1 / 27

Review of Basic Terms

Review of Basic Terms. Asset/liability: An asset is an economic resource that a company owns. A liability is a resource that the company owes.

erica
Télécharger la présentation

Review of Basic Terms

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Review of Basic Terms • Asset/liability: An asset is an economic resource that a company owns. A liability is a resource that the company owes. • Book value/market value:Book value is the amount of an asset or liability shown on the companies’ official financial statements based on the historical, or original, cost. Market value is the current value of the asset or liability. In most cases, book value does not equal market value. • Capital goods: These are machines and tools used to produce other goods. • Depreciation/amortization:Depreciation is a system that spreads the cost of a tangible asset, such as machinery, over the useful life of the asset. Amortization is a system that spreads the cost of an intangible asset, such as a patent, over the useful life of the asset. • Fiscal year: A company’s financial reporting year. In most cases the fiscal year is not the same as the calendar year. • Profit margin: This is profit—what the company’s owners keep after paying all the bills—a percentage of sales or revenues. • Receivables/payables:Receivables are money owed to the company. Payables are money the company owes to others. • Revenue/expenses:Revenue is income that flows into a company. Revenue includes sales, interest, and rents. Expenses are costs that are matched to a specific time period. Finance for Non-Financial Managers I

  2. Managerial and Financial Accounting Managerial accounting provides information for managers of an organization who direct and control its operations. Financial accounting provides information to stockholders, creditors and others who are outside the organization. Finance for Non-Financial Managers I

  3. Cash vs. Accrual Methods of Accounting Finance for Non-Financial Managers I

  4. Cash Accounting Finance for Non-Financial Managers I

  5. Accrual Accounting Finance for Non-Financial Managers I

  6. Gross Profit (Margin) Selling price, each Spouse House Subtract cost of each Spouse House Gross profit (margin) Gross profit (margin) percentage ($600/$1,500) Markup percentage ($600/$900) $1,500 (900) $600 40% 67% Finance for Non-Financial Managers I

  7. The Importance of Timing • Matching principle: The accrual method matches revenues with associated expenses. • Timing: The accrual method records revenue that has been earned but not paid and expenses owed but not paid. • Cash flow: The accrual method does not track cash inflows and outflows. Finance for Non-Financial Managers I

  8. Types of Sales • Cash sales • Credit sales • Consignment (sale?) • Secured sales • Floor plan sales • Sales of services • Long-term contracts Finance for Non-Financial Managers I

  9. Reduction of Sales • Bad debts • Sales returns • Sales allowances • Warranties • Cash discounts Finance for Non-Financial Managers I

  10. Allowance for Bad Debt Finance for Non-Financial Managers I

  11. Cost of Sales • Cost of Goods Sold (COGS) • Inventory • Freight on Purchases • Discounts • Cost of Services Finance for Non-Financial Managers I

  12. Inventory Value • FIFO • LIFO • Average Cost Finance for Non-Financial Managers I

  13. FIFO vs. LIFO Finance for Non-Financial Managers I

  14. FIFO vs. LIFO Finance for Non-Financial Managers I

  15. FIFO vs. LIFO Finance for Non-Financial Managers I

  16. Average Cost Method Finance for Non-Financial Managers I

  17. Projected Sales Finance for Non-Financial Managers I

  18. Break Even Using the information from the previous slide, compute the variable cost per house: Divide the fixed cost by the contribution margin to determine how many houses must be sold to break even -- $10,000/361 = 27.7 or 28 houses (since you can’t sell .7 house). Finance for Non-Financial Managers I

  19. Maintenance and Depreciation Expense Finance for Non-Financial Managers I

  20. Payback Method Spouse House’s clients want three windows put in their houses. Assume it costs $300 per house for the supplier to install the windows. Spouse House could purchase an Automatic Window Machine that would cost $55,000 and would require the following expenses: Finance for Non-Financial Managers I

  21. Payback Method (cont.) The computation of cash flow from the Automatic Window Machine from the previous slide is: The payback, assuming no interest on a loan and $5,000 salvage value of the equipment would be 2.50 years ($50,000/$20,000). Finance for Non-Financial Managers I

  22. Time Value of Money Finance for Non-Financial Managers I

  23. Time Value of Money (cont.) Use the “10%” column to determine if purchase of the Automatic Window Machine should be purchased: Since $78,919 is significantly greater than $55,000 the machine would be justified. Finance for Non-Financial Managers I

  24. Time Value of Money (cont.) Using the above table to calculate the Internal Rate of Return on the $20,000 annual saving on a $55,000 investment with $5,000 salvage value: Finance for Non-Financial Managers I

  25. Time Value of Money (cont.) Using the above table to calculate the Internal Rate of Return on the $20,000 annual saving on a $55,000 investment with no salvage value: $20,000 x = $50,000 X = 2.50 x > 25.365% Finance for Non-Financial Managers I

  26. Cash Flow from Purchase of Equipment Finance for Non-Financial Managers I

  27. Repair or Replace Finance for Non-Financial Managers I

More Related