MGMT: New Business Venture Test #4

activity-based cost estimates

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

internal (cost) factors

aspects of or choices within the business which could cause the business's costs to change.

external (cost) factors

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

financial flexibility

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

business entity concept

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

financial statements

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

owner's equity

whatever value is left after all liabilities have been paid.

Two Reasons to do Accounting

1. To produce info that is useful to you for managing your business 2. To meet legal or contractual requirements.

GAAP

Generally Accepted Accounting Principles are the standardized rules for accounting procedures and are used in all audits and submissions of accounting reports to the government.

master budget

a budget which consists of sets of budgets that detail all projected receipts and spending for the budegeted period. Also known as a comprehensive budget.

expense

a decrease in owner's equity caused by consuming your product or service.

financial accounting

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

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.

liquidity

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

cost of goods sold budget

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

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).

income statement

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

financial strength

ability of a business to survive adverse financial events.

tax accounting

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

managerial accounting

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

operating activities

activities involved in producing and sellings goods and services.

pro forma

indicates estimated or hypothetical information.

variance analysis

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

investing activities

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

depreciation

regular or systematic reduction in income that transfers asset value to expense over time.

asset

something the business owns that will have value in the future.

cash flow statement

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

MACRS rate

the Modified Accelerated Cost Recovery System lets taxpayers depreciate more of the cost earlier.

articulate

the concept that info flows from the income statement through the statements of retained earnings and owner's equity to the balance sheet.

variance

the difference between an actual and budgeted revenue or cost.

breakeven point

the point at which total costs equal gross revenue.

accounting equation

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

retained earnings

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

Five common financial statements

-Income -Statement of retained earnings -Statement of owner's equity -Balance sheet -Cash flow statement

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.

To make good decisions we need...

1. Good info 2. Efficient ways to condense info so it is understandable 3. Methods to help compare alternatives.

liability

a legal obligation to pay some amount at a time in the future.

financing activities

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

budget

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

accounting systems for small businesses

computerized systems simplify the accounting process by providing automatic error checking, entry screens that look like common business forms, and automatic production of financial management reports.

going concern concept

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

cost

the value given up to obtain something that you want.