Accounting 2 Unit 1 Exam

Research and development

$ spent, new products developed

Quick ratio

(Assets - Inventory)/Liabilities

A/P turnover & days in cycle

365/A/P

A/R turnover & days in cycle

365/A/R

Inventory turnover & days in cycle

365/inventory

An example of operating activities is

A bookcase manufacturer purchases brackets to install on the bookcases in production.

Sole Proprietorship (unlimited liability)

A business entity owned by one person whose possessions are at risk if the business fails.

Corporation

A business entity that is legally separate and desalination from its owners

Partnership

A business owned by two or more individuals whose personal possessions are at risk if the business fails.

Net income

A companies total revenue less its total expenses for a period of time

Manufacturing firm

A company which produces a product from raw materials

Limited partnership

A partnership composed of one or more general partners and one or more limited partners; only the general partners' personal possessions are at risk if the business should fail.

S Corporation

A small business corporation owned by no more than 100 individuals; its profits are taxed at the individual level rather than the corporate level.

Three activity ratios

A/R turnover, Inventory turnover, A/P turnover

Current assets include

Accounts receivable, cash, inventory, prepaid rent

Financing activities

Activities involving obtaining necessary funds to purchase long term assets, repay existing obligations, and provide a return for owners.

Investing Activities

Activities involving the purchase and sale or long term assets as well as other major items used in a business's operation.

Does not appear on the balance sheet

Advertising expense

Revenue

Amounts earned from providing goods and services

Expenses

Amounts incurred in an attempt to generate revenue

Revenue

An amount earned from rendering services or transferring resources to customers.

Expense

An amount incurred from using resources or services in the effort to generate revenue

Current ratio

Assets/liabilities

Accounting equation

Assets= liabilities+owners equity

Performance measurement and management process

Balance scorecard (formulas come in)

Long term liabilities includes

Bond payable (due in 10 years)

Going concern

Business will continue past the current period

Gross margin ratio

Cogs/gross margin

Bank reconciliation

Comparing accounting records of cash to the business books.

Performing phase

Completing the planned business activities and recording the results of those activities

Production time

Considered value added time

External failure (involuntary)

Correcting errors after the customer knows the error occured, includes customer ill will.

Internal failure (involuntary)

Correcting errors before the customer knows the error occured

Finance

Costs of borrowing, benefits expects from using the money

Investing process

Creating the infrastructure to support operating activities

Limited liability means (Corporation)

Creditors of a company can only claim the assets of the firm and not the assets of the owners of the firm.

Financial Accounting Standards Board (FASB)

Current rule-making body, standards, concepts,

What are the characteristics of business today

Customer(focused operations), global markets, advanced manufacturing and communications, eBusiness

business organization and strategy process

Determines the plan of action for the companyq

Relatively certain external environment

Efficiency strategy, mechanistic structure

Property plant and equipment includes

Equipment, land, building

Return on sales ratio.

Expenses/revenue

4 perspectives

Financial, internal, customer, learning and growth

Capital resources processes

Financing and investing activities of the company

Appraisal(voluntary types of quality costs)

Finding errors as early in the process as possible. continuous inspection, testing

Relatively uncertain external environment

Flexibility strategy, organic structure

Customer loyalty

Growth, referrals, retention keep current customer instead of get a new one.

Balanced scorecard

Holistic approach to planning and measuring performance

Return on owners equity

How efficient a company is at generating profit. Average of liabilities and charge holders equity

4 basic financial statements and auditors report

Income statement, statement of cash flows, statement of owners equity, balance sheet, Auditors report

Book balance includes

Interest earned, service charges, NSF checks, errors made by the company

Investments includes

Investment in nike stock

Business entity

Keeps business, personal records seperate

Debt to equity ratio

Liabilities/stockholders equity

Monetary unit

Maintain business records in currency

Return on owners equity ratio (ROE)

Net income/stockholders equity

Current liabilities includes

Note payable due in 60 days, accounts payable

Bank balance includes

Outstanding checks, deposits in transit, errors made by the bank

Partnership (unlimited liability)

Owned by 2 or more individuals whose personal possessions are at risk.

Intangible assets includes

Patent

human resources

Pay and fringe benefits, hiring costs

Market share

Percentage of total sales in the market generated by a particular common

3 phases of management cycle

Planning phase, performing phase, evaluating phase

Production and operation

Production costs, actual and budgeted

Operating processes

Profit- making activities of the company

Periodicity

Profits/loses mst be determined periically

5 procedures of internal control

Proper authoritization, separating incomplete duties, Maintains adequate documentation, physically controlling assets and documents, providing independent checks on performance.

Evaluating phase

Providing information to interested users to assess the success of the business activities

Measures used in the financial perspective is

ROI, Quick Ratio, Gross Margin, Current Ratio, Debt to Equity Ratio, Return on sales ratio

Financing process

Raising capital to support operating activities

Prevention (Voluntary types of quality costs)

Reducing the opportunity for error to occur. employee training, product and process design

Owner's Equity

Represent the claims on the business to transfer the residual interest (net assets of the business) to the owners. (Owners worth)

Expenditure process

Resources acquired

Revenue process

Resources provided

Conversion process/manufacturing

Resources used

Stockholders equity

Retained earnings

Return on investment ratio (ROI)

Returns/investments

The 3 basic functions of business

Service, merchandising, manufacturing

Planning phase

Setting goals and objectives for business activities

Customer satisfaction

Surveys

Information systems

Technology

FASB

The body responsible for establishing accounting standards in the US today.

Marketing

The business function designed to determine the wants and needs of consumers

Financing and investing activities

The capital resources process features this pair of activities

liability

The obligation to transfer economic resources to suppliers of goods and services at some point in the future (those you owe)

Business entity concept

The owner of a plumbing business maintains separate checkbooks for his business and his personal affairs.

Assets

The rights to use resources that have expected future economic benefit. (Things you own)

GAAP

The statements of financial accounting standards and other authoritative pronouncements that define what constitutes acceptable accounting practice for financial reporting collectively. Generally accepted accounting principles

Planning, performing, and evaluating

The three phases of business

Employee growth

Training, continuing education

Efficiency strategy

When a company operates in a more certain environment it tends to focus inward and have an

4 business processes

business organization and strategy, operating, capital resources, performance measurement and management