Budgeting Flashcards
Amortization
- schedule of payments whereby a loan is paid off gradually over time
- expensing the cost of an intangible asset over time
Depletion
allocate the cost of extracting natural resources
non-cash expense that lowers the cost value of an asset incrementally
cash flow statement
cash flow from operating activities
cash flow from investing activities
cash flow from financing activities
Cash Flow from Operating
- Cash received from the sale of goods and services
- Interest payments
- Salary and wages paid
- Payments to suppliers for inventory or goods needed for production
- Income tax payments
Cash Flow From Operations Indirect
Net income
+ Depreciation
+ Depletion
+ Amortization
-/+ Increase/Decrease in accounts receivable
+/- Increase/Decrease in accounts payable
+/- Adjustments To Net Income
+/- Changes In Liabilities
+/- Changes In Inventories
cash flow from investing
- purchase of fixed assets
- investments such as stocks or securities
- lending money
+ sale of fixed assets
+ sale of investment securities
+ collection of loans and insurance proceeds
Cash Flow from Financing
+ Cash inflows from issuing equity or debt
+/- Borrowing/loan repayment
- Dividend payments
- Repurchase of depth and equity
Accounts receivable
balance of money owed by customers for purchases made on credit
listed on the balance sheet as a current asset
Accounts Payable
Amounts to be paid in the future for goods or services already acquired
Marketable Securities
assets that can be liquidated to cash quickly
either debt or equity
Components of Balance Sheet
assets vs liabilities and stockholders equity
Assets (balance sheet)
Current Assets (converted to cash in one year or less)
- Cash and Cash Equivalents
- Accounts Receivable
- Inventory
long-term assets:
- fixed Assets
- long-term investments
- intangible assets (intellectual prop, …)
Liabilities (balance sheet)
Current Liabilities (converted to cash in one year or less)
+ bank indebtedness
+ accounts payable
+ wages payable
+ accruals
+ customer prepayments
+ dividends payable and others
long-term Liabilities
+ Long-term debt
+ Pension fund liability
Shareholder Equity
+ Retained earnings
+ Common Stock
- Treasury stock
Current Liabilities
a company’s short-term financial obligations
Current Liabilities
a company’s short-term financial obligations
accruals
needed for any revenue earned or expense incurred, for which cash has not yet been exchanged
Treasury Stock
A corporation’s own stock that has been reacquired by the corporation and is being held for future use.
Shareholder Equity
money attributable to the owners of a business
difference between a firm’s total assets and total liabilities
Shareholder Equity
money attributable to the owners of a business
difference between a firm’s total assets and total liabilities
Retained earnings
net earnings a company either reinvests in the business or uses to pay off debt
amount of net income left over for the business after it has paid out dividends to its shareholders
Total assets
sum of liabilities and total shareholder equity
What is “planning”?
planning is the process of establishing company-wide objectives
What is a “budget”?
A budget is formal written statement of management plans for a specific time period
Describe the relationship between accounting numbers and budgeting.
accounting delivers historical data on revenues, cost, … which is helpful for the budgeting process
Describe the relationship between accounting numbers and budgeting.
accounting delivers historical data on revenues, cost, … which is helpful for the budgeting process
What are the primary benefits of budgeting?
- plan ahead and formalize
- definite objectives
- early warning system
- facilitates the coordination of activities
- motivates personnel
Within what framework is the budget developed?
within the framework of sales forecast, factors
- economic conditions, trends, studies
- market share
- technological developments
What is the “master budget”?
a set of interrelated budgets that constitutes a plan of actions for a time period
two forms:
- operating budgets
- financial budgets
What is a “static” budget report?
projection of budget data at one level of activity
Under what circumstances is a static budget appropriate?
evaluating managers effectiveness when
- actual level of activity approximates the master budget activity level
- behavior of costs in response to changes in activity is fixed
What is a “flexible” budget report?
project budget data for various levels of activity, series of static budgets
