Financial accounting
Provides the information to decision makers which are external to the business. They need information such as the performance of the business, and the advisability of retaining their investment in the business. Share holders determine to buy more or less
Managerial Accounting
responsibilities.
1. Wether to build a new plant
2. how much to spend for advertising, research and development.
3. wether to lear or buy equipment and facilities.
Balance sheet
shows the firm's assets, liabilities, and owners equity.
Assets
valuable resources that a firm owns or control
Inventory
merchandise acquired that is to be sold to costumers.
Liabilities
obligations of the business to convey something of value in the future
Accounts payable (liability)
Things that a business owes.
Notes payable
formal, written obligations-loans that a business has.
Owner's equity
refers to owner's interest in the business. It is a residual amount that equals assets minus liabilities.
Income Statement
summarizes the earnings generated by a firm during a specified during a period of time.
Revenue
inflows of assets from providing goods and services to customers
Cost of goods sold
cost of merchandise sold to its costumers
General and administrative expenses
include salaries, rent, and other items..also knowns as overhead cost
net income
the differences between revenue and expenses
the statement of cash flows
summarizes a firm's inflows and outflows of cash has 3 sections: Operating activities, investing activities, and financing activities
Basic Accounting Equation
Assets= Liabilities + Owner's equity
Expenses
occur when resources are consumed in order to generate revenue
Transactions that affect owner's equity
Owners contributions, owner's withdrawal, revenue, and expenses
Retained earnings
contains the effect of revenue and expense transactions on shareholders' equity. That is, it reflects the increase (or decrease) in the shareholders interests in the firm that arose from operations since the firms inception.
Cost object
is any activity or item for which we desire a separate cost measurement.
Product Cost
The Cost that various products a company sells
direct cost
a cost that is easily traced to individual cost object
indirect cost
cost that supports more than one cost objective
Examples of cost
Activity cost- repairing equipment, testing manufactured products for quality
Product cost- paper towels, personal computers, etc (these can be either purchased or manufactured products
Service Cost- Performing surgery, accounting work, legal work
Period Cost
are all the costs a company incurs that are not considered product costs. They include selling and administrative expenses, but not any costs associated with acquiring product or getting it ready sell. For Payless shoes source this would include costs of
Selling Cost
Includes the cost of locating customers, attracting them, convincing them to buy, and the necessary paperwork to document and record sales. Examples-include salaries paid to members of the sale force, sale commissions, and advertising.
Administrative cost
includes all costs that are not product or selling costs. These cost are typically associated with support functions-areast that offer support to the product and selling area, such as accounting, finance, human resources, and executive functions.
Comparing product and period cost
the distinction b/w these is based on wether the cost in question benefits the process of getting products ready for sale (product) or selling and administrative functions (period).
Direct Material cost
the cost of all materials that can be traced directly to a unit of manufactured product.
Manufacturing overhead cost
is all the cost associated with the operation of the manufactory facility other than direct material cost and direct labor cost. Ex- For ford's mustang, manufacturing overhead cost would include a portion of costs for the factory's security, telephone, el
Raw Materials inventory
consist of materials that have been purchased but have not yet entered the production process
Fixed Cost
cost that remain constant in total regardless of activity.
Variable Cost
cost that change in total proportionately with changes in the level of activity
Total Cost
Total Cost= Fixed Cost + Variable Cost
Relevant Range
the range of activity within which cost behavior assumptions are valid
Mixed Cost
cost that has elements from both fixed and variable.
Contribution Margin
is the amount remaining after all variable costs have been deducted from sales revenue.
Budget
a formal written statement of management's plans for specified future time period, expressed in financial terms.
Cash budget
shows anticipated cash flows-most important
Sales budget
derived from the sales forecast. represents the managements best estimate of sales revenue for the budget period.
Master budget
a set of interrelated budgets that constitutes a plan of action for specified time period
financial budgets
capital expenditure budget, the cash budget, and the budgeted balance sheet. these budgets focus primarily on the cash resources needed to fund expected operations and planned capital expenditures.
cost-volume-profit analysis
the analysis of the relationships b/w cost and volume and the effect of those relationships on profit
Helpful equations
CM - NI = FC
Sales-Variable Cost= CM
Revenue= FC+VC
Total Cost = Fixed Cost + Variable Cost
Total Assets= Owners equity + Liability
Owners equity= Assets - Liability
Break Even= Fixed Cost/Contribution Margin per unit
Dividends
Payments made by a corporation to it's shareholders
Direct labor cost
is the cost of all production labor that can be traced directly to a unit of manufactured product. It is sometimes called touch labor because it is the cost of the workers who actually touch product being manufacture.