Finance

Cost of goods sold is calculated as

( beginning inventory + cost of manufactured) - ending inventory For the month of May, Latter Company has beginning finished goods inventory of $50,000, ending finished goods inventory of $35,000, and cost of goods manufactured of $125,000. What is the cost of goods sold for May? $140,000

Debit the retained earnings account, credit the dividends account

closes the dividends account at the end of the period - The entry to close the dividends account is to debit the retained earnings account and credit the dividends account.

Horizontal analysis

compares the amount and percentage of each item on the most recent statement to the same item on an earlier statement.

operating leverage formula

contribution margin / income from operations

cost of goods sold

cost of finished goods available for sale - the ending finished goods inventory

Inventory Turnover

cost of goods sold / average inventory

Which of the following costs would be included as part of the factory overhead costs of a microcomputer manufacturer?

depreciation of testing equipment

Average rate of return (ARR)

determined by dividing the expected average annual earnings by the average investment average annual income / average investment

measurement principle

determines the amount that will be recorded and reported. The measurement principle requires that amounts be objective and verifiable

receipt of cash from the sale of equipment.

An example of a cash flow from an investing activity is Cash flows from investing activities include receipts from the sale of noncurrent assets, such as equipment, and payments to acquire noncurrent assets.

A software development firm periodically spends cash to purchase large-scale computer hardware and new office buildings. These activities are examples of which type of cash flows?

Cash flows from investing activities

receipt of cash from customers on account.

Cash flows from operating activities affect transactions that enter into the determination of net income, such as the receipt of cash from customers on account

Cash =

Cash=Liabilities+Stockholders′Equity−NoncashAssets

change in the cash account can be determined by analyzing changes in the liability, stockholders' equity, and noncash asset accounts as follow:

ChangeinCash=ChangeinLiabilities+ChangeinStockholders′Equity−ChangeinNoncashAssets

costs of manufacturing a product

Direct materials cost, factory overhead cost, and direct labor cost

Dividends

Dividends are the opposite of investing in the business and do not affect the amount of net income or net loss.

Dixon Company expects $650,000 of credit sales in March and $800,000 of credit sales in April. Dixon historically collects 70% of its sales in the month of sale and 30% in the following month. How much cash does Dixon expect to collect in April?

Dixon expects to collect 70% of April sales ($560,000) plus 30% of the March sales ($195,000) in April, for a total of $755,000.

cost center

If the manager has responsibility for only costs, the department is called a cost center.

investment center

If the responsibility and authority extend to the investment in assets as well as costs and revenues, it is called an investment center.

ratio of fixed assets to long-term liabilities

Fixed assets are often pledged as security for long-term notes and bonds. The ratio of fixed assets to long-term liabilities provides a measure of how much fixed assets a company has to support its long-term debt. This measures a company's ability to repay the face amount of debt at maturity fixed assets(net) / long term liabilities

long-term liabilities

Liabilities that usually will not be due for more than one year

Liquidity is the ability....

Liquidity is the ability of a company to convert current assets into cash.

describe the difference between financial and managerial accounting

Managerial accounting is not restricted to generally accepted accounting principles, while financial accounting is restricted to GAAP.

Accounting Principles

Measurement Historical cost Revenue recognition Expense recognition

price earnings ratio

PE on common stock measures a company's future earnings prospects. It is often quoted in the financial press market price per share of common stock / earnings per share of common stock

payment of cash for dividends

Payment of cash for dividends is an example of a financing activity

Profitability focuses on the ability of?

Profitability focuses on the ability of a company to earn profits by examining the relationship between operating results and the resources available.

solvency

The ability of a company to pay its debts is called

Fiscal Year

The annual accounting period adopted by a business

The price-earnings ratio measures?

The price-earnings ratio measures a company's future earnings prospects

operating cycle

The process by which a company spends cash, generates revenues, and receives cash either at the time the revenues are generated or later by collecting an accounts receivable.

closing the books

The process of transferring temporary account balances to permanent accounts at the end of the accounting period

ratio of fixed assets to long-term liabilities

The ratio of fixed assets to long-term liabilities provides a measure of whether noteholders or bondholders will be paid.

ratio of liabilities to stockholders' equity measures?

The ratio that measures how much of a company is financed by debt and equity

quick ratio (acid test)

The ratio that measures the "instant" debt-paying ability of a firm, by focusing on current assets that can be easily converted to cash quickly convertible assets / current liabilities

statement of cash flows

The statement of cash flows is used by managers in evaluating past operations and in planning future investing and financing activities. It is also used by external users such as investors and creditors to assess a company's profit potential and ability to pay its debt and pay dividends.

The 10 basic steps of the accounting cycle

Transactions are analyzed and recorded in the journal. Transactions are posted to the ledger. An unadjusted trial balance is prepared. Adjustment data are assembled and analyzed. An optional end-of-period spreadsheet is prepared. Adjusting entries are journalized and posted to the ledger. An adjusted trial balance is prepared. Financial statements are prepared. Closing entries are journalized and posted to the ledger. A post-closing trial balance is prepared.

Vertical analysis

Vertical analysis compares each component in a financial statement to a total within the statement.

Fees Earned

Which of the following accounts would not be included in a post-closing trial balance Since the post-closing trial balance includes only balance sheet accounts (all of the revenue, expense, and dividend accounts are closed). Fees Earned is a temporary account that is closed prior to preparing the post-closing trial balance.

Indirect Method

Which of the following methods of reporting cash flows from operating activities adjusts net income for revenues and expenses not involving the receipt or payment of cash The indirect method reports cash flows from operating activities by beginning with net income and adjusting it for revenues and expenses not involving the receipt or payment of cash

Working capital is the excess of the current assets of a business over its current liabilities

Working capital is the excess of the current assets of a business over its current liabilities WorkingCapital=CurrentAssets−CurrentLiabilities

closing entries

entries that transfer the balances of revenue, expense and dividends to the retained earnings account

Current position analysis

evaluates a company's ability to pay its current liabilities. This information helps short-term creditors determine how quickly they will be repaid. This analysis includes: Working capital Current ratio Quick ratio

Liquidity analysis

evaluates the ability of a company to convert current assets into cash.

brake even sales formula

fixed cost / unit contribution margin If the unit selling price is $16, the unit variable cost is $12, and fixed costs are $160,000, what is the break-even sales (units)? 16000 / 4 = 40k

Profitability analysis

focuses on the ability of a company to earn profits by examining the relationship between operating results and the resources available.

earnings per share

net income - preferred dividends / share of common stock outstanding

Return on Stockholders' Equity

net income / avg total stockholder equity

5 basic phases of management process

planning, directing, controlling, improving, decision making

closing the books

process of transferring temp account balances to permanent accounts at the end of accounting period

Flexible budgets are used by

production departments

ratio of liabilities to stockholders' equity

ratio of liabilities to stockholders' equity measures how much of the company is financed by debt and equity total liabilities / total stockholders equity

static or flexible budgeting is used by

responsibility centers

gross profit

sales - cost of merchandise sold

contribution margin ratio calculation

sales - variable cost / sales (500 - 200) / 500

Revenue recognition

the amount earned for selling goods or services to customers

cash payback period refers to

the expected period of time required to recover the amount of cash to be invested.

The objective of managerial accounting

to provide relevant and timely information for managers' and employees' decision-making needs.

inventory

merchandise on hand at the end of an accounting period (not sold)

production indicated formula

(sales + desired ending inventory) - inventory on hand

Limited liability company (LLC)

- combines the attributes of a partnership and a corporation - 10% of business organizations in the United States (combined with partnerships). - Often used as an alternative to a partnership. - Has tax and legal liability advantages for owners

Proprietorship

- is owned by one individual - 70% of business entities in the United States. - Easy and inexpensive to organize. - Resources are limited to those of the owner. - Used by small businesses.

Partnership

- owned by two or more individuals - 10% of business organizations in the United States (combined with limited liability companies). - Combines the skills and resources of more than one person.

The process by which accounting provides information to users is?

1. Identify users. 2. Assess users' information needs. 3. Design the accounting information system to meet users' needs. 4. Record economic data about business activities and events. 5. Prepare accounting reports for users.

natural business year

A fiscal year that ends when business activities have reached the lowest point in an annual operating cycle.

balance sheet

A listing of a business entity's assets, liabilities, and stockholders' equity as of a specific date

number of days' sales in inventory

A measure useful in evaluating efficiency in the management of inventories

to realize income from operations of $20,000 with unit contribution margin of $4

Based on the following operating data, how many units of sales would be required to realize income from operations of $20,000 with unit contribution margin of $4? sales = fix cost + target profit / unit contribution margin

variable cost

Costs that vary in total in direct proportion to changes in the level of activity

current ratio, sometimes called the working capital ratio

CurrentRatio= CurrentAssets​ / CurrentLiabilities

horizontal analysis

Each item on the most recent statement is compared with the same item on one or more earlier statements in terms of the following: Amount of increase or decrease Percent of increase or decrease

Earnings per share measures?

Earnings per share measures the share of profits that are earned by a share of common stock

Financial Accounting Standards Board (FASB)

In the US - has the primary responsibility for developing accounting standards

Historical cost

Recording an item at its initial transaction price

Accounts Receivable Turnover

Sales / Average Accounts Receivable

current ratio measures?

The current ratio measures a company's ability to pay its current liabilities

Working Capital

The excess of the current assets of a business over its current liabilities

profit center

The manager of a profit center has responsibility for and authority over costs and revenues

vertical analysis

The percentage analysis of the relationship of each component in a financial statement to a total within the statement is called vertical analysis. Although vertical analysis is applied to a single statement, it may be applied on the same statement over time.

Dividends

Which of the following accounts in the Adjusted Trial Balance columns of the end-of-period spreadsheet (work sheet) would be reported on the retained earnings statement Dividends would be reported on the retained earnings statement.

Accounts Receivable

Which of the following accounts would be classified as a current asset on the balance sheet? Cash or other assets that are expected to be converted to cash or sold or used up within one year or less through the normal operations of the business are classified as current assets on the balance sheet. Accounts Receivable is a current asset, since it will normally be converted to cash within one year

income summary

account to which the revenue and expense account balances are transferred at the end of a period

Accumulated Depreciation

accounts would not be closed to the income summary account at the end of a period? Since all revenue and expense accounts are closed at the end of the period. Accumulated Depreciation is a contra asset account that is not closed.

Expense recognition

amounts used to generate revenue. The expense recognition principle, sometimes called the matching principle, requires expenses to be recorded in the same period as the related revenue. Doing so allows the reporting of a profit or loss for the period

fiscal year

annual accounting period adopted by a business

stockholder equity formula

assets - liabilities

Accounting cycle

begins with analyzing and journalizing transactions and ends with post-closing trial balance

Methods of evaluating capital investment proposals that ignore present value include

both cash payback and average rate of return

Capital expenditures budgets are used by

capital projects

times interest earned (coverage ratio)

income before tax + interest expense / interest expense higher the number the better

accounting

information system that provides reports to users about the economic activities and condition of a business

operating

is not one of the five basic phases of the management process

asset formula

liabilities + equity(stockholder equity)

accounts payable

liability created by a purchase on account

common-sized statement

ll items are expressed as percentages, with no dollar amounts shown