ACCOUNTING

What are operating expenses?

Expenses needed to operate the business. Addresses all other expenses associated with the business

What is the different between finance and accounting?

Finance is on MONEY MANAGEMENT DECISIONS while accounting is PROCESS of KEEPING AND INTERPRETING FINANCIAL RECORDS

what is capital budgeting?

Financial manger determines what projects to invest in through the process of ESTIMATING EACH POTENTIAL PROJECTS VALUE.

What is revenue/ sales revenue?

Money received from the sales of goods and services

What is an Accounting System?

Process used in handling a business's financial information. The purpose of setting up a system is to ensure the same procedures are used by everyone involved.

What are dividends?

Profits distributed as cash or stock to shareholders

What is the cash conversion cycle?

Ratio that refers to the number of days between a company's paying for raw materials and receiving cash from selling the products

What is net income? What else is net income called?

"Business's final profit" What the company ACTUALLY makes after all expenses have been deducted and taxes have been paid

How do you calculate return on capital?

(net profits-taxes) / total capital

What are the two capital investment decisions?

-determine which projects the biz will invest in - how the investment will be financed and whether or not to pay dividends to the company's shareholder

how does finance relate to other biz activities?

-responsible for budgeting process, budgeting process provides for salaries, benefits -helps plan for new business projects and strategies.

Know how to organize an income statement and a balance sheet

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What are the two main accounting methods?

1) Cash accounting method 2) Accrual Method

What are the common characteristics of effective accounting systems?

1) Easy to use Doesn't take a genius to use 2) Process data quickly can get your data immediately 3) Expandable 4) Affordable to operate will not take a lot of your money 5) Protect the business

What are the Three steps in the Accounting Process?

1) Record transactions (ledger or some recording system) 2) Organize the information (categorize to make it easy) 3) Summarize the information (balance sheet and income statement)

Why is Accounting Important?

1) Track business's performance, show how business is doing (revenue, expenses, profit, net worth) 2) Planning for the future, help you to better estimate your future income and expenses and plan accordingly

why is finance important?

1) help set goals 2) planning and controlling the company's spending 3) ensuring sufficient financing 4) Making sure customer pay their bills. 5) investing company money wisely

What are the two types of current liabilities?

Accounts payable and Taxes payable

What is accounts receivable vs accounts payable?

Accounts receivable is an asset, what people owe you Accounts payable is a liability, what you owe someone

What are the two major finance activities?

Administration of assets and Acquisition of Funds

What are the three methods of business budgeting?

1) previous year's budget adjusted for changes in company 2) previous years budget with a percentage adjustment across the board (inflation) 3) zero-based budgeting requires every expense to be explained and justified

What are warren Buffet's 10 ways to get rich?

1) reinvest your profits 2) be willing to be different, judge yourself by your own standards, not the worlds 3) Never suck your thumb, unnecessary sitting and thinking 4) Spell out the deal before you start, offer the other party something they want 5) watch small expenses, managers who obsess over smallest lost 6) Limit what you borrow, you don't want to pay a lot of debt 7) Be persistent, trust 8) Know when to quit, don't keep, losing money 9) Assess the risk, think of risks vs potential gains. 10)Know what success really means. the people you want to have love you, actually do love you

What are the five characteristics of an Effective Budget?

1) well planned 2) realistic 3) flexible 4) clearly communicated 5) evaluated

What is finance?

Business function that involves all money and money management matters.

What are liabilities?

Debts that the business owns

Why us the income statement sometimes known as an earning or operating statement?

Earning statement- Only financial statement that allows you to look at its net profit Operating statement- information used by businesses to make a variety of decisions

What are assets?

anything of value that the business owns

What is on a balance sheet?

assets liabilities owners equity

what are current assets?

cash accounts receivable inventory

What are rolling budgets?

continuous 12 month budget is kept and each month rolls on/off; a new month is added to the budget as each month expires

What two categories of liabilities are there?

current and long term

what are fixed assets?

equipment furniture

How does the finance function contribute to the business?

finance connects to MARKETING, OPERATIONS, HUMAN RESOURCES, STRATEGIC MANAGEMENT, INFORMATION MANAGEMENT

What is an income statement?

sometimes called the profit and loss statement, shows how much money the business has made or has lost. income statements are for a specific period of time, usually once a year

How are ratios used to compare categories over time?

to see financial circumstances for past years, they need to be able to compare numbers from income statements of different years.

Why are ratios important to businesses?

to see how the categories are affecting each other and the bottom line, is the business spending too much on operating expenses? Are sales keeping up with expenses?

What is working capital management?

understanding the cash conversion cycle

What is a balance sheet?

A financial statement that captures the financial condition of the business at that moment.

What is Owner's Equity?

Amount the owner has invest in the business, plus or minus profits and losses.

How is owner's equity calculated? What is the basic accounting question?

Assets - Liabilities = owner's equity

What is the Basic Accounting Question?

Assets - Liability = owner's equity

What is equity?

Assets already owned

What two categories of assets are there?

Current and fixed

How do you find Net profit (loss) after taxes?

Gross profit - taxes - operating expenses

How do you find net income from operations?

Gross profit-expenses

What are sales forecast?

How much does the business expect to sell? (estimating)

What is acquisition of funds?

Making decisions about financing or funding a business venture. (anything happening within the business)

What is administration of assets?

Making decisions about investment

What is capital structure?

Managers must determine how to finance the new projects they have invested in.

How do you find net profit (loss) before taxes?

Net income from operations + Other income - Other expense

What is Accounting?

One of the basic business activities, process of keeping financial records

What is the cash accounting method?

Record income and expenditures at the time the money changes hands. (easy to use/ popular with small businesses) Companies do not offer credit often because this would not allow them to record these sales at the time they happen

What is the Accrual Method?

Record income and expenditures at the time they occur even if money did not change hands yet. (large business and creditors) These transactions are recorded when the promise to pay is made

How do you calculate gross profit?

Revenue or sales - cost of goods

What is credit risk?

Risk of financial loss due to none-payment from a debtor to customer

What is market risk?

Risk of financial loss due to the decreased value of an investment.

What are specialized budgets?

The goals and activities a particular are or dept. of a business

What are master budgets?

The overall budget for a company

Which three groups look at ratios and why?

Top executives and managers - Monitor operations and determine whether their company is running efficiently, monitor yearly profit activity Creditors - review financial status of a business Investors - monitor profit levels, stock depends on how much profit the business has made

What is gross profit?

Total money made before all other remaining expenses have been deducted

What is risk management?

Using finance to measure risk. is it risky?

How does a business benefit from using an income statement?

see cumulative totals, see where it is successful and where it is not

How are ratios used to compare figures with competitors?

see strengths and weakness in relation to those of the competition, better understanding of what goods or services it should be offering

What is return on capital

how well a business generates cash flow higher percentage is better- more return on capital

What are long term liabilities?

loans payable

what is on an income statement?

revenue cost of goods sold/ cost of sales gross profit operating expenses net income/profit