BST Chapter 8

As a stake holder why is accounting information important to Employees?

They are interested in the financial performance of their company because it has an impact on their job security, pay, and pension plans.

As a stake holder why is accounting information important to the IRS and SEC,

They require information from financial statements to ensure that the firm is meeting tax and reporting requirements.

As a stake holder why is accounting information important to Suppliers?

They want to be sure that the firm can pay for any supplies they provide on credit.

As a stake holder why is accounting information important to banks and lenders?

They want to know whether the organization will be able to repay its debts.

As a stake holder why is accounting information important to owners of businesses?

They want to know whether their firms are generating an adequate return on their investment.

What is top down budgeting?

Top down budgeting occurs when top managers develop budgets with little input from middle and supervisory managers

when done correctly what can budgeting do for a company?

When done correctly, budgeting encourages communication and cooperation among various departments and functional areas of the business, provides a motivational tool, and helps managers monitor progress and evaluate progress.

Logic behind accounting equation

based on the fact that firms must finance the purchase of their assets, and owners and non-owners are the only two sources of funding. The accounting equation tells us that the value of a firm's assets must equal the amount of financing provided by owners (as measured by owners' equity) plus the amount provided by creditors (as indicated by the firm's liabilities) to purchase those assets.

disadvantages of top down budgeting

does not include middle and first line managers say, as a result they may resent being given no say in the process.

How does an auditor go about conducting an audit?

external auditors don't just check the final figures in the statements; they also examine the accounting methods the company used to obtain those figures. Auditors also look for signs of fraud or falsified records. They often conduct an actual physical count of goods or supplies in inventory to determine the accuracy of the figures reported in the company's inventory records and contact the company's banker to verify its account balances.

What is financial accounting?

is responsible for generating information used primarily by outside stakeholders such as investors, creditors, and government agencies. It does this by developing financial statements such as the balance sheet, income statement, and statement of cash flows. based on methods that are consistent with generally accepted accounting principles (GAAP)

How do public accountants differ from management accountants?

management accountants work within a single company while public accountants work broader.

advantages of bottom up budgeting?

middle and supervisory managers may be "closer to the action" and have a better understanding of the resources needed to meet the needs of their departments, divisions and teams. Allowing middle and first line managers to be more actively involved in the process is likely to improve their morale and encourage them to "buy in" to the budget.

disadvantages of bottom up budgeting

more time consuming, some managers may be tempted to better themselves instead of company and set low budget goals in order to make their jobs easier.

what is managerial accounting?

prepares reports and performs analysis that is designed primarily for the internal use of the firm's managers. These reports are prepared as needed, and are not required to follow GAAP.

What are "assets' in the accounting equation

the resources owned by a firm. These include the firm's cash, accounts receivable, inventory, machinery and equipment, buildings, land, and perhaps even intangible assets such as patents, copyrights and goodwill.

What is Out-of-pocket costs ( explicit costs)?

they involve actual expenditures of money or other resources.

advantages of top down budgeting?

top managers have better understanding of the overall goals and priorities of the company. top down management tends to be quicker and simpler than the bottom up approach. it frees up time for middle and supervisory managers to pursue other responsibilities.

What is opportunity costs (implicit costs)?

what is given up is the opportunity to use an asset in some alternative way.

What do management accountants do?

work within a single company, recording, and analyzing the financial information for their employer. They may do a variety of tasks including budgeting and cost and asset management.

How do management accountants view cost?

Accountants define cost as the value of what is given up in exchange for something else.

State the "accounting equation"

Assets = Liabilities + Owners' Equity

What is bottom-up budgeting?

Bottom up (or participatory) budgeting is an approach which seeks the active involvement of managers at all levels of the organization.

What is the purpose of budgeting?

Budgeting is a management tool that explicitly shows how firms will acquire and use the resources needed to achieve its goals over a specific time period

what is a adverse opinion from an auditor mean?

Discover more serious and widespread problems with a firm's statements they offer an adverse opinion. Information contained in the statements was not prepared according to generally accepted accounting principles

what is a qualified opinion from an auditor mean?

Doesn't find any problems with the way a firm's financial statements were prepared and presented, the report will offer an unqualified opinion

Difference between managerial and financial accounting?

Financial accounting focuses on outside stakeholders and must use GAAP while managerial accounting focuses on internal use of firms managers and doesnt use GAAP

what is a unqualified opinion from an auditor mean?

If the auditor identifies limited problems with the firm's accounting methods or financial statements, but believes that in all other respect these statements are fair and accurate, the report will express a qualified opinion.

Why is budgeting crucial?

Its crucial to the planning process because it translates goals into measurable quantities and forces managers to explicitly identify how they will meet these goals.

What are "liabilities" in the accounting equation

Liabilities are the claims that outsiders have against the firm's assets. They represent what the firm owes to outsiders.

Who are the key users of the accounting information?

Owners of businesses, Banks and other lenders, Employees, Suppliers, Government agencies (IRS and SEC)

What is "owners equity" in the accounting equation

Owners' Equity represents the claims of owners against the firm's assets. These are viewed as residual claims, since the claims of creditors come before those of owners. For a corporation the key elements of owners' equity would include common stock and retained earnings.

What do public accountants do?

Public accountants provide services such as tax planning and preparation, external auditing, and business consulting on topics such as employee compensation and benefits to clients on a fee basis.

How is the structure of the balance sheet related to this equation?

The balance sheet is organized in a way that illustrates the logic behind the accounting equation. A balance sheet lists a firm's assets first, organizing them into current assets, plant and equipment and intangible assets. It sums the value of all of these assets to come up with a value for the firm's total assets. It then lists is liabilities (organized according to when they are due) and owners' equity. It sums the value of all total liabilities and owners' equity and shows that this total is equal to the value of total assets.

What are the key elements of the master budget?

The key elements of the master budget include the sales budget, production budget, various cost budgets and cash and capital budgets.

What is the master budget?

The master budget organizes all of these separate budgets into a unified whole, providing a complete picture of the firm's financial plan.

What is the purpose of an external audit by an independent CPA firm?

The purpose of the external audit is to verify that the statements were properly prepared in accordance with generally accepted accounting principles, and that they fairly present the financial condition of the firm. The results of the audit are presented in an independent auditor's report which is included in the annual report the firm sends to its stockholders.