newnansm18 - Chapter 18: Accounting and Engineering Economy...

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Chapter 18: Accounting and Engineering Economy 18-1 Engineers and managers make better decisions when they understand the “dollar” impact of their decisions. Accounting principles guide the reporting of cash flows for the firm. Engineers and managers can access this information through formal and informal education means, both within and outside the firm. 18-2 The accounting function is the economic analysis function within a company it is concerned with the dollar impact of past decisions. It is important to understand, and account for, these past decisions from management, operational, and legal perspectives. Accounting data relates to all manner of activities in the business. 18-3 Balance Sheet – picture of the firm’s financial worth at a specific point in time. Income Statement – synopsis of the firm’s profitability for a period of time. 18-4 Short-term liabilities represent expenses that are due within one year of the balance sheet, while long-term liabilities are payments due beyond one year of the balance sheet. 18-5 The two primary general accounting statements are the balance sheet and the income statement. Both serve useful and needed functions. 18-6 Today’s weather is not a good basis to pack for a 3-month trip, and local and recent financial data is not a complete basis for judging a firm’s performance. Historical and seasonal trends and a context of industry standards are also needed. 18-7 Not necessarily. The current ratio will provide insight into the firm’s solvency over the short term and although a ratio of less than 2 historically indicates there could be problems, it doesn’t mean the company will go out of business. The same is true with the acid-test ratio. If the company has a low ratio, then it probably doesn’t have the ability to instantly pay off debt. That doesn’t necessarily indicate the firm will go bankrupt. Both tests should be used as an indicator or warning sign.
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18-8 Assets = $1,000,000 Total liabilities = $127,000 + 210,000 = $337,000 Equity = assets – liabilities = $1,000,000 – 337,000 = $663,000 18-9 6 days/week * 52 weeks/year = 312 days/year in operation $1000 profit/day * 312 days/year = $312,000 profit/year Revenues – expenses = $500,000 – 312,000 = $188,000
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This note was uploaded on 08/13/2010 for the course IME IME 314 taught by Professor Freeman during the Spring '10 term at Cal Poly.

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newnansm18 - Chapter 18: Accounting and Engineering Economy...

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