Bussiness and Accounting Flashcards
What are assets?
Assets:thingsofvalueownedbythebusiness(cash,
machines,buildings,etc.).Assetshavevaluebecausea
businesscanuseorexchangethemtoproducetheservice
orproductofthebusiness
what are liabilities?
debtsownedbyabusiness.Businessestypically
incurliabilitiesbyborrowingmoneyfrombanksorothers
andpurchasingfromsuppliersoncredit
What is equity?
Thevalueofthebusinessorcorporation.This
includesretainedearningsofthecompanysinceitwas
establishedandcanbeownedbyanindividualoragroup
bysellingshares
Current vs Long term assets
CurrentAssets:thoseresourcesthattheentityexpectstoconverttocashduringthenextfiscalyear
– Ex:cash,cheques,moneyorders,short‐terminvestments, accountsreceivableduetobecollectedwithinoneyear,
merchandiseinventorythatisexpectedtobesoldwithin one year
Long‐termassets:(non‐currentassets)– assetsthatwillbe
usefulformorethanoneyear
– Ex.Property,plantandequipment(referredtoasPPE),long‐
terminvestments,non‐tangibleassets(copyrights,patents,etc)
What are the 3 main financial statements?
- Balance Sheet
- Income Statement
- Cash Flow Statement
What is the purpose of balance sheet?
Demonstrate the financial position of the company at a certain point.
Shows: Assets, Liabilities, and equity
What does an income statement do?
Measures the profit of a company during a certain time or period. Prepared more frequently such as quarterly.
What does a statement of cash flow show?
Showsthecompany’sgenerationanduseofcashoverthe reportingperiod(usually1year)
Includesonlycashinflowsandoutflows
Reportsontheentity’sinvestingandfinancingactivities
fortheperiod
5 categories of financial ratios?
DebtManagementAnalysis (Financing) LiquidityAnalysis AssetManagementAnalysis(Activity) ProfitabilityAnalysis(Performance) MarketValueAnalysis
what is debt ratio?
Relationship between total liabilities and the total assets
Liquidity is the ability to meet short term financial commitments, what ratio is used to analyze liquidity?
Current ratio and quick ratio
Theabilitytosellinventoryandcollectonaccountsreceivableisfundamentaltobusinesssuccess, this is asset management. What ratios evaluate asset management?
Inventory Turnover and Day Sales Outstanding
Common ratios used to analyze profits?
Profit margin, return on assets, and return on equity
Whenlookingtoinvestinacompanyyoulookatthe look at the potential for a return, which is?
Gains- sell stock at higher price than bought.
Dividends: period payments from the company you own stock.
Two ratios used to compare market value?
Price to earning ratios and book value per share
What is proprietorship?
Business entity owned by one person
Not a separate legal entity: profits are reported on the owners income return
What is partnership?
Business owned by 2 or more individuals
profits are reported on the owners personal tax returns
Corporation taxes
Business owned by a shareholder
Files for its own tax return
What causes depreciation?
Physical depreciation- deterioration
Functional depreciation- obsolescence
Cause of physical depreciation?
Wear and tear
Deterioration from environment
Causes functional depreciation?
Assets’s services no longer needed
Technology is obsolete
Asset meet new standards
Economic depreciation is?
The change in market value of asset. Both physical and functional depreciation are causes
What is considered depreciable property?
Mustbeusedinthebusinessorbeheldfortheproductionof income
Musthaveadefiniteservicelife(longerthanoneyear)
Mustbesomethingthatwearsout,decays,getsusedup,
becomesobsolete,orlosesvaluefromnaturalcauses
Depreciable property includes?
Buildings, Machinery, equipment, and vehicles.
Two types of depreciation method?
Book method used for financial statements and tax method used to determine taxes.
The methods within book depreciation method?
Straightline-drops equal value
Declining- realizes more value gained in early years
Units of production-determine amount of units produced by a machine.
What is the first year rule and what does it apply too?
In the first year only half of the cot of asset gets added to the CCA class
What are a manufacturing costs?
Direct material- material used to make final product
Direct labor- labor costs to build products
Manufacturing overhead-all costs except above direct costs
Nonmanufacturing costs?
Marketing costs and Administrative
Unit of measure to define the level of activity of the company includes
–Numberofunitsproduced Numberofmachinehoursused Tonsofproductprocessed Kilowatthoursofenergyproduced Numberofmilesdriven
What is contribution margin?
The contribution that each unit of production makes towards absorbing fixed costs and profit.
The firms income generating activities is? ie sales, production, finished goods
Operating budget
The inflow and outflow of cash and overall financial position of the company is?
Financial Budget
What is static budget?
Budget for a particular level of an activity
What is a flexible budget?
provides a company with the capability to compute expected costs and revenues for a range of activities.
Activity flexible budgeting is?
The prediction of what activity costs will be as activity output changes
What does static and flexible budgets gauge?
Static- effectiveness
Flexible- efficiency
What is an incremental budget?
Existingoperationsandcurrentbudgetallowancefor
existingactivitiesareusedasthestartingpointfor
preparingthenextannualbudget
Advantages and Disadvantages of incremental budgets?
Advantages include : simple and suited to direct production and service costs
Disadvantages: inefficiencies are carried forward majority of the budget remains unchanged.
Zero-Base budget is?
Previous budget isn’t used as a basis
Activities are justified and prioritized before decisions.
Advantages of zero base budget?
based on need & benefit
funding isn’t taken for granted
focuses outputs in relation to value for money.
