than one year or liability that must be paid in less than one year.

Long Term

In accounting, long term refers to an asset that will still have value to the business more than one year form now or a liability that will still be owed more than one year from now.

Account

In terms of a accounting practice, an account is a chronological list of all additions to and subtractions from a single type of assets (e.g., cash, receivables, loans outstanding).

Pro Forma

Latin "in the form of" when used to describe financial statements; indicates estimated or hypothetical information.

Liablities

Legal obligations to give up things of value in the future.

Depreciation

Regular and systematic reduction in income that transfers asset value to expense over time.

Business Entity Concept

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

Articulatee

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

Variance

The difference between an actual and budgeted revenue or cost.

Owners' Equity

The difference between assets and liabilities of a business.

Economy of Scale

The idea that it is cheaper (per items) to make many of an item than few.

Breakeven Point

The point at which total costs equal gross revenue.

Investing Activities

The purchase and sale of land, buildings, equipment, and securities.

Generally Accepted Accounting Principles (GAAP)

The standardized rules for accounting procedures set out by the Financial Accounting Standards Board and used in all audits and submissions of accounting reports to the government.

Accounting Equation

The statement that assets equal liabilities plus owners' equity (Assets = Liabilities + Owners' Equity).

Retained Earnings

The sum of all profits and losses, less all dividends paid since the beginning of the business.

Current Ratio

The value of current assets divided by current liabilities.

Variable Costs

Those costs that change with each unit produced, for example, raw materials.

Fixed Costs

Those costs that remain constant regardless of quantity of output, for example, rent.

Cost-Volume-Profit (CVP) Analysis

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

Income Statement

A statement that lists revenues and expenses and shows the amount of profit a business makes for a special period of time.

Variance Analysis

The process of determining the effect of price and quantity changes on revenues and expenses.