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