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acct 230 > exam 2 > Flashcards

exam 2 Flashcards

1
Q

Financial Statement Analysis

A

a set of tools used to make the general purpose financial statements for useful for varied users

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2
Q

Horizontal Analysis

A

Focuses in the dollar amount and/or percent change in accounts on the income or balance sheet from year to year

Facilitates identifying trends

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3
Q

Vertical Analysis

A

Used to evaluate the relationship within a single financial statement

Expresses each item within a financial statement as a percent of a selected item

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4
Q

Ratio Analysis

A

Expresses the mathematical relationship between 2 or more financial variables

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5
Q

Liquidity Ratios

A

Provide a measure of a company’s ability to meet current obligations in a timely manner

  1. working capital
  2. current ratio
  3. acid test (quick)
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6
Q

Working capital

A

a widely used general measure for evaluating liquidity

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7
Q

Current Ratio

A

a widely used general measure for evaluating a company’s ability to pay short term liabilities with current assets

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8
Q

Acid-Test (Quick) ratio

A

measures ability to pay short term debt, but excludes less liquid current assets

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9
Q

Profitability Ratios

A
  • Provide a measure of the earnings or earning potentials of the company
  • significant to investors because they help evaluate if invested funds are being used efficiently
    1. gross margin percent
    2. net margin percent
    3. return on assets
    4. return on equity
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10
Q

Gross Margin Percent

A

provides a measure of the percent of sales that remain after inventory expenses are covered

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11
Q

Net margin percent

A
  • Provides a measure of the percentage of sales that remain after all expenses are covered
  • General Cost Control
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12
Q

Return on assets

A

measures the ability of the firm to earn a return on asset

provides a measure of how efficiently assets are bein gused

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13
Q

Return on equity

A

measure the ability of the company to earn a return on SHE

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14
Q

Debt Management Ratio

A
  • Provides insight into the ability of a company to pay ALL liabilities
  • Provides a measure of risk
    1. Times interest earned
    2. Debt to equity
    3. Equity Multiplier
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15
Q

Time Interest Earned

A

measures a companies ability to meet interest payments as they become due

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16
Q

A high Times Interest Earned ratio means

A

they are more likely able to make those payments

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17
Q

Debt to equity

A
  • Measure the relative proportion of financing provided by creditors as opposed to stockholders
  • Best measure of risk
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18
Q

Equity Multiplier

A

Indicates the portion of companies assets that are funded by SHE

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19
Q

Asset Management Ratios

A
  • Assess how well a company uses its assets
    1. Account Receivable Turnover
    2. Inventory Turnover
    3. Operating Cycle
    4. Total Asset Turnover
    5, Financial leverage
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20
Q

Accounts receivable turnover

A
  • Used to assess the liquidity of the receivables

- Determines if we are collecting them according to our credit terms

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21
Q

Average Collection Period

A

average number of days it takes to collect an account receivable

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22
Q

Inventory turnover

A
  • Indicates the liquidity of inventory

- measures the number of times, on average, inventory is sold in the period

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23
Q

Average Sale Period

A

Computes the average number of days it takes to sell the average inventory balance one time

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24
Q

Operating Cycle

A

Measures the elapsed time from when inventory is received from suppliers and when cash is received from consumers

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25
Q

Total Asset Turnover

A

Measures how efficiently a company’s assets are being used to generate sales

26
Q

Financial Leverage

A
  • Results from the difference in the rate of return on its assets and rate of return it must pay creditors on an after-tax basis
  • Is it good to borrow money
27
Q

Positive Financial Leverage

A
  • the return on assets exceeds the return paid to creditors

- means debt can benefit the stockholders

28
Q

Negative Financial Leverage

A
  • The return on assets is less than the return paid to creditors
29
Q

How to determine financial leverage?

A

return on assets v interest rate on the bond
return on assets v return on equity
- if the return on equity is greater than the return on assets, financial leverage is positive because a greater return was given to the stockholders

30
Q

Market Performance Ratios

A

Used by investors to assess and measure the earning and/or earning potential of the company

  1. earnings per share
  2. price earning
  3. dividend pay out
  4. dividend yield
  5. Book value per share
31
Q

Earnings per share

A

measures the amount of net income earned on each share of common stock

32
Q

Price Earning ratio

A
  • Measure the ratio of mkt price per share vs earnings per share
  • reflects an assessment of a company’s earning from perspective of the stock market
  • reflects investors expectation concerning the future
33
Q

dividend pay out

A

measures the percent of earnings distributed in cash dividends

34
Q

dividend yield

A

measures the rate of return from dividends earned by an investor who buys a share at the current market price

35
Q

Book value per share

A

measures the amount a common shareholder would receive if the assets were sold at carrying value and all creditors were paid

36
Q

ch5

A

ch5

37
Q

Job order cost system

A

use if we customized, our products are highly differentiated, or big ticket items

38
Q

process cost system

A

use if we mass produce, have homogeneous products, or in a continuous production process

39
Q

Operation Costing System

A
  • A hybrid system that employs elements from both job order and process costing
  • Use if products produced have some common and some unique characteristics
  • usually assign DM to each batch and DL and OH by department
40
Q

Similarity in Job Order and Process Costing

A

in the way production costs are recorded (WIP)

41
Q

Differences in Job Order and Process Costing

A
  • Method of assigning the costs to individual units of inventory
42
Q

Process Costing: assigning cost to units

A
  • Must be recorded as WIP in each department
  • Cost flow in sequence from one dept. to another
  • cost accumulate as inventory moves through departments
  • Must have WIP for each dept.
43
Q

For MGMT and Inventory Valuations….

A

cost must be allocated between completed units and end wip units

44
Q

Cost of production report

A
  • An internal document for management that shows production quantity and cost data for a department
  • Provides a basis for evaluating productivity and cost control of each dept., setting prices, etc.
45
Q

How often does process costing determine costs

A

every period

46
Q

weighted average method

A

average all cost over all equiv units

- Most Widely USed

47
Q

FIFO Method

A

Transfer to finished goods in 2 layers

  1. beginning layer
  2. current layer (calculate current cost/eu)
48
Q

TRANSFERRED IN COSTS

A
  • cost that were incurred in a previous process and brought in a later process as part of the production cost
  • requires a separate cost/eu
49
Q

Traditional (conventional) costing

A

allocates manu OH costs to products based on the activity that causes costs to be incurred

50
Q

Activity/Cost Pool

A

any event, action, transaction, or work sequence that incurs cost when producing a product

51
Q

3 key differences: traditional vs ABC

A
  1. Under ABC, some non-manu cost may be assigned to products ( if a definite cause and effect exists)
  2. Under ABC, some manu cost may not be assigned to products (if the cost is not caused by producing the product)
  3. ABC uses numerous OH rate
52
Q

ABC hierarchy of costs

A

classifies costs into 4 activity levels

facilitates the allocation of OH costs to appropriate cost pools

53
Q

Unit level activity: Example

A
  • electricity to power machines
  • indirect material used
  • products assembled by hand
54
Q

Batch Level activities: examples

A

process purchase orders

setting up machines

55
Q

Product level activity: examples

A

maintaining parts
product design and redesign
issuing engineering change notices

56
Q

Facility level activity: examples

A
  • factory management salaries
  • insurance costs
  • depreciation
  • maintenance on general purpose machines
  • security guards
57
Q

benefits of ABC

A

more accurate product costing

enhanced control over OH costs

58
Q

Limitations of ABC

A

Very expensive

Some OH costs are still allocated by arbitrary volume based cost drivers

59
Q

Factors that show that ABC is cost effective

A
  • product lines differ greatly in volume or manufacturing complexity
  • OH costs constitute a significant portion of total costs
60
Q

ABC serving customers

A

assign customer related cost to specific customers

customer support, service calls, sales calls, evaluating credit

61
Q

ABC serving suppliers

A

assign supplier related cost to specific suppliers

reordering, expedited shipping, warranty work

acct 230 (1 decks)

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