Exam 1 ( ch 13, 14, 1, 2) Flashcards
(74 cards)
1
Q
Purpose of a cash flow statement
A
to get from the beginning cash balance to the ending cash balance
2
Q
Order of 3 activities
A
Operating
Investing
Financing
3
Q
Operating
A
- day to day profit making activities
- all things that affect net income (includes interest paid and received and dividends received)
4
Q
Investing
A
buying or selling of long term assets
5
Q
Financing
A
generate capital or pay it back (debt or equity)
6
Q
Indirect method
A
- operating activities starts with net income and adjusts to cash flow
- most companies use this method
- (only operating section differs)
7
Q
direct method
A
- calculate various items using income statement and balance sheet information
- recommended by FASB and IASB
- must present reconciliation using indirect method
- (only operating section differs)
8
Q
Horizontal Analysis
A
- the difference between two years divided by a base year = % change
- percentage changes in comparative financial statements (year to year)
9
Q
trend analysis
A
horizontal analysis over a longer period of time
10
Q
Vertical Analysis
A
- shows relationship of each item to a base amount (which is 100%) on financial statements
- analysis that converts items on a financial statement to percentages of a base
11
Q
Base for vertical analysis
A
- income statement: Net sales (total expenses + net income)
- balance sheet: total assets
12
Q
Common size financial statements
A
used to compare companies with different levels of sales and assets
13
Q
benchmark
A
- comparing a company to other similar companies or industry averages
- compare to itself over time
14
Q
Current Ratio
A
- (current assets / current liabilities)
- measures the ability to pay current liabilities with current assets
- ratio of 2.0 generally considered strong
15
Q
working capital
A
- (current assets - current liabilities)
- measures the ability to meet short term obligations with current assets
16
Q
Debt Ratio
A
- (total liabilities / total assets)
- measures the ability to pay long-term debt
- the higher the ratio the higher the risk
17
Q
return on net sales
A
- (net income / net sales)
- shows the percentage of each sales dollar earned as net income
- calculated previously in vertical analysis
18
Q
ratio analysis
A
- a means of evaluating the relationships between key components of the financial statements
- the information needed can be found in the companies financial statements
19
Q
Decision making
A
- occurs during planing, directing, and controlling
- managers responsibilities
20
Q
Planning
A
- setting goals and objectives and determining how to achieve them
- report: budget
21
Q
Directing
A
- implementing plans and overseeing daily operations
- report: Daily sales report
22
Q
Controlling
A
- evaluating actual results against the plan and making adjustments as necessary
- report: budget performance
23
Q
Managerial accounting purpose
A
- to help managers plan, direct, and control business operations and make decisions
24
Q
Financial accounting puropse
A
- to help external users make investing and lending decisions
25
Managerial accounting reports and frequency
- management determines content and format
| - as needed (daily, weekly, monthly, quarterly, annually)
26
Financial accounting reports and frequency
- GAAP determines content and format
| - Emphasis on annual report; quarterly reports also prepared
27
Board of directors (BOD)
- Elected by stockholders to oversee a corporation
28
Audit committee
- subcommittee of the BOD
| - oversees the internal audit function and the annual external audit
29
Chief Financial Officer (CFO)
- Hired by the CEO
| - manage the companies financial activities
30
Controller
- responsible for general financial accounting, managerial accounting, and tax reporting
31
Treasurer
- responsible for raising capital and investing funds
32
Chief Executive Officer (CEO)
- Hired by the BOD
| - manage the company
33
Chief Operating Officer (COO)
- Hired by CEO
| - manage the operations of the company
34
Internal Audit function
- ensures company's internal controls are working properly
| - reports directly to the Audit Committee of BOC (may also report to the CFO or CEO
35
credentials available for management accountants
- CMA (certified management accountant)
- CPA (certified public accountants)
- CGMA (chartered global management accountant)
36
CMA
- certified management accountant
| - designation typically command higher positions and salaries
37
CPA
- certified public accountants
| - most recognized professional accounting credential
38
CGMA
- chartered global management accountant
| - available to CPA's that fill accounting positions in industry, government, or education (40% of all members)
39
IMA's statement on ethical professional standards
- (institute of management accountants)
- 4 main principals:
Competence
Confidentiality
Integrity
Credibility
40
Competence
- maintain professional competence
- recognize and communicate professional limitations
- provide clear, accurate, and timely information
- perform in accordance with laws and regulations
41
Confidentiality
- do not disclose confidential information
- communicate responsibilities to subordinates
- do not us confidential information for unethical or illegal advantage
42
Integrity
- avoid conflicts of interest and advise others of potential conflicts
- refrain from conduct that would prevent you from carrying out duties ethically
- do not discredit profession
43
Credibility
- communicate information fairly and objectively
- Disclose all relevant information that could influence a users understanding
- Disclose delays and deficiencies in providing information
44
Service companies
- provide a service only
- no inventory
- ex. accountants, banks, doctors, barbers, lawn care
45
merchandising companies
- resell products purchased from suppliers
- one inventory account (merchandise inventory)
- ex. amazon, jc penny, target, sheetz
- retailers (sell to end users) wholesalers (sell to other businesses
46
Manufacturing Companies
- Use labor and other inputs to convert raw materials into finished products
- ex. general motors, dell, mylan
- 3 inventory accounts
Raw materials
Work in Progress
Finished Goods
47
Value Chain
activities that add value to products and services and cost money
48
Research and development
- Value Chain
- developing products or services and the processes to produce them
- expensed as incurred
49
Design
- Value Chain
- detailed engineering for the products and services and the processes to produce them
- expensed as incurred
50
production or purchases
- Value Chain
- resources used to produce a product or to purchase merchandise
- inventoried on balance sheet, expensed when sold
51
Marketing
- Value Chain
- promotion and advertising
- expensed as incurred
52
Distribution
- Value Chain
- delivery of goods and services
- expensed as incurred
53
consumer support
- Value Chain
- provided after the sale
- expensed as incurred
54
cost object
- anything for which managers want a separate measurement of cost
55
Direct cost
- can be traced directly to the cost object
- a main part of the object or someone working directly on it
- costs are traced
- ex. tires on a car
56
indirect object
- costs that relates to the cost object but cannot be easily traced to it
- costs must be allocated
- ex. production supervisors salary or screw in a car
57
Inventoriable product costs
- used for external reporting
- all costs incurred to produce a product (both direct and indirect costs)
- product costing stops when the product is completely finished and transferred to finished goods inventory
- Direct materials, Direct Labor, Manufacturing overhead
58
Period costs
- expensed in period incurred
- all costs along the value chain except "production or purchases"
- often called operating costs, or general, selling, and administrative costs
59
Product costs
- inventoried on balance sheet and expensed on income statement when sold
60
Manufacturing Overhead
- Indirect Materials
- Indirect Labor
- Other Manufacturing Overhead (or period)
61
Prime
Direct materials and Direct Labor
62
conversion
- Direct labor and Manufacturing overhead
| - cost to "convert" raw materials into a finished product
63
Inventory Formula
```
Beginning Inventory
+ Additions
--------------------------------
Cost Available
- Ending Inventory
--------------------------------
Cost transferred out
```
64
Cost behavior
- how costs change with changes in volume
| - variable and fixed
65
Variable costs
- total variable costs change in direct proportion to changes in volume
- variable costs per unit are constant
- ex. direct materials, cost of goods sold for a merchandising company, cost of gasoline to drive your car
66
Fixed costs
- total fixed costs stay constant over a wide range of volume
- fixed cost per unit varies inversely with changes in volume
- ex. straight line depreciation, managers salary, insurance on your car
67
Total cost formula
TC = FC + VC (x)
68
Relevant Costs
- costs that differ between alternatives
| - Differential costs
69
Irrelevant Costs
- costs that do not differ between alternatives
| - Sunk costs
70
sunk costs
- costs that have already been incurred and cannot be changed
- ex. boyfriend breaks up with you. cant get that time back
- Irrelevant costs
71
Controllable costs
management can influence or change cost
72
Uncontrollable costs
- management cannot change or influence cost in the short run
- manager performance should not be measured based on costs that they cannot control
73
Cash
generally includes petty cash, checking accounts, and savings accounts
74
Cash Equivalants
- highly liquid assets that are readily convertible into cash
- ex. money market funds, certificates of deposit maturing less than three months, us treasury bills
