Funeral Managment Part 2

acquisition

inherited or bought company

accounts payable

unwritten promise to pay for something

accounts recievable

money customers owe you/you are owed

angel investor

supplies financing for a new or risky business

book value

cost of a fixed asset minus its depreciation

capital

financial resources available to the business

copyright

right of creator to reproduce, publish, and sell their work

current asset

cash or another form of asset that can be turned into cash (liquidated) and used within a year

debt capital

any borrowed or loaned capital (AKA debt equity)

Earning valuation approach

estimating the business’ income over 5-10 years

EBITDA

firm’s profits after subtracting CoGS, and cash operating expenses but before interest expense, taxes, depreciation, and amortization

equity capital

available for investment - AKA personal capital

Fair market value

value for which personal property would be sold in a transaction by the reasonable person standard

fixed asset

property of a permanant natureused in business operations, such as buildings or equipment.

goodwill

an intangible asset like the name of a funeral home

Liabilities (accounting)

any debt that a business owes to another party

liquidation value approach

anticipated value of a asset that would be realized in the case of the liquidation of the business

market value approach

value based on previous sales of other businesses

operating expenses AKA overhead

maketing and administrative expenses while accounting for depreciation

patent

registered right to make, sell, or use an invention

Replacement Value approach

fair market price to purchase a simillar buisness to help determine value

Trademark

distinct symbol with exclusive use

useful life

the life of a fixed asset

Venture capitalist

anyone who sponsors a new business

Working/Circulating capital

difference between current assets and current liabilities

Working capital versus fixed

WC circulates in and out as business goes on - current assets minus liabilities

FC - not consumed and replenished through the business

advantages of aquiring a business

reduced start up costs and quicker cash flow, less uncertainties and established relationships

disadvantages of aquisition

cost of purchase is higher and there may be hidden problems

examples of intangible assets

goodwill, brand, copyright, trademark or a non-compete clause

two types of financing available to a small business

debt financing and equity financing

disadvantages to debt finanacing

must make your payments even if business is low, few oppurtunities for growth and FH upgrades

angels verses venture capitalists

AI: small amt, big risk

VC: bigger amt, more established firm

how to make finanacing more affordable

lease your equipment and rolling stock, buy the business and the land seperate, sell any excessive stock

common sources of equity capital

VCs, angel investors, earnings, partners

sources of debt capital

third parties, your own money, help from the gov, local business groups

advantages to equity financing

no loan, investors bear all the risk, partners bring more knowledge

advantages to debt financing

lenders stay out of your business, payments are easily planned for, and interest is tax deductible

disadvantages of equity finanacing

potential for conflict, lack of sole control, must share profits

account/normal balance

difference between one’s debit and credit

accounting

ways of communicating financial info

the accounting equation

assets = liability plus the owner’s equity

accural accounting

recording expenses and income with each fiscal period, regardless of when the transaction was acted upon - only when the obligation was created

accrued expense

occured in a fiscal period, but not yet paid

asset

any kind of property of monetary value

bed debt

accounts receivable that are uncollectable

Chart of accounts

a list of all accounts and account numbers

Credit

an agreement of future payment

Goes on the right side (decrease) on an account balance

current liabilities

debts paid within a year

debit -

left side of a T-account - increases account balance

dual-entry method

dual effect of a transaction - loss/gain of each account

drawing account (owner withdrawals)

where withdrawals of the owner for personal use are recorded

expense

decrease in assets - things like rent, wage, utilities, are debited

fixed liabilities

liabilities not due within a year

general journal

the journal of accounts

income (revenue)

inflow of cash/assets - not yet collected money

owner’s equity

difference between total assets and liabilities - owner’s investment/interest in the company

paid-in-capital

amounts invested by the owner

posting

data goes from journal to ledger

recording (data entry)

data entry for transactions

transaction

an exchange of things of value

trial balance

proving equality of debt and credit in the ledger

examples of fixed assets

buildings, crematory, fixtures

how to determine normal balance of an account

debits minus credits on an account = the normal balance

How does credit entry effect an cash/asset account?

Decrease in the asset account balance

How does a credit effect a capital/revenue/income account?

increase in the account balance

how does a credit entry affect a drawing/expense account?

decreases the account balance

how does a credit entry affect an accounts payable/liability account?

Increases the account balance

how does a debit entry effect a cash/asset account?

increases the balance

how does a debit entry effect a drawing/expense account?

increases the account balance

how does a debit entry effect an income/revenue/capital account?

decreases the account balance

how does a debit entry affect an accounts payable/liability account?

decreases the account balance

examples of tangible assets

cars, caskets, the embalming machine, etc.

another term for revenue is…?

Income

which accounts are part of the expanded accounting equation and effect on the owner’s equity?

Capital, Drawing, Revenue, Expenses

liabilities + owner’s equity + revenue - expenses - withdrawals = assets

accounts receivable turnover

how many times receivables are collected in a fiscal period

acid test ratio

quick assets divided by current liabilities

activity analysis

how effectively a business manages its resources

adjusting entries

entries that adjust/update ledger at the end of the fiscal period

ex: bought 500 dollars worth of office supplies but only used 250 dollars

age of accounts receivable

average time to collect AR

balance sheet

made on a specific date - outlines assets, liabilities, OE, and is also known as a statement of financial position

cash flow

cash geberated and used during a period

closing process

giving a 0 balance to temp accounts to start fresh for the new fiscal year

cuurent ratio

current assets divided by current liabilities - it is a measure of liquidity

fiscal year

12 month period with any start and end date

gross profit

net sales minues the cost of goods sold

historical cost

transactions need to be entered and reported at their OG cost

horizontal analysis

compares the same item on two or more financial statements to observe year to year changes

income satement

presents income and expenses to calculate net profit - AKA statement of operations

liquidity analysis

analuzes the ability of a firm to meet its current obligations/pay off debts

net income

difference between income/profit and expenses when the profit is bigger

net loss

difference between profit and expenses when expenses are bigger

permanant account

used to accumulate financial transaction info across fiscal periods

post-closing trial balance

work paper done after temp accounts are closed and permanent ones are balanced - proves equity of debits and credits

pro-forma financial statements

projects future financial statements

profit margin

ability to turn sales revenue into profit - net income divided by net sales

profitability analysis

earnings potential of a company and its overall effectiveness

ratio analysis

evaluation of financial statements to determine the strength of the business

statement of owner’s equity

specified period of time - records all changes to owner’s equity

temp account

used to accumulate info until it’s transferred to the owner’s capital account

vertical analysis

focus on individual itens expressed as a percentage of a specific item on the same statement