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