SmBs Ch. 13
Tax Accounting
an accounting approach based on specific accounting requirements set by government taxing agencies
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 world outside the business which could cause the business's costs to change
Business entity concept
concept that business has an existence separate from that of its owners
articulate
concept that info flows from the income statement through the statements of retained earnings and owner's equity to the balance sheet
Financial reports
formal summaries of the content of an accounting system's records of transactions
GAAP
used in all audits and submissions of accounting reports to the government
-reporting to outsiders -record keeping -taxation -control of receivables -analysis of business operations
uses of financial accounting
cost
value given up to obtain something you want
Owner's equity
whatever value is left after all liabilities have been paid
Master Budget
A budget which consists of sets of budgets that detail all projected receipts and spending for the budgeted period. also referred to as a comprehensive budget
Budget
A 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 goals.
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. ->Variable, fixed costs
Cost of Goods Sold
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.
Managerial accounting
Accounting methods that are specifically intended to be used by managers for planning, directing, and controlling a business.
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.
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.
Favorable/Unfavorable Variance
Liability
Legal obligation to pay some amount at a time in the future
Modified Accelerated Cost Recovery System Lets taxpayers depreciate more cost earlier
MACRS rate
1. to produce info that is useful to you for managing your business 2. to meet legal or contractual requirements
Only two reasons to do accounting
● Accounts payable records to track what you owe and to make timely payments in order to capture prompt pay discounts and to maintain a good credit rating for your business. ● Payroll records to ensure that payroll and employment taxes are kept current. ● Fixed asset accounting that automatically calculates and accumulates depreciation. ● Inventory accounting that facilitates maintaining the appropriate levels of inventory and aids in calculation of appropriate stocking and reorder levels. ● Credit card sales function to enable reconciling your sales records with the amount of discount and charge backs taken by your credit card provider. ● Accounts receivable records if you provide credit to your customers. Accurate and timely accounts receivable records are essential for making decisions concerning the extension of credit. Accurate records also help produce accurate billing of customers, and thus help to maintain good customer relations. ● Insurance register to ease the problems of keeping necessary insurance coverage current and in force. ● Investments records if your business keeps surplus cash invested in securities. ● Leasehold records if your business has made improvements to leased property or equipment.
Setting Up an Accounting System
Going concern concept
The accounting concept that a business is expected to continue in existence for the foreseeable future.
Variance
The difference between an actual and budgeted revenue or cost
Breakeven Point
The point at which total costs equal gross revenue.
Variance Analysis
The process of determining the effect of price and quantity changes on revenues and expenses.
-Good information -Efficient ways to condense information so it is understandable -Methods to help compare alternatives.
To make a good decision we need...
-proves what your business did financially -shows how much business is worth -banks, creditors, development agencies, and investors require it -provides easy to understand plans for business operations -can't know how business is doing without it
Why accounting matters
financial flexibility
a business's ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs
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
financial strength
ability of a business to survive adverse financial events
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
Pro forma
indicates estimated or hypothetical information
liquidity
measure of how quickly a company can raise money through internal sources by converting assets to cash
Depreciation
regular and systematic reduction in income that transfers asset value to expense over time
asset
something the business owns that will have value in the future
retained earnings
sum of all profits and losses, less all dividends paid since the beginning of the business
Investing activities
the purchase and sale of land, buildings, equipment, and securities