mba report on ce
TRANSCRIPT
-
8/12/2019 MBA Report on CE
1/40
Chapter 13
Copyri ght 2011 by the McGraw-H il l Companies, Inc. Al l r ights reserved.McGraw-Hill/Irwin
Small Business Accounting
Projecting and Evaluating
Performance
-
8/12/2019 MBA Report on CE
2/40
Learning Objectives
LO1Review the basic concepts of accounting
LO2Specify the requirements for a small businessaccounting system
LO3Explain the content and format of commonfinancial statements
LO4Use accounting information as a tool formanaging your business effectively
LO5Develop a complete set of budgets for yourbusiness
LO6Use accounting information to make betterbusiness decisions
13-2
-
8/12/2019 MBA Report on CE
3/40
Why Accounting Matters
Proveswhat your business did financially
Shows how much your business is worth
Banks, creditors, development agencies,
and investors requireit
Provides easy-to-understand plans for
business operations
You cant know how your business is doingwithout it
13-3
-
8/12/2019 MBA Report on CE
4/40
Types of Accounting
Managerial accounting
Accounting methods that are specifically
intended to be used by managers for
planning, directing, and controlling abusiness.
13-4
-
8/12/2019 MBA Report on CE
5/40
Types of Accounting
Tax accounting
An accountingapproach based
on specificaccountingrequirements setby governmental
taxing agencies.
Financialaccounting
A formal, rule-based
set of accountingprinciples andproceduresintended for use by
outside owners,investors, banks, andregulators.
13-5
-
8/12/2019 MBA Report on CE
6/40
Basic Accounting Concepts
Business entityconcept
The concept that a
business has anexistence separatefrom that of itsowners.
Going concernconcept
The accounting
concept that abusiness isexpected tocontinue in
existence for theforeseeable future.
13-6
-
8/12/2019 MBA Report on CE
7/40
The Accounting Equation
Accounting equation
The statement that assets equal liabilities
plus owners equity (assets liabilities
owners equity).
13-7
-
8/12/2019 MBA Report on CE
8/40
The Accounting Equation
Asset
something the business owns that will havevalue in the future
Liability a legal obligation to pay some amount at a
time in the future.
Owners equity whatever value is left after all liabilities have
been paid.
13-8
-
8/12/2019 MBA Report on CE
9/40
Revenues, Expenses, and Costs
Cost
The value given upto obtain
something that youwant.
Expense
A decrease inowners equity
caused byconsuming yourproduct or service.
13-9
-
8/12/2019 MBA Report on CE
10/40
Information Usefulness
Only two reasons to do accounting:
1. To produce information that is usefulto you for managing your business
2. To meet legal or contractualrequirements
13-10
-
8/12/2019 MBA Report on CE
11/40
Why Does Accounting Matter?
MACRS rate
the Modified Accelerated Cost Recovery
System
lets taxpayers depreciate more of the
cost earlier
Depreciation
Regular and systematic reduction inincome that transfers asset value to
expense over time.
13-11
-
8/12/2019 MBA Report on CE
12/40
Accounting Systems for Small
Business
Computerized systems simplify theaccounting process by providingautomatic error checking, entry
screens that look like the commonbusiness forms, and automaticproduction of financial statements and
management reports.
13-12
-
8/12/2019 MBA Report on CE
13/40
Financial Reports
Financial statements
Formal summaries of the content of an
accounting systems records of
transactions.
13-13
-
8/12/2019 MBA Report on CE
14/40
Financial Reports
Five common financial statements
Income statement
Statement of retained earnings
Statement of owners equity
Balance sheet
Cash flow statement
13-14
-
8/12/2019 MBA Report on CE
15/40
Flow ofInformation
inFinancialStatements
13-15
Figure 13.1
-
8/12/2019 MBA Report on CE
16/40
Financial Reports
Retained earnings
The sum of all profits and losses, less all
dividends paid since the beginning of the
business.
Articulate
The concept that information flows from
the income statement through thestatements of retained earnings and
owners equity to the balance sheet.
13-16
-
8/12/2019 MBA Report on CE
17/40
Everyday Financial Documents
and Similar Financial Reports
13-17Figure 13.2
-
8/12/2019 MBA Report on CE
18/40
Financial Reports
Income statement
A statement that lists revenues and
expenses and shows the amount of profit
a business makes for a specified period oftime.
13-18
-
8/12/2019 MBA Report on CE
19/40
Organization of the
Income Statement
13-19Figure 13.3
-
8/12/2019 MBA Report on CE
20/40
Typical Single-Step Format
Income Statement
13-20Figure 13.4A
-
8/12/2019 MBA Report on CE
21/40
Typical Multiple-Step
Income Statement
13-21Figure 13.4B
-
8/12/2019 MBA Report on CE
22/40
Financial Reports
Balance sheet
A statement of what a business owns
(assets), what it owes to others (liabilities),
and how much value the owners haveinvested in it (equity).
Liquidity
A measure of how quickly a company canraise money through internal sources byconverting assets to cash.
13-22
-
8/12/2019 MBA Report on CE
23/40
Organization of the
Balance Sheet
13-23Figure 13.5
-
8/12/2019 MBA Report on CE
24/40
13-24
Typical
Balance
Sheet
Figure 13.6
-
8/12/2019 MBA Report on CE
25/40
-
8/12/2019 MBA Report on CE
26/40
Cash Flow Statement
Cash flow statement
A statement of the sources and uses of cashin a business for a specific period of time.
GAAP Generally Accepted Accounting Principles
are the standardized rules for accountingprocedures
used in all audits and submissions ofaccounting reports to the government.
13-26
-
8/12/2019 MBA Report on CE
27/40
Typical Cash Inflows and Outflows
on the Cash Flow Statement
13-27Figure 13.7
-
8/12/2019 MBA Report on CE
28/40
Cash Flow Statement
Operating activities
Activities involved inproducing andselling goods andservices.
Investing activities
The purchase and
sale of land,buildings,equipment, andsecurities.
Financing activities
Activities throughwhich cash isobtained from andpaid to lenders,owners, andinvestors.
13-28
-
8/12/2019 MBA Report on CE
29/40
Uses of Financial Accounting
13-29
Reporting to Outsiders
Record Keeping
Taxation
Control of Receivables
Analysis of Business Operations
-
8/12/2019 MBA Report on CE
30/40
Uses of Managerial Accounting
External (cost)factors
Aspects of the
world outside thebusiness whichcould cause thebusinesss costs to
change.
Internal (cost)factors
Aspects of or
choices within thebusiness whichcould cause thebusinesss costs to
change.
13-30
-
8/12/2019 MBA Report on CE
31/40
Uses of Managerial Accounting
Cost-volume-profit analysis
A managerial accounting technique
which looks at the fixed and variable
costs of a business to arrive at a numberof unit sales (volume) to maximize profits.
Variable, fixed costs
13-31
-
8/12/2019 MBA Report on CE
32/40
Total Costs
13-32
Figure 13.8
-
8/12/2019 MBA Report on CE
33/40
Breakeven Point
13-33
Figure 13.11
Breakeven point
The point at whichtotal costs equal
gross revenue.
Th B i Pl d th
-
8/12/2019 MBA Report on CE
34/40
The Business Plan and the
Budget Process
Budget
A financial plan for the future, based on a
single level of operations; a quantitative
expression of the use of resourcesnecessary to achieve a businesss
strategic goals.
Pro forma
indicates estimated or hypothetical
information
13-34
-
8/12/2019 MBA Report on CE
35/40
Budgeting Relationships
13-35
Figure 13.2
Th B i Pl d th
-
8/12/2019 MBA Report on CE
36/40
The Business Plan and the
Budget Process
Master budget
A budget which consists of sets of
budgets that detail all projected receipts
and spending for the budgeted period. also referred to as a comprehensive
budget
13-36
Th B i Pl d th
-
8/12/2019 MBA Report on CE
37/40
The Business Plan and the
Budget Process
Cost of goods sold budget
A schedule that shows the predicted cost
of product actually sold during the
accounting period.
Activity-based cost estimates
An accounting method which assigns
costs based on the different types of worka business does in order to sell a particular
product or service.
13-37
-
8/12/2019 MBA Report on CE
38/40
Controlling
Variance
The difference between an actual and
budgeted revenue or cost
Variance analysis
The process of determining the effect of
price and quantity changes on revenues
and expenses.
13-38
-
8/12/2019 MBA Report on CE
39/40
Controlling
Favorable/unfavorable variance
A label applied to variances to indicate
their effect upon the income statement;
Favorable variances would result in profitsbeing greater than budgeted, all other
things being equal;
Unfavorable variances would result inprofits being less than budgeted, all other
things being equal.
13-39
-
8/12/2019 MBA Report on CE
40/40
Decision Making
To make good decisions we need:
1. Good information
2. Efficient ways to condenseinformation so it is understandable
3. Methods to help comparealternatives.
13 40