Basics of Managerial and Financial Accounting
What is the difference between managerial accounting and financial accounting?
Managerial accounting is used for internal decision-making, while financial accounting focuses on reporting financial information to external stakeholders.
What is a Budget?
A financial plan that outlines expected revenues and expenditures over a specific period.
What is a horizontal analysis?
A financial analysis method that compares financial data over a period of time to identify trends.
What are controllable costs?
Costs that can be influenced or managed by a business or department, like direct labor or supplies.
How do you compute the net profit margin?
Net Profit Margin = Net Income / Revenue.
What are the three major financial statements used in accounting?
Income Statement, Balance Sheet, and Cash Flow Statement.
What is the budget process?
The process of creating a budget, including forecasting, planning, monitoring, and adjusting.
What is a vertical analysis?
A financial analysis method that expresses each item on a financial statement as a percentage of a base item (e.g., total sales or total assets).
What is sensitivity analysis?
A method used to predict the outcome of a decision given different variables, helping businesses understand the potential impact of uncertainty.
What is opportunity cost?
The cost of forgoing the next best alternative when making a decision.
What is an income statement?
A financial statement that shows a company's revenues, expenses, and profits or losses over a specific period.
What is the difference between zero-based budgeting and incremental budgeting?
Zero-based budgeting starts from scratch and justifies all expenses, while incremental budgeting builds on the previous year’s budget by adjusting for changes.
What is the break-even point?
The level of sales at which total revenues equal total costs, resulting in no profit or loss.
What are the advantages of zero-based budgeting?
It ensures that all expenditures are justified and aligned with organizational goals, leading to more efficient resource allocation.
How do you compute the current ratio?
Current Ratio = Current Assets / Current Liabilities.
What is a balance sheet?
A financial statement that presents the company’s assets, liabilities, and shareholders' equity as of a specific date.
What are revenue streams?
Different sources of income that a business generates, such as sales of goods, services, or investment income.
How do you compute the gross profit margin?
Gross Profit Margin = (Revenue - Cost of Goods Sold) / Revenue.
What is the margin of safety?
The difference between actual sales and the break-even sales, representing how much sales can drop before the business reaches a loss.
What is the accounts receivable turnover ratio?
A ratio that measures how efficiently a company collects its receivables, calculated as Net Credit Sales / Average Accounts Receivable.
What are the four major types of organizations?
Sole proprietorship, partnership, corporation, and limited liability company (LLC).
What are fixed costs?
Costs that do not change regardless of the level of production or sales, like rent or salaries.
What is a contingency plan?
A backup plan designed to address potential risks or unforeseen events that could impact business operations.
What is the debt to equity ratio?
A financial ratio that indicates the proportion of debt used to finance the company's assets, calculated as Debt / Equity.
How would you use a vertical analysis on an income statement?
You would express each item on the income statement as a percentage of total sales, which helps analyze the proportion of expenses and profits relative to sales.