accounting review

accounting review - Chapter 1 Managerial Accounting...

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Chapter 1 Managerial Accounting involves external or internal primary users Internal managers and decision makers Does managerial accounting have mandated rules like GAAP No, GAAP is for financial accounting Who is the reporting unit for managerial accounting organizational segments like divisions, locations, and product lines What time of results does managerial accounting look at Past and future results In managerial accounting how is information received It is received as needed A manager’s role of planning includes Deciding on long-term direction of corporation and deciding how to implement long-term strategy A manager’s role of controlling includes Monitoring day-to-day operations to ensure that processes operate as required A manager’s role of evaluating includes Comparing actual results to planned results for the period A manager’s role of decision making includes Choosing a course of action Chapter 12 Horizontal analysis Is when you look at the changes in the account balances that happen over time Formula you use for horizontal analysis How a horizontal analysis looks like on a balance sheet 2010 2009 $ Change % Change $7752 $22114 $(14362) (64.9%) Trend Analysis formula (Another form of horizontal analysis) How trend analysis looks 2007 is the base year 2010 2009 2008 2007 Media 153% 145% 142% 100% Consumer Products 139% 128% 115% 100% Common-size analysis or vertical analysis Examining changes in the relative size of account balances within a single statement Formula for vertical analysis for balance sheet
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Example of vertical analysis for balance sheet 2010 2009 Cash 4% 5% Accts Receivable 96% 95% Total Assets 100% 100% Accounts payable 20% 21% Short Term Debt 25% 25% Total Current Liabilities 45% 46% Common Stock 30% 31% Retained Earnings 25% 23% Total Stock Holders’ Equity 55% 54% Total Liabilities & Stock Holders’ Equity 100% 100% Formula for vertical analysis for income statement Example of vertical analysis for income statement 2010 2009 Sales Revenue 100% 100% Cost of Goods Sold 74.02% 74.44% Gross Margin 25.98% 25.56% Selling & Administrative Expenses 22.16% 22.94% Operating Income 3.82% 2.62% Interest Expense .8% .93% Income before taxes 3.02% 1.69% Income Tax Expense .91% .51% Net Income 2.11% 1.18% Liquid Ratios Working capital, current ratio, acid-test (quick) ratio, accounts receivable turnover, average collection period, inventory turnover, average days to sell inventory Leverage Ratios Debt ratio, debt-to-equity ratio, times interest earned ratio Profitability Ratios Gross Margin Percentage, Return on Assets, Return on common stockholders’ equity Working capital Ratio Current Assets – Current Liabilities Working capital use Measures ability to pay current liabilities Current Ratio Current Ratio use Most common measure of short-term liquidity Acid- Test (Quick) Ratio
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Acid- Test (Quick) Ratio Uses More stringent measure of liquidity than the current ratio Accounts Receivable Turnover formula Accounts Receivable Turnover Uses Measures ability to convert accounts receivable into cash Average Collection period formula Average Collection period uses How many days the company takes to collect cash from a credit sale
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accounting review - Chapter 1 Managerial Accounting...

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