Accounting
defined, 1
equation, 13
information
systems, 2
organizations and society, role in, 2
principles, generally accepted, 8–9
Accrued expense timing differences, 43–45
Accrued taxes, 96
Actual return, 131
After-tax income
in CVP analysis, 105
targets achieving, Splash Enterprises, 116
Annual percentage rates, 98
Annual rates of return, 123
Annual Statement Studies, 52
Asset turnover, 55
Assets
Balance sheet
Fashions by Soges, 48
and timing differences, 46
Breakeven point, 106
Splash Enterprises
Budgeting inventory for manufacturing companies, 95
Budgets. See specific budgets
Buildings, fixtures, and equipment (BFE) amounts, 75
Capital budgeting
and long-term forecasting techniques, 119
process, 120
general assumptions, formulating, 122
incremental cash flow forecasts, preparing, 122–123
incremental income forecasts, preparing, 122
initial capital investment cost, determination of, 120–121
payback period, net present value and internal rate of return, compute and interpreting, 123
Satka Manufacturing case, 124
incremental cash flow forecasts, 127
incremental income forecasts, 126–127
initial investment cost, 124
net present value and internal rate of return, 129–132
Capital expenditures budgets, 97
Capital investments, 119
Cash, 78
Cash budgets, 88
Cash flow, 129
statement of. See Statement of cash flow
Certified Public Accountants (CPAs), 9–10
Computer system, Hometown Hardware, 70
Contribution format, 104
Contribution margin per unit, 106–107
Corporate charter, obtaining, 21
Corporate financial statements
from financing activities, 32–33
from investing activities, 31–32
from operating activities, 30–31
retained earnings statement, 27–29
Cost behaviors, 102–103. See also specific costs
Cost of goods sold, 26, 75, 81, 95, 103
Cost–volume–profit (CVP) relationships, 101–102
in multiple product environment, 113
in single product environment, 108
after-tax income targets achieving, 116
operating income targets, achieving, 115–116
sales mix percentages, managing, 116–117
Creditors, 6
Current liabilities, 59
Current ratio, 60
Debt-to-assets percentage, 57–58
Deferred expense timing differences, 38–39
fixed asset investment deferrals, 41–42
inventory acquisition deferrals, 40–41
prepaid expense deferrals, 39–40
Deferred revenue timing differences, 36–38
Department of Defense, 124
Depreciable fixed assets, 75
Depreciation, 18
Discounted present value, 129–130
Dun & Bradstreet, Inc., 52
Earnings before interest and taxes (EBIT), 58
Earnings before interest, taxes, depreciation, and amortization (EBITDA), 58
Earnings per share (EPS), 27, 49
Earnings statements or statements of operations, 7
Equity, 8
Estimated residual (salvage) value, 18
Excel’s present value function, 130
External users of accounting information
creditors, 6
investors, 5
Fair market values, 17
profit rich but cash poor, 64–66
Federal Trade Commission, 5
Financial accounting, 2
Financial Accounting Standards Board (FASB), 8
Financial assets, 60
Financial forecasting. See Long-term financial forecasting
Financial leverage, degree of, 57
Financial management systems, 2–3
Financial position statements, 13
Financial reporting, 2
Financial statement
corporate. See Corporate financial statements
forecasts, 70
general purpose, 7
integrity
governmental intervention, 10
timing differences
fixed asset investment deferrals, 40–42
Financial statement analysis, 47
profit rich but cash poor, 64–66
Financing activities, cash flow from, 32–33, 82–83
Financing budgets, Hopping Helga, 92
Fixed amounts, 93
Fixed asset
depreciable, 75
General assumptions
formulating, 122
General ledger software, 3
General purpose financial statements, 7
Generally accepted accounting principles (GAAP), 8–9, 17, 103–104
Governmental intervention, in financial statements, 10
Graph, cost–volume–profit relationships, 105–107
percentage, 52
Historical cost convention, 17
forecasting
statements of cash flow, 78–83
accounts receivable budgets, 93–94
financing budgets, 92
income statement budgets, 92–93
Selling, General, & Administrative expense budgets, 91
taxes payable budgets, 96
total liabilities, 99
Fashions by Soges, 49
Incremental cash flow, 123
forecasts
Satka Manufacturing, 127
Incremental fixed costs, 126
Incremental income forecasts
preparing, 122
Incremental net income, 127
Incremental variable costs, 125
Indirect method, 31, 78–79, 122
Initial capital investment cost
Satka Manufacturing, 124
Initial public offerings (IPOs), 21
Inpatient-days, 101
Intangible assets, 41
Interest coverage ratio. See Times interest earned
Internal rate of return (IRR), 120
compute and interpreting, 123
Internal Revenue Service, 5
International Accounting Standards Board (IASB), 8
International Financial Reporting Standards (IFRS), 8
Inventory
amounts, 74
purchases, 82
Investing activities, cash flow from, 31–32, 82
Investors. See Shareholders
Key Business Ratios, 52
Labor hours, 101
Land amounts, 74
Lenders. See Creditors
noncurrent, 20
Lifeblood of survival, 31
Line of credit, 89
current assets in order of, 16
Long-term financial forecasting
assessment of forecasts, 83–84
forecasted balance sheets, 73–78
forecasted income statements, 71–72
forecasted statements of cash flow, 78–83
Long-term notes payable, 76–77
Long-term support, of cash-generating activities, 17
Machine hours, 101
Managerial accounting, 2
internal users of accounting information, 4–5
Margin of safety, 111
Matching principle, 25
McNamer Enterprises, 69
Mixed cost, 102
Modified Accelerated Cost Recovery System (MACRS) method, 125–126
Monetary terms, 15
National Association of Securities Dealers Automated Quotations (NASDAQ), 6
Net cash flows, 127
percentage, 53
projections, 127
Net present value (NPV), 120
compute and interpreting, 123
Net realizable value (NRV), 16
Net sales. See Revenue
New York Stock Exchange (NYSE), 6
Noncash assets, 78
Noncash expense, 80
Nonfinancial issues, Satka Manufacturing, 132–133
Operating activities, 78
cash flows from, 30–31, 80–82, 83
accounts receivable budgets, 93–94
financing budgets, 92
income statement budgets, 92–93
Selling, General, & Administrative expense budgets, 91
taxes payable budgets, 96
total liabilities, 99
percentage, 55
targets, achieving, Splash Enterprises, 115–116
Operating leverage, 93
Operating loss, 111
Original acquisition costs, 17
Par value, 21
Passenger miles flown, 101
Payback period, 120
compute and interpreting, 123
Period costs, 26
Preferred stock, 21
Prepaid advertising, 39
Prepaid expenses, 39
Product costs, 26
Profit
generated, 30
Public Company Accounting Oversight Board (PCAOB), 10
Public relations materials, 7
Public Utilities Commission, 5
Publicly owned corporations, reporting requirements of, 6–8
Quality of sales, 116
Rate of return, 129
Reasonable return, 120
Results of operations, 30
Retained earnings, 22, 37–38, 77–78
Fashions by Soges, 49
Robert Morris Associates, 52
Sales budgets, Hopping Helga, 90–91
Sales mix percentages, 113
managing, Splash Enterprises, 116–117
Sarbanes–Oxley Act (SOX), 10
Satka Manufacturing, 124
incremental cash flow forecasts, 127
incremental income forecasts, 126–127
initial investment cost, 124
net present value and internal rate of return, 129–132
Securities and Exchange Commission (SEC), 6
Selling, General, & Administrative (SG&A) expense budgets, 26, 71, 89, 91
Selling price per unit, 106
Semivariable cost, 102
Shareholders, 5
equity
retained earnings, 22
of McNamer Enterprises, 69
ownership, 20
Short-term forecasting. See Operating budgets
Social Security Administration, 5
after-tax income targets achieving, 116
breakeven point
operating income targets, achieving, 115–116
sales mix percentages, managing, 116–117
Statement of cash flow, 29–30, 88
Hometown Hardware
from financing activities, 82–83
from investing activities, 82
from operating activities, 80–82
Weston, 15
from financing activities, 32–33
from investing activities, 31–32
from operating activities, 30–31
Statement of comprehensive income, 7, 27
Statement of shareholders’ equity, 7
Statements of financial position, 7
Tangible noncurrent assets, 17
Target operating income, sales volume required for, 107
Taxes
payable budgets, Hopping Helga, 96
10-K report, 7
10-Q report, 7
Threshold of materiality, 19
balance sheet and, 46
fixed asset investment deferrals, 41–42
inventory acquisition deferrals, 40–41
prepaid expense deferrals, 39–40
involving cash flows and income measurement, 35–36
Total assets, Hopping Helga, 98–99
Total contribution margin, 104
Total cost, 106
Total fixed cost, 105
Total liabilities, Hopping Helga, 99
Total sales revenue, 106
Turnover
Unearned revenue, 37
Unearned ticket revenue, 37
income statements, 104
Weighted-average contribution margin (WACM), 114
Weighted-average contribution margin percentage (WACM%), 114
Weighted-average selling price (WASP), 114
Weston financial statements. See Corporate financial statements
Working capital, 119