Small Business Management Ch 13

Balance sheet

A statement of what a business owns (assets), what it owes to others (liabilities), and how much value the owners have invested in it (equity). This statement shows hows business have done previously and is not current

Income statement

A statement that lists revenues and expenses and shows the amount of profit a business makes for a specified time period. (Revenues - Expenses = Net Income)

Financial statement

Formal summaries of the content of an accounting system's records of transactions

Credit card sales

Function to enable reconciling your sales records with the amount of discounts and charge backs taken by your credit card provider

Articulate

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

Variance

The difference between an actual and budgeted revenue or cost

Owners' equity

The difference between assets and liabilities of a business

Going concern concept

The expectation that a successful business will stay in business

-Income statement -Statement of retained earnings -Statement of owner's equity -Balance sheet -Cash flows statement

The five common financial statements are?

Cost of goods sold budget

A schedule that shows the predicted cost of product actually sold during the accounting period

Cash flows statement

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

External cost factors

Aspects of the world outside business which could cause the business's costs to change

Cost-volume-profit analysis

A 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

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

Master budget

A budget, also referred to as a comprehensive budget, consists of sets of budgets that detail all projected receipts and spending for the budgeted period

Financial flexibility

A business's ability to manage cash flows in such a manner that the company can respond appropriately to unexpected opportunities and needs

Expense

A decrease in owners equity cause by consuming your product or service

Budget

A financial plan for the future, based on a single level of operations; a quantitative expression of the use of resources necessary to achieve a business's strategic goals

Financial accounting

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

Managerial accounting

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

Fixed asset

Accounting that automatically calculates and accumulates depreciation

Inventory

Accounting that facilitates maintaining the appropriate levels of inventory and aids in calculation of appropriate stocking and reorder levels

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

Tax accounting

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

Activity-based cost estimates

An accounting method which assigns costs used on the different types of work a business does in order to sell a particular product or service

Revenue

An increase in owners' equity caused by selling your product or service

Insurance register

Eases the problems of keeping necessary insurance coverage current and in force

Pro forma

Latin for "In the form of" when used to describe financial statements, indicated estimated or hypothetical information

Liabilities

Legal obligations to give up things of value in the future

Accounting equation

Liabilities + Owners' equity = Assets or Assets - Liabilities = Owners' equity A method used to put financial records into understandable categories that are useful for managing a business

Account receivables

Records if you provide credit to your customers. Accurate and timely records are essential for making decisions concerning the extension of credit

Leasehold

Records if your business has made improvements to leased property or equipment

Investments

Records if your business keeps surplus cash invested in securities

Accounts payable

Records to track what you owe and to make timely payments in oder to capture prompt pay discounts and to maintain a good credit rating for you business

Depreciation

Regular and systematic reduction in income that transfers asset value to expenses over time

Financial strength

The ability of a business to survive adverse financial events

Business entity concept

The idea that a business has an existence that is separate from its owner

Economies of scale

The idea that it is cheaper (per item) to make many of an item than few

Breakeven point

The point at which total costs equal gross revenue

-Simplicity of use -Accuracy of detail -Timeliness of reports -Understandability to the manager -Security of data

The primary criteria for small business's record keeping are:

Variance analysis

The process of determining the effect of price and quantity changes on revenue and expenses

Investing activities

The purchase and sale of land, building, equipment, and securities

GAAP (Generally Accepted Accounting Principles)

The standardized rules for accounting procedures set out by the Financial Account Standards Board and used in all audits and submissions of accounting reports to the government

Retained earnings

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

Cost

The value given to obtain something you want

Current ratio

The value of current assets divided by current liabilities

Variable costs

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

Fixed costs

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

-It proves what your business did financially -It shows how much your business is worth -Banks, creditors, development agencies, and investors require it -It provides easy to understand plans for business operations -You can't know how you business is doing without it

What are some reasons accounting is important to small businesses?

-Business entity concept -Going concern concept -A simple account equation -The premise of revenue and expense -The principle that accounting information must be useful to the owners and managers of businesses

What are the basic concepts of accounting?

-Operating activities -Investing activities -Financing activities -Net effect of foreign exchange rates -Noncash investing and financing activities

What six items must be reported in the statement of cash flows?

Internal cost factors

Aspects of or choices within the business which could cause the business's costs to change

MACRS rate

An internal revenue service acronym for the Modified Accelerated Cost Recovery System. The MACRS approach lets taxpayers depreciate more of the cost earlier in the life of a capital expense