Chapter 1 Flashcards
Different businesses will need to know different information to function correctly, what 3 requirements will be informed by the organisations?
- The size of the organisation
- Their strategic goals
-Legislation and regulations
Management information is provided to assist management in fulfilling what 3 main roles
Planning, Control and decision making
What detailed information will be needed to help management plan the operations of the organisation
Past, present and forecasted information
What kind of information will help to develop and organisation
Sales revenue, targets, Labour time - cost, material usage and cost, expenses and overheads
How will management make sure that targets are being met and achieved
Make comparisons periodically between the budget and actual achievements
What information could the accounting department provide to management to help them appraise if an organisation is meeting its plans?
Volume of sales made
Volume of inventory
Number of Units sold
Labour costs
Cost of materials
What is a long term decision
Decisions made by management that will assist with the strategic goals of the organisation, they are decisions about the whole company and consider reaching goals in 5-10 years time
What are short term decisions
They are decisions that help with the day to day running of the business, they will help towards reaching goals in the long term
What might some be of the long term decisions in a large manufacturing organisation
Which products to make/sell
What new machinery to invest in or new processes/facilities
Which markets to sell in
How to raise the finance
What short term decisions may be made within a manufacturing organisation
Staff levels
Pricing
Overtime arrangements
Suppliers
Working hours
Supervisor responsibilities
What is the equation for Gross profit percentage
( Gross profit / Revenue ) x 100
What is the equation for Gross Profit
Sales / cost of sales
What is the equation for operating profit percentage
( Operating profit / revenue ) x 100
Falling margin might be due to …
Increased costs or reduced selling prices to increase market share
Increased gross profit margin will be due to
Increased selling prices relative to direct costs
What is the Return on Captial Employed equation
( Operating profit / Capital employed or TALCL) x 100
TALCL - Total Assets Less Current Liabilities
What information does the return on Capital Employed give you
Measures how much profit is generated for every £1 of assets employed.
Indicated how efficiently the company uses its assets
It is the other ratio that compares profit to the overall size of the business and is sometimes called the primary ratio
What is the current ratio and what’s it for
Current assets / Current Liabilities
Usually show as a ratio
Gives an indication to liquidity by showing how many times the current liabilities are covered by current assets
What is quick ratio
( Current assets - inventory ) / current liabilities
What is inventory holding period and turnover
( Inventories / Cost of sales ) / 365 days
It shows the average number of days inventory is held before it is sold
The holding period will vary greatly depending on the industry
What is receivables collection period
Trade receivables / revenue. x 365
It shows the average number of days the customers take to pay
What is the payables payment period
(Trade payables / Cost of Sales ) x365
Shows the average number of days the business takes to pay their suppliers
What is gearing
It measures the percentage of debt to the total financing.
High gearing - less profit available
(Non-current liabilities / equity + non current liabilities ) x 100
What does ACCURATE stand for
Accurate - information provided needs to be as accurate as possible
Complete - the full picture of information is needed to make good decisions
Cost effective - sometimes more accurate info can be obtained but it can be more expensive to do so
Understandable - the format, detail and presentation of information must be in a style which is understandable to the user
Reliable - the source of the info may determine how reliable it is
Accessible - user should be able to access the info that is required
Timely - up to date info is needed in a timely manner so accurate decision can be made
Easy to use - presentation and format can influence the ease of use.
What is the difference between data and information
Data is raw facts, unprocessed
Information is data which has gone through some form of process and is meaningful
What is primary data
Information collected specifically for your own purpose, ie market research
What is secondary data
Information is not collected specifically for your purpose but for someone else or for another reason, ie government statistics on births
What is an internal source information
Information gathered within an organisation such as accounting information about customer purchases or product information
What is external sources of information
Information gathered from outside the organisation, IE information about tax rates and market demand info
What is financial accounting
The recording, summarising and presentation of financial information
What is cost accounting
Recording and preparing information on the costs incurred within an organisation, can be used to assist with cost control decisions
What is management accounting
This is concerned with the production of financial reports to assist managers with their planning, control and decision making roles
Give an example of tasks typically associated with management accounting
Budgets
Forecasting
Variance analysis
Material price/ usage
Give examples of task’s typically associated with financial accounting
Statement of P&L
VAT return
Producing reports
Bank Reca
Cash flow
What is a responsibility centre
Parts of the organisation which information can be obtained and performance can be measured and a manager is responsible for planning, control and decision making
What is a cost centre
A production or service department or location for which costs can be ascertained
What is a revenue centre
A production or service department or location for which revenues can be ascertained
What is a profit centre
A production or service department or location for which costs and revenues can be ascertained, so it is possible to establish the profit they have made
What is an investment centre
A production or service department or location for which costs, revenues and investments can be ascertained. They will receive money from the central head office and will operate the centre as a business on its own
Why is legislation important
It’s a fincance function to ensure compliance with the regulatory and legal framework. And helps to minimise penalties and protect an organisations reputation
What is working capital and what does it comprise of
The day to day financing of an organisation which is used to keep the business running smoothly, it comprises of
Inventory/Stock
Receivables/debtors
Payables/creditors
Bank and cash
How can you manage working capital
By working within our policies on
Credit periods offered to customers
Credit control - chasing for payments
Level of inventory held
Payment to suppliers and credit period taken
Overdrafts/ investments
Why is inventory an important function in the smooth running of a business
Making sure it is effectively managed will ensure the business does not run out of finished goods, and also raw materials
Why is planning an important function in the smooth running of a business
Planning the numbers of products to be made and ensuring the business makes the best use of its resources.
Which is costing and important function in the smooth running of the business
It enables the business to make the products which make a profit and to set selling prices to cover all costs
Why are procedures important for the smooth running of a business
By establishing procedures for authorisation and ordering with responsibility assigned
What is gross pay (payroll )
The initial calculation made for each employee
What deductions are compulsory in the payroll
Income tax - PAYE
National insurance contributions
Give 2 examples of voluntary deductions in payroll
Pension contributions
Saving schemes - SAYE
What is net pay
The net sum after all deductions that will be paid to each employee
