Entrepreneurship Chapter 13

five common financial statements

income statement, statement of retained earnings, statement of owners equity, balance sheet, cash flow statement

pro forma

indicates estimated or hypothetical information

liability

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

cost-volume-profit analysis

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

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

variance analysis

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

favorable/unfavorable variance

profits greater than/less than budget

asset

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

cash flow statements

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

balance sheet

statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity)

accounting equation

statement that assets equal liabilities plus owners equity (assets=liabilities+owner equity)

income statement

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

retained earnings

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

financial strength

the ability of a business to survive adverse financial events

articulate

the concept that information flows from the income statement through the statements of retained earnings and owners equity to the balance sheet

investing activities

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

fixed costs

those costs that remain constant regardless of quantity of output, for example, rent

owners equity

whatever value is left after all liabilities have been paid

business entity concept

concept that a business has an existence separate from that of its owner

variable costs

costs that change with each unit produced, for example, raw materials

variance

difference between an actual and budgeted revenue or cost

budget

financial plan for the future, based on a single level of operations

financial statements

formal summaries of the content of an accountings systems records of transactions

financial accounting

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

GAAP

generally accepted accounting principle; standardized rules for accounting procedures

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

financial flexibility

businesses ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs

tax accounting

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

going concern concept

accounting concept that a business is expected to continue in existence for the forseeable future

managerial accounting

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

internal (cost) factors

aspects of or choices within the business which could cause the businesses costs to change

external (cost) factors

aspects of the world outside the business which could cause the businesses costs to change

breakeven point

point at which total costs equal gross revenue