Accounting study guide questions chapter 17
Terms in this set (13)
List the three groups discussed in class who need accounting.
1) Owners/ Investors
2) Managers/ Marketers
3) Government agencies
List and briefly explain the three main areas of accounting.
1) Financial accounting: assessing the company's performance and position for owners, investors, and creditors
2) Managerial accounting: assessing the company's operations in order to make strategic and operational decisions
3) Tax accounting: Assessing how much money will be owed to the government
List and briefly explain the two things ting is trying to discover through financial accounting
1) Following the movement of the money: Where is the money coming from and where is it going?
2) Assessing the worth of the company: What does the company own and what does it owe
List and briefly explain the three components to the simplified model of normal business operatins
1) Revenue: money that comes in from customers
2) Expenses: money that goes out to run the business
3) Net Income: revenue minus expenses
What is the simplified income statement?
Revenue - Expenses = Net income
List and briefly explain the two complications to the simplified model of normal business operations presented in class.
1) Time period matching: When do you count something as revenue or expenses
2) Value changing: How do you account for something gaining or losing value in the normal business operations
List and briefly explain the three components to the simplified model of a company's worth.
1) assets: Resources owned by a firm
2) Liabilities: claims that outsiders have on a firm
3) Owner's equity: how much has been invested or reinvested into the firm
What is the simplified balance sheet?
Assets = Liabilities - Owner's Equity
The actual worth of the company is simply what someone is willing to pay to buy it. Explain why this may be different from owner's equity on the balance sheet.
1) owner;s equity on the books can be quite different from total market capitalization
2) The balance sheet doesn't directly reflect brand equity
What were the two additional financial statements presented in class?
1) Cash flow statement: reflects the increase or decrease in cash ( and cash equivalents) over the accounting period
2) Pro forma statements: gives a different perspective on the traditional financial statements
What is the goal of managerial accounting?
The goal is to help the company become more profitable
List and briefly explain the three characteristics of managerial accounting presented in class?
1) Internal purpose: It is more for the people inside the company than those outside
2) Flexible: its rules are more flexible than the rules of financial accounting
3) Cost focused: much of managerial accounting is deciding how much something costs
Assigning costs can be complicated. List and briefly explain the three ways of looking at costs which were presented in class.
1) based on whether they actually occurred: Out of pocket costs and opportunity costs
2) Based on whether they vary with production: Fixed and variable costs
3) Based on whether they can be tied to a specific objective: direct and indirect costs