Chapter_06 - Chapter 6 Entrepreneurial Accounting and Cash...

Info icon This preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Copyright Atomic Dog Publishing, 2006 Chapter 6 Entrepreneurial Accounting and Cash Management
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Copyright Atomic Dog Publishing, 2006 6-1 Introduction Revenue, costs, and capital are the three components of business process. Analyzing the feasibility of a start-up venture—the entrepreneur begins by analyzing the venture’s ability to produce revenue. The entrepreneur then must determine how to achieve that revenue in a cost-effective manner. The fundamental purpose of any business is to produce profit; the equation is: - R – C = P (revenue – cost = profit) It illustrates that the first step in estimating profit is to estimate revenue.
Image of page 2
Copyright Atomic Dog Publishing, 2006 6-2 What Is Accounting? The American Accounting Association defines accounting as “the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information.” Accounting practices are essential to business confidence. The purpose is to keep track of items of value, in their current state and in their flow or change over time and to make reports that are useful in management decisions. Accounting is based on the concept of a financial transaction.
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Copyright Atomic Dog Publishing, 2006 6-2 What Is Accounting? (cont.) Accounting practitioners adhere to generally accepted accounting principles , or GAAP. The principles in GAAP are developed by the Financial Accounting Standards Board, or FASB. More recently, in the wake of accounting scandals, the U.S. government has enacted the Sarbanes-Oxley Act to prevent recurrence of the misdeeds of these firms. Accounting is typically divided into two types: Financial accounting: Intended primarily for use by external decision makers. Managerial accounting: Used by internal decision makers, such as the entrepreneur.
Image of page 4
Copyright Atomic Dog Publishing, 2006 6-2 What Is Accounting? (cont.) Accounting information is used by business managers, investors, creditors, governmental organizations and others. Creditors use financial information to evaluate credit applications and to make decisions about loans. Lenders focus on cash flow when making loan decisions for new ventures. Larger firms that have accumulated assets can also be approved for so-called asset-backed loans. Entrepreneurs and the venture’s top management team are the most frequent users of accounting information.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Copyright Atomic Dog Publishing, 2006 Exhibit 6-1 Users of New Venture Accounting Information
Image of page 6
Copyright Atomic Dog Publishing, 2006 6-3 The Accounting Equation Accounting equation: A company’s financial position at any point in time.
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern