Foundations of accounting 2023 with verified questions and answers

Financial accounting Provides the information to decision makers which are external to the business. They need information such as the performance of the business, and the advisability of retaining their investment in the business. Share holders determine to buy more or less shares. Managerial Accounting responsibilities. 1. Wether to build a new plant 2. how much to spend for advertising, research and development. 3. wether to lear or buy equipment and facilities. Balance sheet shows the firm's assets, liabilities, and owners equity. Assets valuable resources that a firm owns or control Inventory merchandise acquired that is to be sold to costumers. Liabilities obligations of the business to convey something of value in the future Accounts payable (liability) Things that a business owes. Notes payable formal, written obligations-loans that a business has. Owner's equity refers to owner's interest in the business. It is a residual amount that equals assets minus liabilities. Income Statement summarizes the earnings generated by a firm during a specified during a period of time. Revenue inflows of assets from providing goods and services to customers Cost of goods sold cost of merchandise sold to its costumers General and administrative expenses include salaries, rent, and other items..also knowns as overhead cost net income the differences between revenue and expenses the statement of cash flows summarizes a firm's inflows and outflows of cash has 3 sections: Operating activities, investing activities, and financing activities Basic Accounting Equation Assets= Liabilities + Owner's equity Expenses occur when resources are consumed in order to generate revenue Transactions that affect owner's equity Owners contributions, owner's withdrawal, revenue, and expenses Retained earnings contains the effect of revenue and expense transactions on shareholders' equity. That is, it reflects the increase (or decrease) in the shareholders interests in the firm that arose from operations since the firms inception. Cost object is any activity or item for which we desire a separate cost measurement. Product Cost The Cost that various products a company sells direct cost a cost that is easily traced to individual cost object indirect cost cost that supports more than one cost objective Examples of cost Activity cost- repairing equipment, testing manufactured products for quality Product cost- paper towels, personal computers, etc (these can be either purchased or manufactured products Service Cost- Performing surgery, accounting work, legal work Period Cost are all the costs a company incurs that are not considered product costs. They include selling and administrative expenses, but not any costs associated with acquiring product or getting it ready sell. For Payless shoes source this would include costs of employees in accounting, finance, marketing, advertising, and certain executives such as the company president. Selling Cost Includes the cost of locating customers, attracting them, convincing them to buy, and the necessary paperwork to document and record sales. Examples-include salaries paid to members of the sale force, sale commissions, and advertising. Administrative cost includes all costs that are not product or selling costs. These cost are typically associated with support functions-areast that offer support to the product and selling area, such as accounting, finance, human resources, and executive functions. Comparing product and period cost the distinction b/w these is based on wether the cost in question benefits the process of getting products ready for sale (product) or selling and administrative functions (period). Direct Material cost the cost of all materials that can be traced directly to a unit of manufactured product. Manufacturing overhead cost is all the cost associated with the operation of the manufactory facility other than direct material cost and direct labor cost. Ex- For ford's mustang, manufacturing overhead cost would include a portion of costs for the factory's security, telephone, electricity, insurance, and factory depreciation. Raw Materials inventory consist of materials that have been purchased but have not yet entered the production process Fixed Cost cost that remain constant in total regardless of activity. Variable Cost cost that change in total proportionately with changes in the level of activity Total Cost Total Cost= Fixed Cost + Variable Cost Relevant Range the range of activity within which cost behavior assumptions are valid Mixed Cost cost that has elements from both fixed and variable. Contribution Margin is the amount remaining after all variable costs have been deducted from sales revenue. Budget a formal written statement of management's plans for specified future time period, expressed in financial terms. Cash budget shows anticipated cash flows-most important Sales budget derived from the sales forecast. represents the managements best estimate of sales revenue for the budget period. Master budget a set of interrelated budgets that constitutes a plan of action for specified time period financial budgets capital expenditure budget, the cash budget, and the budgeted balance sheet. these budgets focus primarily on the cash resources needed to fund expected operations and planned capital expenditures. cost-volume-profit analysis the analysis of the relationships b/w cost and volume and the effect of those relationships on profit Helpful equations CM - NI = FC Sales-Variable Cost= CM Revenue= FC+VC Total Cost = Fixed Cost + Variable Cost Total Assets= Owners equity + Liability Owners equity= Assets - Liability Break Even= Fixed Cost/Contribution Margin per unit Dividends Payments made by a corporation to it's shareholders Direct labor cost is the cost of all production labor that can be traced directly to a unit of manufactured product. It is sometimes called touch labor because it is the cost of the workers who actually touch product being manufacture.