Chapter_06 - Copyright Atomic Dog Publishing, 2006 Chapter...

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Unformatted text preview: Copyright Atomic Dog Publishing, 2006 Chapter 6 Entrepreneurial Accounting and Cash Management 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 venturethe entrepreneur begins by analyzing the ventures 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. 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. 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. 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 ventures top management team are the most frequent users of accounting information. Copyright Atomic Dog Publishing, 2006 Exhibit 6-1 Users of New Venture Accounting Information Copyright Atomic Dog Publishing, 2006 6-3 The Accounting Equation Accounting equation: A companys financial position at any point in time....
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This note was uploaded on 10/02/2010 for the course ENTR ENTR 3310 taught by Professor A.lish during the Fall '09 term at University of Houston-Victoria.

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Chapter_06 - Copyright Atomic Dog Publishing, 2006 Chapter...

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