Ch.13 Financial Management Flashcards
Why do business owners use financial statements?
They’re invested in the business
Why does the board of directors use financial statements?
elected to oversee operations and business decisions
Why do managers use financial statements?
concerned with addressing daily and long -term success of decisions
Why do creditors use financial statements?
concerned with payment obligations will be met when money/goods are lent to organization
Why do employees use financial statements?
Assess company’s ability to meet wage and benefit demands
Why do governmental agencies use financial statements?
concerned with financial data related to taxation and regulation
Define a private company
- owned by non-governmental organizations/ relatively small number of shareholders
- does not offer company stock to the general public
- more leeway regarding transparency
define public company
- issued/ sold portion of itself to public through public shareholding. - Public companies, not-for-profit organizations and public sector organizations, particularly governments are held to higher standard of accountability than a business.
- financial statements must be made publicly available
How does not for profits accounting work?
do not operate for anyone’s personal financial gain. Excess revenues over expenses are not distributed to those who contributed to support through taxes or voluntary donations, but are used to further the purposes of the organization.
What is a balance sheet?
statement of assets, liabilities/debts, capital/owner’s equity at a given time or at end of accounting period
what kind of statement is a balance sheet and why
static statement
- because it presents the financial position at a specific date or time
what kind of statement is the income statement and why?
flow/dynamic statement bc operating results over time are presented
what are current assets?
cash and all assets that will be converted into cash in a year
what are long term assets?
those of permanent nature, most required to generate revenues for business; not intended for sale
what are examples of long term assets?
-land
-buildings
-furniture/equipment
(goes through accumulated depreciation)
what are examples of current assets?
-cash
-accounts receivable (or expected to receive)
-inventory
-prepaid expense (insurance, rent)
Define liability
obligation of the company- amounts owed to creditors for a past transaction
what is a current liability?
those that must be paid within a year, including items as accounts payable for merchandise
what are accrued expenses? Give examples
part of accounts payable and are due but not paid at end of accounting period
eg. salaries, wages, interest
What are fixed or long term liabilities? give example
obligations that will not be paid within current year.
eg. bank loan, mortgage for building/land
what are examples of current liabilities?
- accounts payable
- interest payable
- tax payable
define internal standard of comparison
evaluate performance compared to budgeted performance, past performance, pre-established department standards, or other metrics within an organization
define external standard of comparison
evaluate performance compared to similar operations/industry performance
what are fixed costs? give examples
expense items that don’t vary with sales volume and are always expressed in dollars.
eg. cleaning, insurance, rent, property tax
what are variable costs? give examples
expense items that change with sales volume and are expressed as percentage of sales.
eg. food costs, commissions, delivery feeds, marketing
what are semi-variable costs? give examples.
costs that are not strictly fixed/variable
- portion will be fixed regardless of changes in sales volume and some will vary
eg. labour costs, utilities, maintenance
Define what a menu is
list of food items; primary control of foodservice operation
what makes up food cost?
sum of raw ingredients that go into food
- should equal 30% of sales/revenue
- can be monitored weekly, monthly, annually
what are the functions of labour in a food environment?
- food prep
- food service
- dishwashers
- mgmt
-dietitian
what are the labour challenges in FS?
-peaks in service demand
-seasonal variations
- food is perishable before/after production
- unskilled/semiskilled personnel
-high turnover
what are the approaches to control labor costs?
-increase use of convenience foods
-decrease # of items on menu
- improve efficiency of facility layout/equipment
- using tech to replace labour
-increase employee benefits
how can labour costs be controlled by mgmt?
- clarifying roles, responsibilities, expectations for employees, proper planning and forecasting
- cross training
define budgeting
detailed plans for obtaining and using financial resources during a specified period of time; shows overall structure of operation and enables staff to visualize their place in it
what are the types of budeting?
- conventional (incremental) budgeting
- zero based budgeting
what is conventional budgeting?
uses previous budget and updates it with % (set or variable)
what is zero-based budgeting
budget starts from scratch; any expense/revenue source added to budget must be justified; more time consuming and costly
what are the 3 types of budgeting?
operating, capital, cash budgets
what is an operating budget?
includes every input that goes into the business; how much will be spent on all costs along with total projected sales and their origin
what are capital budgets?
includes improvements, expansions, and replacements in building, equipment, and land.
what are cash budgets?
details estimates of anticipated cash receipts and disbursements during budget period.
- assists coordinating cash inflow/ outflow, synchronizing cash resources, planning financial requirements of large payments, indicates availability of funds for short-term investments.
what is variance analysis?
compares actual results (the final budget) with expected results (the initial budget), illustrating differences between what actually happened and what was planned
what is negative variance?
when actual expenses exceed budget costs
what is positive variance?
when expenses were less than budgeted
what does menu pricing cover?
cost of food, labor, additional operating costs
- perception of value and competition
