Accounting 2 Flashcards
Income statement
How much profit did we make?
Summarizes a firm’s operations over a given period of time in terms of
profit and loss.
Revenue minus expenses equals net income
Revenue
the increase in the amount of assets the firm earns
+ the increase in resources, such as cash and accounts receivable, a firm earns form the sale of goods over the specified period
Expenses
the cash the firm spends or other assets it uses to generate revenue
COGS, operating and other expenses
+ operating expenses are incurred in the process of earning sales revenue but are not directly tied to producing or acquiring goods (ex salaries and commissions, clerical costs, advertising costs, insurance and depreciation)
Net income
the profit or loss the firm earns
+ the after tax profit the firm earns
+ net operating income is found by subtracting expenses form gross profit
Gross profit and net income formulas
Gross profit = revenues - cost of goods sold
Net income = gross profit - operating/other expenses
What type of year is commonly used by fiscal entities
Fiscal years, don’t correspond to the calendar year
Three main branches of accounting
Financial accounting
Management accounting
Other: audit, income tax accounting, fund accounting, forensic accounting
Financial vs managerial accounting
Explain managerial accounting
The firm’s managers: Managers need it to make plans and to guide the firm.
The firm’s employees: Employees use it to monitor how well the firm is doing—if it’s profitable, if they’ll keep their jobs, and if retirement accounts are healthy. > quit or stay
Financial vs managerial accounting
Explain financial accounting
Stockholders: Stockholders and other outside investors need the information to see how well the firm is doing and whether it is profitable.
Lenders: Banks and similar institutions need it to evaluate the company’s financial health and credit rating.
Suppliers: The company’s vendors, who also may extend credit, need such data as well.
Government agencies: Authorities such as the Revenue Canada need such information to ensure that appropriate tax revenues are collected
> all stakeholders
Objective of financial vs managerial accounting
F : Provide information to external stakeholders such as shareholders, creditors and the government
M : Provide information to internal stakeholders such as managers of specific divisions or departments
Results of financial vs managerial accounting
F : standard set of financial statements (such as GAAP)
M : Customized reports designed to deal with specific problems or issues
Timing in financial vs managerial accounting
F : predetermined schedule (quarterly or annually)
M : as per management requests
Standards of financial vs managerial accounting
F : Governed by a set of accounting principles or standards
M : According to procedures developed internally; not required to follow accounting standards
Budgeting - part of planning and control
(What it accomplishes)
– Outlines how resources will be used to meet goals
– Translates goals into measurable quantities and identifies resources
– Communication and coordination among managers and employees
– Motivates achievement of goals
– Monitors progress
Operating budgets elements
Sales budget
Production budget
Direct labour budget
