Chap013 - Chapter 13 Small Business Accounting Projecting and Evaluating Performance CHAPTER 13 SMALL BUSINESS ACCOUNTING PROJECTING AND EVALUATING

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Chapter 13 - Small Business Accounting: Projecting and Evaluating Performance CHAPTER 13: SMALL BUSINESS ACCOUNTING: PROJECTING AND EVALUATING PERFORMANCE Chapter Summary The first chapter of several accounting chapters, this one covers the background of accounting and its importance and usefulness for making decisions for the small business. Common financial statements are explained and budgeting procedures are started. Learning Objectives After studying this chapter, the student should be able to: 1. Review the basic concepts of accounting. 2. Understand the requirements for a small business accounting system. 3. Be comfortable with the content and format of common financial statements. 4. Understand how accounting information can help you manage your business effectively. 5. Learn how to craft budgets for your business. 6. Gain understanding of how people make decisions. Focus on Small Business: Tracy and Brad Butler and Acropolis Computers The Butler brothers were computer whizzes but knew little about accounting – an oversight that cost them profit. Basically, there were a number of little things that they were not charging their customers, little things that added up to $40,000 a year in lost income. Discussion Questions 1. What is the nature of the "…relationship between costs, revenues, and profits…" that Tracy and Brad Butler did not understand? a. They did not understand that buying and holding inventory has costs that must be recovered through markups when it is sold. a. They did not understand that all of the time used in the business has a cost that must be recovered if the business is to succeed. b. They did not understand the concepts of fixed costs, such as the cost of owning a service van, and variable costs, such as the cost of operating the van. c. They did not understand that there is a cost to providing service to customers, and some customers cost more than others. 13-1
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Chapter 13 - Small Business Accounting: Projecting and Evaluating Performance 2. What do you infer about Acropolis' accounting system during the years leading up to this crisis? a. It seems that at best, the brothers had only a record keeping system. b. It is certain that they were not doing any effective business planning and budgeting. 3. Why was it important for Acropolis to begin marking up the price of computer parts over their cost? Buying, holding, securing, and accounting for inventory, all cost the business. If the business is to make a profit, the cost must be recovered from customers through markups over total costs. 4. How is it possible for a business to succeed by deliberately getting rid of loyal customers? a. Some customers cost more than can be recovered. Customers who pay promptly, who can be serviced efficiently are usually the most profitable. By getting rid of customers who were not profitable, the brothers were
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This note was uploaded on 11/21/2009 for the course MNGT 422X taught by Professor Godsey during the Spring '09 term at UNL.

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Chap013 - Chapter 13 Small Business Accounting Projecting and Evaluating Performance CHAPTER 13 SMALL BUSINESS ACCOUNTING PROJECTING AND EVALUATING

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