Chapter 2 Flashcards
to provide information that allows decision makers to understand and evaluate the results of business decisions
Goal of accounting
it is to provide information in order to make decisions
Goal of accounting
they analyze financial statements to evaluate past financial performance and make future decisions
managers
Levels of analysis
Vertical analysis (common size financial statements)
horizontal analysis
it focuses on important relationships between items on the same financial statement. these items are compared vertically, from one account balance against another, and are typically expressed as percentages to reveal the relative contributions made by each financial statement item
vertical analysis(common size financial statements)
line items on this are generally expressed as a percentage of total assets
balance sheet
line items on the balance sheet are generally expressed as a percentage of
total assets
line items of this are generally expressed as a percentage of net sales
income statement
line items on the income statement are generally expressed as a percentage of
net sales
it is conducted to help financial statement users recognize important financial changes that unfold over time
horizontal analysis
it compares information horizontally, from one period to the next, with the general goal of identifying significant sustained changes
horizontal analysis
formula of horizontal analysis
current year - base year /base year
conducted to understand relationships among various items reported in one or more of the financial statements
ratio analysis
it shows the evaluation of the companys performance given the level of other companys resources
ratio analysis
these are best compared with both historical and industrial averages
ratios
the primary goalsl of this is to improve performance and profitability in the future
gross profit variance analysis
profit can be
gross profit (if absorption costing)
contribution margin (if variable costing)
profit is affected by three basic items
sales price
sales volume
costs
sales mix
is considered a better measure of product profitability because it deducts from sales revenue only the variable costse
contribution margin
three ways in solving for the factors that affect gross profit
3-way variance analysis
4-way variance analysis
6-way variance analysis
the three subparts of 3-way variance analysis
price factor
cost factor
volume factor
the four subparts of 4-way variance analysis
sales price variance
sales volume variance
cost price variance
cost volume variance
the six subparts of 6-way variance analysis
sales price variance
sales volume variance
sales price-volume variance
cost price variance
cost volume variance
cost price-volume variance
it is obtained by dividing the number of units of each product budgeted by the number of total units budgeted
budget mix
