Chapter 13 - Management of Financial Resources Flashcards
Auditing
Independent review of accounting records.
Cost accounting
Determination and control of cost.
Financial accounting
Reporting of transactions for an organization and the periodic preparation of various reports from these records.
Managerial accounting
Uses historical and estimated financial data to assist management in daily operations and in planning future operations.
Selected Accounting Principles
Principles that help provide consistency to the preparation of financial statements.
Business Entity Concept
Accounting Principle: Assumes that a business enterprise is separate from the person or persons who supply its assets, and the financial records of each are distinct.
The Fundamental Equation
Accounting Principle: Assets = Liabilities + Owner’s equity
Going-Concern Concept
Accounting Principle: The value of a company’s assets is its ability to generate revenue rather than the value the assets would bring in liquidation.
Money as a Unit of Measure
Accounting Principle: Money is the unit of measure (revenue)
Cost Principle
Accounting Principle: Recording transactions or valuing assets in terms of dollars.
Cash Bases of Accounting
Accounting Principle: Recognizes a transaction at the time of cash inflow or outflow.
Accrual Bases of Accounting
Accounting Principle: Recognize revenue when earned and expenses when incurred regardless of when cash is dispersed).
Matching Revenues and Expenses
Accounting Principle: Matching revenues with all applicable expenses during the accounting period in which they occur.
Depreciation
Accounting Principle: Costs associated with the acquisition and installation of a fixed asset are allocated over the estimated useful life of the asset.
Adequate Disclosure
Accounting Principle: Financial statements and their accompanying footnotes or other explanatory materials should contain full information on all data believed essential to a reader’s understanding of the financial statement.
Consistency Principle
Accounting Principle: Once an organization chooses an accounting method, it should be used from one period to another to make financial data comparable.
Materiality Principle
Accounting Principle: Information must be accounted for if they make a difference to the user of financial statements.
Conservatism
Accounting Principle: The concept of moderation in recording transactions and assigning values.
Basic Financial Statements
Balance sheets and Income statements
Balance sheets
a statement of assets, liabilities (debt) and owner’s equity.
Assets = Liabilities + owner’s equity
Liabilities
the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.
(Debt)
Assets
represent value of ownership that can be converted into cash.
(Resources)
Equity
the value of an asset less the amount of all liabilities on that asset.
Income Statement
Reports the revenues, expenses and profit or loss as a result of operations for a period of time.
Revenues
the income that a business has from its normal business activities, usually from the sale of goods and services to customers.
Break-Even Analysis
A tool for projecting income, expense, and profit under several assumed conditions.
Can assist in understanding the interrelationships among volume, cost and profit.
Break-Even point
The point at which an operation is just breaking even financially.
Fixed Cost
Costs required for an operation to exist.
Variable Costs
Costs that change in direct proportion to the volume of sales.
Contribution margin
Proportion of sales that can contribute to fixed costs and profits after variable costs have been covered.
Budget
Plan for operating a business expressed in financial terms
Operating Budget
Short term, A detailed projection of all estimated income and expenses based on forecasted sales revenue during a given period (usually one year). It generally consists of several sub-budgets, the most important one being the sales budget, which is prepared first.
Capital Budget
The process of determining and evaluating potential expenses or investments that are large.
