Chapter 1 Flashcards by Rosanna Bryan

Different businesses will need to know different information to function correctly, what 3 requirements will be informed by the organisations?

The size of the organisation
Their strategic goals
-Legislation and regulations

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Management information is provided to assist management in fulfilling what 3 main roles

Planning, Control and decision making

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What detailed information will be needed to help management plan the operations of the organisation

Past, present and forecasted information

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What kind of information will help to develop and organisation

Sales revenue, targets, Labour time - cost, material usage and cost, expenses and overheads

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How will management make sure that targets are being met and achieved

Make comparisons periodically between the budget and actual achievements

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What information could the accounting department provide to management to help them appraise if an organisation is meeting its plans?

Volume of sales made
Volume of inventory
Number of Units sold
Labour costs
Cost of materials

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What is a long term decision

Decisions made by management that will assist with the strategic goals of the organisation, they are decisions about the whole company and consider reaching goals in 5-10 years time

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What are short term decisions

They are decisions that help with the day to day running of the business, they will help towards reaching goals in the long term

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What might some be of the long term decisions in a large manufacturing organisation

Which products to make/sell
What new machinery to invest in or new processes/facilities
Which markets to sell in
How to raise the finance

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What short term decisions may be made within a manufacturing organisation

Staff levels
Pricing
Overtime arrangements
Suppliers
Working hours
Supervisor responsibilities

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What is the equation for Gross profit percentage

( Gross profit / Revenue ) x 100

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What is the equation for Gross Profit

Sales / cost of sales

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What is the equation for operating profit percentage

( Operating profit / revenue ) x 100

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Falling margin might be due to …

Increased costs or reduced selling prices to increase market share

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Increased gross profit margin will be due to

Increased selling prices relative to direct costs

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What is the Return on Captial Employed equation

( Operating profit / Capital employed or TALCL) x 100

TALCL - Total Assets Less Current Liabilities

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What information does the return on Capital Employed give you

Measures how much profit is generated for every £1 of assets employed.
Indicated how efficiently the company uses its assets

It is the other ratio that compares profit to the overall size of the business and is sometimes called the primary ratio

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What is the current ratio and what’s it for

Current assets / Current Liabilities

Usually show as a ratio
Gives an indication to liquidity by showing how many times the current liabilities are covered by current assets

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What is quick ratio

( Current assets - inventory ) / current liabilities

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What is inventory holding period and turnover

( Inventories / Cost of sales ) / 365 days

It shows the average number of days inventory is held before it is sold
The holding period will vary greatly depending on the industry

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What is receivables collection period

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Trade receivables / revenue. x 365

It shows the average number of days the customers take to pay

What is the payables payment period

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(Trade payables / Cost of Sales ) x365

Shows the average number of days the business takes to pay their suppliers

What is gearing

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It measures the percentage of debt to the total financing.
High gearing - less profit available

(Non-current liabilities / equity + non current liabilities ) x 100

What does ACCURATE stand for

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Accurate - information provided needs to be as accurate as possible
Complete - the full picture of information is needed to make good decisions
Cost effective - sometimes more accurate info can be obtained but it can be more expensive to do so
Understandable - the format, detail and presentation of information must be in a style which is understandable to the user
Reliable - the source of the info may determine how reliable it is
Accessible - user should be able to access the info that is required
Timely - up to date info is needed in a timely manner so accurate decision can be made
Easy to use - presentation and format can influence the ease of use.

What is the difference between data and information

Data is raw facts, unprocessed Information is data which has gone through some form of process and is meaningful

What is primary data

Information collected specifically for your own purpose, ie market research

What is secondary data

Information is not collected specifically for your purpose but for someone else or for another reason, ie government statistics on births

What is an internal source information

Information gathered within an organisation such as accounting information about customer purchases or product information

What is external sources of information

Information gathered from outside the organisation, IE information about tax rates and market demand info

What is financial accounting

The recording, summarising and presentation of financial information

What is cost accounting

Recording and preparing information on the costs incurred within an organisation, can be used to assist with cost control decisions

What is management accounting

This is concerned with the production of financial reports to assist managers with their planning, control and decision making roles

Give an example of tasks typically associated with management accounting

Budgets Forecasting Variance analysis Material price/ usage

Give examples of task’s typically associated with financial accounting

Statement of P&L VAT return Producing reports Bank Reca Cash flow

What is a responsibility centre

Parts of the organisation which information can be obtained and performance can be measured and a manager is responsible for planning, control and decision making

What is a cost centre

A production or service department or location for which costs can be ascertained

What is a revenue centre

A production or service department or location for which revenues can be ascertained

What is a profit centre

A production or service department or location for which costs and revenues can be ascertained, so it is possible to establish the profit they have made

What is an investment centre

A production or service department or location for which costs, revenues and investments can be ascertained. They will receive money from the central head office and will operate the centre as a business on its own

Why is legislation important

It’s a fincance function to ensure compliance with the regulatory and legal framework. And helps to minimise penalties and protect an organisations reputation

What is working capital and what does it comprise of

The day to day financing of an organisation which is used to keep the business running smoothly, it comprises of Inventory/Stock Receivables/debtors Payables/creditors Bank and cash

How can you manage working capital

By working within our policies on Credit periods offered to customers Credit control - chasing for payments Level of inventory held Payment to suppliers and credit period taken Overdrafts/ investments

Why is inventory an important function in the smooth running of a business

Making sure it is effectively managed will ensure the business does not run out of finished goods, and also raw materials

Why is planning an important function in the smooth running of a business

Planning the numbers of products to be made and ensuring the business makes the best use of its resources.

Which is costing and important function in the smooth running of the business

It enables the business to make the products which make a profit and to set selling prices to cover all costs

Why are procedures important for the smooth running of a business

By establishing procedures for authorisation and ordering with responsibility assigned

What is gross pay (payroll )

The initial calculation made for each employee

What deductions are compulsory in the payroll

Income tax - PAYE National insurance contributions

Give 2 examples of voluntary deductions in payroll

Pension contributions Saving schemes - SAYE

What is net pay

The net sum after all deductions that will be paid to each employee

Chapter 1 Flashcards

(50 cards)