CH10- Accounting Flashcards
Accounting
system of organizing, analyzing and reporting financial statement (focus on past)
Financial accounting
based on the idea of providing financial information to external stakeholders
Managerial accounting
information provided for internal stakeholders (people in the organization)
Balance sheet (FA)
financial statement that outlines the financial position of a company based on asset, liability and equity
income statement (FA)
financial statement that outlines profit and losses
Statement of cash flow (FA)
outlines sources and uses of cash in a business
What do accountants do?
- analyzing and interpreting information
- Develop budgets, cost management and asset management
- Auditing : checking/review/investigating their financial records
- Government work
Who’s need do financial accountings address?
External stakeholders
What do financial accounting do
- Provides financial performance as a whole
- Statements prepared by financial accountants
- Balance sheet
- Income statement
- Statement of Cash Flow
Accounting principles
regulation of the way to report financial statement (standardize )
Balance sheet
Assets: what a business owns (any kind of capital, stakes in other companies)
We go from the most liquid to the least liquid
• Liabilities: what a business owes (loan, debt)
we go from most to least liquid
• Owner’s Equity: claims owners have against their own assets
• Retained earnings: net profit- dividence paied to shareholders
Asset formula
Asset= liabilities + owner’s equity
What are in income statement
Revenues: increases of assets as a result of selling a good or service
Expenses: resources that are used up as a result of running a business
Net income formula
Revenues- expenses
Statement of cash flow
Looking at the sources and uses of cash in a business
-Operating activities: Cash inflow from sale of goods/services or interest of
securities (ex: you buy a hamburger, the price of the hamburger goes to the operant activity of the company) - Investing activities: Cash from sale of assets or long term investments (ex: plot of land/ house) -Financing activities: Cash from issuing additional shares
Who do managerial accounting meet the need of
Internal stakeholders
What do managerial accounting do
Go beyond financial information Ongoing information (not just at the end of each quarter)
What are managerial accounting responsibilities
Product costing
Incremental analysis
Budgeting
What does product costing help and its component
Help determine inefficiencies and if a product is worth keeping in the portfolio
• Outlines the costs incurred from the production of your good
• Direct labour & direct materials costs: associated with making the product (ex: Big Mac-> meat, sauce, bread, the employee) • Overhead costs: cost that exist regardless if you are making the product or not (harder to attribute to a product) (Ex: rent or mortgage) • Activity-based costing (ABC): assigning a product cost based on th activity that drives the cost
Incremental analysis
Looking from a cost view of point.
• Evaluating the impact of different alternatives in a decision situation based on cost .
- Looking at how each alternative affects revenues and costs
- Incremental costs: difference between two decisions that u make
Budgeting
- Shows how firms will acquire and use resources to achieve their goal
- Planning for accountability
• Preparing the budget
Top down (executive say what is the budget) or bottom up(get involvement of everyone to create a budget) budget
• Developing the budget
3 types of budgets
Operating (sales and production goals)
Financial (financial goals/ expenditure)
Master (sales and production + financial goals)
