accounting exam 2!

ratios for evaluating liquidity, activity, profitability, leverage, etc.

current ratio

current ratio

current assets / current liabilities

acid-test ratio

quick assets (excluding inventory, supplies, prepaid) / current liabilities

arto (accounts receivable turnover)

net credit sales / avg. net receivables ((beg. ar + ending ar)/2)

ito (inventory turnover)

cogs / avg. inventory ((beg. inventory + ending inventory)/2))

average collection / sales period (for AR & INV)

365 days / ARTO, ITO

assets turnover

net sales / average total assets (year-to-year)

debt to total assets

total liabilities / total assets

profit margin on sales

net income / net sales

gross profit %

gross profit / net sales

return on assets

profit margin x asset turnover

earning per share

net income - preferred stock dividends / outstanding common stock

financial accounting

financial is based on segments of the business, past transactions, must comply with GAAP, reporting externally to users, is focused on balancing debits and credits.

managerial accounting

managerial utilizes other business discplines (econ and stats), is more future oriented, has less precision and accuracy, focuses on budgeting and forecasting, and reporting internally

what are the major components of managerial accounting?

planning, organizing & directing, controlling, decision making, strategic planning

planning

setting strategic objectives to help the company’s progression

organizing and directing

implementing the company’s plans to compete in the industry

controlling

monitoring and obtaining feedback

decision making

choose between alternatives

strategic planning

future-oriented, long-term vision and direction

what is the difference between line and staff personnel?

line personnel are employees who are directly engaging with the organization’s functions such as nurses in a hospital; staff personnel are employees that are indirectly related to the organization’s core functions such as the janitors who clean the rooms and hallway of that hospital

Does financial accounting data provide enough to compile some managerial accounting?

Yes and no. Although it does not have everything, much of the managerial accounting decisions are based on the accuracy pf the financial accounting.

decentralization

delegation of decision making; allowing managers at various levels to make key decisions in their field

organizational chart

visual alignment of a firm’s organizational structure which depicts the responsibility, communication, and reporting in all relationships

direct labor

cost of labor used to manufacture products; both a prime and conversion cost

indirect labor

all labor that does not relate to manufacturing within the factory; cannot be traced to the finished goods, but must be allocated

direct materials

the cost of raw materials that is an integral part of the finished product; can trace to the final cost

product costs

non-expense until sold, placed on the balance sheet (CA) as an inventoriable

period costs

general & adminstrative costs (non-manufacturing), matched against the revenue in the period, expensed in the current period, and reduce net income

prime costs

costs directly related to creating finished products

conversion products

costs incurred when turning the raw materials into the product

direct costs

prime cost; costs that can be easily traced to a specific cost object

manufacturing overhead

indirect costs; all manufacturing costs except DM + DL; product related

what is the difference between a fixed and variable cost?

fixed costs do not change with activity whereas variable costs change with fluctuations in activity

Why might it be better to compare this year’s actual results to this year’s budgeted amounts?

The budget serves as an appropiate benchmark to know whether we are utilizing our resources and capital efficiently

COGS

must be a computation of what it cost you to make the finished goods that you sold

beginning inventory

finished goods; the products are sold and are now an expense

gross profit

the money / profit a company makes; how efficiently a company uses its labor to manufacture their products or provide services to clients

net profit / income

whether a company can make more than what it spends to survive; this is an indicator of profitability