Accounting Flashcards
Horizontal analysis
Comparing the horizontal lines with each other from different balances beets
Vertical analysis
The change is expressed in percentage
Fixed costs
Cost not effected by the sales volume
Direct costs
Directly bound with a item - tangible
Indirect cost
Intangible
Overhead cost
All expenses not connected to a profit center
Controllable costs
A manager can control and able to keep
Differential costs
Costs which are different between two cases
Relevant costs
Costs which are important to consider while making a decision
Sunk costs
Past costs related to a past decision
Opportunity costs
The costs connected to the opportunity chosen
Incremental costs
The cost of producing one more unit, including the variable costs and the variable portion of the mixed costs
The indifference point
The level of activity at which the cost is the same under either a fixed cost option or a variable cost option
Discretionary costs
Do not effect current capacity and has less impact, easy to restore
Step costs
The same on the range, but different from range to range
Mixed costs
Tmc = fixed costs +( variable costs per unit * unit sales)
High/ low method
8 steps
Select two periods
Calculate the difference
Divide the two differences with each other
Multiple the result with each of the periods
Subtract the result from step above
Fixed costs per period - result from 6 * time periods = total fixed costs
Total mixed costs - total fixed costs = total variable costs
CVP analysis
Assumptions
Fixed costs remains fixed
Variable costs fluctuates with revenue
Only quantitative
Revenue fluctuates with sales volume
All costs can be assigned to departments
Mixed costs can be divided into fixed and variable costs
CM
V -S
CMR W
TR-TV/TR
Interest on a loan
Principal* rate * time
Effective interests rate
Annual interest in loan/loan - compensating balance
CCC
OC -PDP
PDP
Average accounts payable/ daily costs of food sold
Remember the 365 because of daily
IHP
Inventory holding period
Average food inventory / daily cost of food sold
Remember the 365 because of daily
Investment considerations
Risk Return Liquidity Cost Size Time
6
Lockbox system
B = C / I * T
B = breakeven I = daily interest T = change in time C = bank charge per item
Cash flow
Meet obligations
Positive future cash flow
The effect of investments
Determine the net income and from which department it is generated from
Activity categories
Operating
Investing
Financing
Cash flow operating rules
A decrease in current asset is added to net income
An increase to current assets is deducted from net income
A decrease in current liabilities is deducted from net income
An increase in current liabilities is added to the net income
Base year comparison
Percentage - one year is base and the following is compared to it
PV
Cash flow/ (1 + r ) T
NPV
The outflow - the investment in -
Principal + precent value / 1 + r T
Accept if bigger than 0
IRR
Principal +
end result / 1 + R
R = rate of return
The result must be greater than the discount rate from NVP
WACC
E/ debt + E * CE +
Debt / debt + E * Cdebt * (1-taxe rate)
PI
NPV / upfront investment
Highest number
Financial leverage
To what degree a business is using borrowed money
Operating leverage
To what extent the expenses are fixed or variable
High level means high variable room for big return also most risk of not being able to pay the expenses of the sales goes down
