Financial Accounting and Business Plans Flashcards
What is Financial Accounting???
the process of recording / analyzing the financial data of a business.
Management Accounting is…
concerned with costs and benefits of activities of an enterprise.
The flow of money in a company is measured…
- Through variables that is variables that are measured with respect to time using an INCOME STATEMENT summarizes the companies revenues and expenses over a period of time
- Across variables that is variables that are measured at a point in time using a BALANCE SHEET. A document that shows the company’s financial position at a particular time.
Owners’ Equity is equal to
Assets – Liabilities
Three basic ways to structure a business…
- Sole proprietorship
- Partnership
- Corporation
Sole proprietorship
- Business owned by one person.
- Simplest and least regulated form of business.
- Owner keeps all of the profit but at the same time has UNLIMITED LIABILITY
Partnership
- Business owned by two or more people.
- All profits and losses are shared according to the PARTNERSHIP AGREEMENT
- In a limited partnership, some partners are only involved as investors.
***Limited partners have limited liability
Corporation
- Owned by shareholders.
- Board of directors responsible for selecting managers to run the business.
- It is a business entity with its own rights and responsibilities, separate from the owners.
***Owners have limited liability up to the amount of their investment.
Profits is equal to…
Revenue – Expenses
***After deducting taxes we arrive at NET PROFIT/INCOME
Working capital =
current assets − current liabilities
Current ratio =
Current assets ÷ Current liabilities
***A current ratio of 2 is considered adequate.
Acid test ratio =
Quick assets (assets that are quickly converted to cash.)÷ Current liabilities
**An acid test ratio of 1 is considered adequate.
Debt management ratios are…
ration that show the extent firm relies on debt.
Equity ratio =
Total equity ÷ (Total liabilities + Total equity)
therefore: Total equity ÷ Total assets
***The smaller the ratio the more dependent the firm is on debt
Step 1 of preparation Business Plan???
- Executive Summary
-Company’s mission statement
-Products and services that the company provides
-Overall financial health of company
-Future plans
Step 2 of preparation Business Plan???
Company Description
-Products/services and market needs
Why is the company necessary and who are the target consumers?
-Company’s HR capabilities
Experience and education of key employees
-Competitive advantages of the company
What Technology, location, production capability, and personnel makes the company stand out?
Step 3 of preparation Business Plan???
Market Analysis/Future Outlook
-What is out target market
-Future trends
Step 4 of preparation Business Plan???
Management, Structure and Organization of the business
Step 5 of preparation Business Plan???
Where is funding coming from???
-Owners and investors
-Banks and other financial institutions
-How company will attract investors for new projects or expansion.
Step 6 of preparation Business Plan???
Sales and Marketing
-Recognition and fulfillment of needs.
-Communication mechanisms (surveys, advertisements).
-Promotions
