D196- Principles of Financial and Managerial Accounting

bookkeeping

day to day keeping of transcations

steps of decision making

identify issue

gather information

identify alternatives

select option that most likely results in desired objective

accounting

analysis of events

record and report financial effects of business activities

where does capital come from (3)

investors

creditors(lenders)

business itself (from earnings retained)

2 main types of accounting

financial and managerial

managerial accounting

gather and analysis of information for internal use and decision making.

financial accounting

gather, report, analysis of information for external users- investors and creditors. summary of a business

what does managerial accounting review

product cost, breakeven analysis, budgeting, performance analysis, outsource production

what does financial accounting review

credit analysis, financial health, estimate value of the company

examples of external financial reports for financial accounting

annual report, financial statement, balance sheet, income statement, statement of cash flow

balance sheet

reports assets and liabilities. basic.

list as of a point in time. as of today, as of yesterday

income statement

how much did you ,ake

period of time - from nov to jan

statement of cash flow

where did the cash come from and where did the cash go

period of time - from nov to jan

lender

lends money with intend to get it back plus interest. need current income, existing obligations, existing assets, payroll stub, tax return, monthly payments, bank stmts

investor

buys into your company. looks at if the business is profitable, what they are buying, buying obligations, potential future projections

what forms will the manager of a business use

both financial and managerial

fasb- what does it stand for, who are they and what do they do

financial accounting standards board

private group, not govt agency, no legal authority, conducted of people from a variety of business related backgrounds.

establishes financial accounting and reporting standards for private sector companies

1 of the two boards that make up GAAP

gasb- what does it stand for, who are they, what do they do

governmental accounting standards board

sets accounting and financial reporting standards for state and legal governments.

authority over financial reporting by government entities

1 of the two boards that make up GAAP

gaap

generally accepted accounting principles

sec

Securities and Exchange Commission

regulates us stock exchange. provides investors with full and fair information about publicly traded companies.

legal punishment

iasb

International Accounting Standards Board

develop international accounting standards. made up of members from many countries

aicpa

american institute of certified public accountants

administers the cpa exam.

enforces professional sanction by taking away cpa license when acted unethically.

role and purpose of accounting

accumulate and report on financial information about performance, financial position, cash flow of a business. used to reach decisions about how to manage the business, invest in it, or lend money to it

what is a balance sheet

statement of what they have and how they financed it at a specific point in time.

balance sheet equation

assets = liabilities + owners equity

what are assets and examples

what they own or control that will provide probable future benefits

cash, accts receivable, inventory, buildings, land.

what are liabilities and examples

what we owe. obligations that require future sacrifice.

phone bill, car loan, accts payable, fed and state govt tax, mortgage, unearned revenue

what is owners equity and examples

owners share, stockholders equity, how much owner originally invested in business + how much profit they have left

capital stock- amt given by shareholders to obtain shares of stock(capital=$ so money from stocks)

retained earnings- earnings retained in business, ex= net income

do dividends increase or decrease owners equity

decrease

does investments by owners increase or decrease owners equity

increase

what is an income stmt

analyzes economic performance for a specific period of time. statement of income. revenues, expenses, liabilities.

equation for net income

net income= revenues - expenses

does revenues increase or decrease net assets

increase

does expenses increase or decrease net assets

decrease

what is revenue

amount of assets created from sale.

products, membership, software, hardware, etc

what are expenses

amount of assets consumed in generating revenues.

wages, utilities, wholesale cost

if revenue exceeds expenses what happens

you get net income

if revenue is less than expenses paid, what happens

net loss

how to find net income or net loss

revenue- expenses= if + net income, if - net loss

gross profit and loss

difference between sales and cost of good sold. retail price-wholesale cost to buy.

sales- cost of goods

operating income and equation

day to day basis

sales- cost of goods sold- operating expenses

non operating expenses

interest and income taxes

no connection with specific nature operating business

EPS definition and equation

earnings per share

net income/ outstanding number of shares of stock

gains

making money from activity outside natural activities of busines

statement of cash flow

how cash changed from beginning to end and why cash in(receipts) and cash out(payments) from operating, investing, financing

operational activity; inflow and outflow

day to day activities

operation cash inflow selling goods, providing services,

operation cash outflow wages, utilities tax

investing activity; inflow and outflow

inflow selling buildings, selling land

outflow buying buildings and land

financial activity; inflow and outflow

inflow borrowing $, receiving investments from owners

outflow repaying loan, dividends,

cash inflow

receiving cash investments form owners, cash from bank when borrowing $, cash from customers, cash from sale of old machines, buildings, etc

cash outflow

paying to buy new machines, buildings, paying employee wages, suppliers for inventory purchases, interst on loans, principal on loans, dividends

stmt of retained earnings

accumulated profit and loss since business started. links income stmt and balance sheet together. from one accounting period to the next.

beg. retained earnings + net income for period - dividends paid during

what does sec do

monitors securities market and financial disclosures

form 10k, what is it, where is it found, how often

annual filing, tells what the business does and products and services sold/offered, risk of company,

properties owned, legal proceedings, mngmt discussion fo how company is doing and future outlook, financial stmts,

file w/i 60 days of fiscal year

sec website

form 10q

quarterly unaudited financial reports covering the most current quarter

filed quarterly

cik- what does it stand for and what is it

central index key

unique indentifying number for each company in sec EDGAR system

when looking at a balance sheet, what is used for property, current market value or original market value

original market value

current vs long term format

current typically = within a year

long term typically = more than a year

what is a classified balance sheet

list everything by current and long term. current is listed first then long term

liquid

cash available now

illiquid

cash not easily available

current assets

cash, expected to be converted w/i a yar

long term assets

property and equipment

current liabilities

obligations to be satisfied

long term liabilities

mortgage

comparative financial stmts

current year and preceding year to identify particular items

expanded accounting equation

assets = liabilities + ( capital stock + cumulative net income - cumulative dividends)

retained earnings

business earnings that have been retained in business and reinvested back into the business to become inventory, equipment, and to pay down debt

what is the best way to measure a companys economic performance3

net income

financial statment analysis

examining both reationship among financial statement numbers and trend in those numbers over time.

predicts how the compnay will do in the future compared to other companies in same industry

common size financial stmts and types

dividing one number by another to get a percentage

horizontal and vertical

horizontal analysis

year to year. comparing percentages over time for same companyl

year 2- year 1 / year 1 = %

looking for large change in % and directional changes compared to sales

how is a common size income statement created

by dividing all income statements amounts for a given year by sales for that year

what are vertical analysis of financial stmts

displaying each line item as a percentage of another for comparison to other companies in the same industry

how does vertical financial stmt analysis inform your understanding of a companies performance

tells you what questions need to be asked about a companys performance

vertical analysis allows an accountant to determine how much expenses are changing related to which line item on the income statement

total sales

what is a vertical analysis

analyzing companies in the same industry at the same point in time

for income statement, what is equations for vertical analysis

/ all # on stmt by biggest number. typically total revenue

for balance sheet, what is equations for vertical analysis

/ all of numbers by total assets (typically biggest number)

how many years of income stmts and balance sheets does sec require

3 years of income stmt

2 years of balance sheets

how is each amount calculated in a comon size income statement

each amt is expressed as a percentage of sale for the year

is revenue cash or sales

sales

purpose of an income statement

shows results of operations of a company over a period of time

which is an expense: cash, accounts payable, cost of goods sold

cost of goods sold

what is the definition of an expense

amount of assets consumed through business

which group establishes financial accounting rules in us

fasb- financial accounting standards board

what is the impact of expenses on the account equation

expenses decrease owners equity

which types of account are accounts pyble and notes pyble examples of

liability

how is gross profit computed

sales minus cost of goods sold

what is accounts payable

the amount owed by a company that puchased goods or services from a supplier on credit

forecasting inflow/outflow

1st step in determining if company will experience cash shortage or surplus in future

budgeting cash receipts

accounts receivable, allows forecasting cash receipts and develop cash budget which allows company to anticipate $ needs

cash budget

short term schedule of expected cash inflow and outflow during period

who needs a budget more: start up company or a well established company

a start up company

budgeting

estimating how much revenue will be received or how many products will be sold & determining how much production must occur to meet that demand

Master budget begins with what

sales budget

sales budget

what are we going to sell; start budget; forecasting sales, hardest part of the budgeting bc all other budgets follow this one. if inaccurate, the other budgets will be too.

production budget- what is and equation

how are we going to pay for forecasted sales, how many workers needed, etc. now we know how much we need we can determine how many units needed to make during this period by seeing how many units you already have on hand, and how many units you would like to have at the end

units anticipated to sell + units needed on hand at end - how many you already have on hand

direct materials budget- what is it and equation

now that we know what we need and how much more to make we start to look at what materials are needed to make these products. raw materials we have and how much more we need

rm needed this period + rm needed at end -rm on hand at start= how much more we need(y)

x* how many units needed to make it - beginning inventory

direct labor budget

schedule of direct labor requirements for budget period.

units needed to produce * hours of labor per unit / # of hours per week to work / 4 weeks in a month = how many employees needed

Manufacturing Overhead Budget

production cost other than direct labor and materials. supplies by office staff, salaries.