Intro to Business Ch 8 – Flashcards
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Balance Sheet
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A financial statement that reports the financial position of a firm by identifying and reporting the value of the firm's assets, liabilities and owner's equity.
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Accounting equation
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Assets+ Liabilities + Owner's Equity
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Assets
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Resources owned by a firm
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Liabilities
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Claims that outsiders have against a firm's assets
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Owner's equity
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The claims a firm's owners have against their company's assets (often called "stockholders' equity" on balance sheets of corporations.)
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Income Statement
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The financial statement that reports the revenues, expenses, and net income that result from a firm's operations over an accounting period.
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Revenue
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Increases in a firm's assets that result from the sale of goods, provision of services, or other activities intended to earn income.
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Accrual-basis accounting
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The method of accounting that recognizes revenue when it is earned and matches expenses to the revenues they helped produce.
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Expenses
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Resources that are used up as he result of business operations
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Net income
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The difference between the revenue a firm earns and the expenses it incurs in a given time period.
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Statement of cash flows
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The financial statement that identifies a firm's sources and uses of cash in a given accounting period.
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Horizontal Analysis
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Analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends.
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Managerial (or management) accounting
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The branch of accounting that provides reports of accounting that provides reports and analysis to managers to help them make informed business decisions.
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Cost
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The value of what is given in exchange for something
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Out-of-pocket cost
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A cost that involves the payment of money or other resources.
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Implicit Cost
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The opportunity cost that arises when a firm uses owner-supplied resources
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Fixed Costs
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Costs that remain the same when the level of production changes within some relevant range.
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Variable Cost
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Costs that vary directly with the level of production
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Direct costs
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Costs that are incurred directly as the result of some specific cost object
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Indirect Costs
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Costs that are the result of a firm's general operations and are not directly tied to any specific cost object.
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Activity-based Costing (ABC)
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A technique to assign product costs based on links between activities that drive costs and the production of specific products.
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Budgeting
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A management tool that explicit shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.
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Operating Budgets
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Budgets that communicate an organization's sales and production goals and the resources needed to achieve these goals.
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Financial budgets
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Budgets that focus on the firm's financial goals and identify the resources needed to achieve these goals
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Master budget
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A presentation of an organization's operational and financial budgets that represents the firm's overall plan of action for a specified the period.
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In Accounting, _____ want to know _____.
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Owners- whether the firm made a profit or loss Creditors- want to make sure the firm can pay back the loans they took Employees- if the company is performing well enough to provide job security or a pay raise IRS- amount of taxable income the firm earns
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The goal of GAAP
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to ensure that the information generated by financial accounting is relevant, reliable, consistent and comparable.
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Balance Sheet
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Purpose: -shows the value of a firm's assets at a particular point in time and and identifies the claims that owners and outsiders have against those assets. Key Components: -assets: things of value -liabilities: claims that outsiders have against firm's assets -owner's equity: claims that the owners of a firm have against it's assets Basic Relationship: Assets= Liabilities + Owner's Equity
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Income Statement
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Purpose: Reports the profit or loss earned by the firm over a period of time Key Components: -revenues: increases in cash and other assets that the firm earns from its operations -expenses: the cash and other resources used up to generate revenue -net income: the profit or loss earned by a firm in a given time period Basic Relationship: Revenues - Expenses = Net income
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Statement of Cash
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Purpose: Shows how and why the amount of cash held by the firm change over a given period of time, by identifying the cash flows from the three sources: operations, investments, and financing Key Components: -operations: the cash flows that arise from producing and selling goods and services -investments: the cash flows resulting from buying and selling financial securities of other companies -financing: cash a firm receives from selling its own securities, and cash the firm disburses to pay dividends and interest
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