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65 Cards in this Set
- Front
- Back
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Financial Accounting |
Is devoted to providing information for external users, these users include investors, government agencies and banks. Where managers inform the investors, stakeholders, customers, suppliers, governmentn competitors, or whoever else needs to have information about the company |
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Management Accounting |
Is concerned specifically with how cost information and other financial and non financial information should be used for planning, controlling and decision making. In other words it seeks to meet the accounting needs of managers |
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Cost Management |
Identifies, collects, measures, classifies and reports information that is useful to managers in costing (determining what something costs), planning, controllint, and decision making |
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Global Competition |
Vastly improved transportation and communication have led to a global marker for many manufacturing and service firms |
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Total Quality Management |
Is the management that cares about the top quality of the products to the point that there are no defective products |
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The Management Process |
The management process is defined by the following activities: Planning, Controlling, Decision Making. The managers start planning e.g. which products they are going to launch in the next 5 years. The managerd need to control that means they need to check if their plans become reality. Then managers need to make decisions for the future. |
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Cost |
The amount of resources, usually measured in monetary terms, sacrificed to achieve an objective |
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Historic Cost |
A cost already incurred. Is the cost, the money i spent to buy something. So, the historic cost of this microphone is £50, because this is how much i brough it from the shop |
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Opportunity Cost |
The value of an opportunity cost. Its the thing you dont do because you must do that one thing |
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Cost Classification |
Cost can be classified in many ways. It is neccessary to be able to classify all costs, that is, to be able to arrange them into logical groups, to devise efficient system to collect and analyse the cost |
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Classification of costs according to their nature |
This means grouping costs according to whether they are materials, labour or overhead costs |
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Material cost |
Includes costs of obtaining the material and receiving them within the organisation. |
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Carriage inwards |
The cost of having the material brought to the oragnisation is known as carriage inwards. |
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Labour costs |
Are costs incurred in the form of wages and salaries, together with relate employment costs |
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Overhead |
The materials that i need to have the workers that i must pay but also the rent, electricity and the general expenses- without them i cannot have a business, and these are called the overhead |
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Overhead/ Expense costs are |
External costs such as rent, business rate, electricity, gas, postage, telephones and similar times which will be documented by invoices from suppliers |
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Classification of cost according to their purpose |
The second way to define cost is according to the purpose that means there are costs that i can directly attribute to the product and they are costs that i cannot directly attribut to the product. The broadest classification is to divide costs into direct costs and indirect costs |
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Direct Cost |
Is a cost that can be clearly identified with the cost object we are trying to cost |
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Indirect cost |
This kind if costs-the overheads cannot be directly attributable to the product of service. In other words, other costs incurred would be classified as indirect costs. WHATEVER I CANT SEE ON A PRODUCT IS INDIRECT |
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Selling, distribution and administration overhead |
The people who work for marketing, the people who are going to distribute the product, the driver of the delivery, all this is the selling, distribution and administration overhead that i need to present it separately |
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Production Cost |
Is the cost that goes around the product we need to have these people, and this is the full cost of the product |
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Cost of production |
The cost of production is divided into three main components of: fixed cost, variable cost and semi-variable cost |
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Fixed cost |
Another term that can be used to refer fixed costs is a period cost. This highlights the fact that a fixed cost is incurred according to the time clasped, rather than according to the level of activity. Rent is an example as it does not change. Fixed cost does not change |
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Variable cost |
Is a cost that varies with a measure of activity. Example of variavble costs are direct material, direct labour and variable overheads. The graph of a variable cost is a straight line through the origin, which means that the cost is nil at zero activity level |
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Semi- variable cost |
Is also referred to as mixed cost. This is cost containing both fixed and variable componentd and thus partly affected by a change in level of activity. Examples of a semi- variable costs are gas and electricity |
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There are three common methods of seperating semi variable costs into their fixed and variable elements |
First the high low method. Second the line of best fit method (scatter graph) and lastly, the least square regression method. |
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The high- low method |
This method picks out the highest and lowest activity levels from the available data and investigates the change in cost which has occurred between them. |
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Semi- fixed ( semi-variable) costs |
In some cases a particular cost has an element of both fixed and variable cost these can be described as semi- fixed costs. |
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Contribution per unit |
The bottom part of the break even formula is known as the contribution per unit. |
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Contribution margin ratio |
The contribution margin ratio is the contribution from an activity expressed as a percentage of their sales revenue. |
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Break even point |
The point that I make as much money as I must pay is called the break even point. It's the point when my company breaks even. When the company breaks even the company can pay all the fixed and all the robot costs and win in a company can pay everything. |
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Contribution margin |
The contribution margin contributes to The Recovery of the fixed costs are with this money the contribution money he will try to pay the fixed cost. |
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Cvp analysis |
It is the cost volume profit analysis this deals with the cost fixed variable, the volume (how many dresses) and if we have a profit or not |
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Relevance |
To be relevant, accounting information must cross a threshold of materiality. |
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Faithful Representation |
Accounting information should represent what it is supposed to represent. To do this, the information should be complete. It should contain all the information needed to understand what is being portrayed. |
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Profit and loss account |
How much profit or loss was generated over a period. Profit is increasing of arising from trading activities. |
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The statement of financial position also known as a balance sheet |
Shows the accumulated wealth of the business at the end of the period. It sets our assets on one hand. And it sets out the claims against a business on the other hand. Reflects the assets, equity and liabilities of a business at a specified point in time. A balance sheet is a list of the assets, liabilities and owners equity a specific date. It shows the financial position of a business at a moment in time a snapshot. It sets out the form in which the wealth of the business is held. It sets up the assets of the business and liabilities against a business. |
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Assets |
The first thing we need to know about the business is what the business has, the assets. The assets is what a business has what a business possesses this can be also the same for individuals such as an individual's car is something that he or she owns something that he or she possesses. And assia is essentially a resource of a business is something that brings a business future economic benefit. |
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Tangible Assets |
Obviously is your own home or car so you can see it and touch it it has a physical substance which means it is a tangible asset. |
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Intangible asset |
There are some assets that you can't touch or can't see (have no physical substance) these assets are called in tangible assets. For example, the brand name, copyright, trademarks, etc. are all intangible asset. |
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Current assets-short term |
Current assets are assets held for short time. For example, trade debtors are the business's customers who buy goods and instead of giving money they give a promise to the business that they are going to pay them so it business give them a notice of trade. This is so the business does not lose a customer the fact that the customer will pay the business later is an asset. Cash is another asset as transactions are continuously happening in everyday life which means it will always change. The most current assets are Inventories, trade receivables (amount owed by customer for goods or services supplied on credit) and cash. |
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Non-current or fixed assets |
Are assets held 4 a long term. For example, property, plant and equipment, etc. Include items such as land and building, machinery, motor vehicles and fixtures and fittings. When a business keeps an asset for more than one year this is a non current asset or fixed asset. |
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Claims |
A claim is an obligation of the business to provide cash or some other form of benefit to an outside party. Investors would ask how the business has the assets it has. The bank claim claims it's money back plus interest. The investors would want part of the business's profit to give them dividend, to give them something back. So, both categories bank and investors has a claim against a business they both claiming something from the business. |
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One claim is the Equity |
This represents the claim of the owner against the business. This claim is often referred to as the owner's capital. The money given from family savings, family, investors is called equity. |
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Liabilities |
Represents the claims of all individuals and organisations apart from the owners. They arise from post transactions or event such as supplying goods or lending money to the business. A libaility will be settled through an outflow of assets (usually cash). Liability is one source of getting funds. If a business takes a loan from the bank, its called a liability. It is liable to pay back the loan. |
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Current liabilities |
Current liabilities are basically amounts due for settlements in the short term. An example of a current liability would be amount owing to suppliers for good supplied on credit (trade payable) or a bank overdraft (a form of short term bank borrowing this is repayable on demand). Due to be settled within a year of the statement of financial position date. |
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Non-current liabilities |
Non current liabilities represent amounts due that do not meet the definition of current liabilities and so represent longer term liabilities. An example of a non current liability would be long term borrowings. |
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Business entity convention |
The first rule we use is business entity convention this means that the business has its own personality and it reports position which is different than the owners position. |
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Historical cost convention |
Historical cost convention holds that the value of assets shown on the statement of financial position position should be based on the historical cost that is acquisition cost. Historic cost convention historical value is under contract on the receipt 15,000 for a building is on the contract. |
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Prudence convention |
Prudence convention holds that caution should be exercised when making accounting judgement |
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Going concern convention |
This means when a business prepare a statement such as mobile support the business believe that it will keep on going for the following year they are not going to close down. |
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Dual aspect convention |
For every transaction there is going to be two accounts that will move so that the accounting equation balances |
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Money management |
A resource will only be regarded as an asset and included on the statement of financial position if it can be measured in monetary terms with a reasonable degree of reliability. |
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Goodwill |
The term goodwill is often used to cover various attributes such as the quality of the products, the skill of employees and the relationship with customers |
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Revenue |
Is simply a measure of the inflow of economic benefits arising from the ordinary operations of a business |
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Expense |
Is the opposite of revenue. Represents the flow of economic benefits arising from the ordinary operations of the business |
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Income statement-shown |
The income statement simply shows the total revenue generated during a reporting period and deducts from this the total expenses incurred in generation |
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Capital Expenditure |
An owner of a business spending money that is from their savings or from their investors to buy something new, the something new is going to be used as the main element to run the business because with that product there would be no business as that is the main element. For example, without a coffee machine there wouldnt be a coffee business as the coffee machine is the main element. THIS EXPENSE IS A CAPITAL EXPENDITURE. That means money is being spent to get capital for the business. |
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Revenue Expenditure |
When a business owner spends money for example to buy stock that the business owner tends to sell to customers. Everyday expensee are revnue expenses. For example, spend money to pay for the electricity, spend money to pay for the waitress, pay for the guy who makes the coffee, pay for rent because if the business owner does this, he/she can run the business and this expenditure will bring revenue to the business owner so its a revenue expenditure |
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Depreciation |
Is an account and symbolises the loss of value of fixed assets that the business keeps for longer than 12 months. Depreciation is the measure of the wearing out, consumption or other reduction in the useful economic life of a fixed asset. Deprecistion is a non cah expense (you dont pay, you just show that you lose value) |
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Carrying amount |
The amount left of the asset after the depreciation is called the carrying amount |
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Reducing Balance Method of Depreciation |
This method applies a fixed percentage rate of depreciation to the carrying amount of asset each year. Under this method the depreciation charge is higher in the earlier years of the life of the asset. Reducing balance is useful for assets which lose value quickly in earlier years or for assets which become outdated quickly |
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Net book value |
Is what you report on your balance sheet every year as an asset. It is the cost- all the depreciation from the previous years |
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Budget |
The budget talks about revenue and expenses but only about the future so its like a prediction that i expect a prediction of my expectations for the future. This makes the budget a MANAGEMENT ACCOUNTING TOOL. Because the financial accounting tool looks always about the past, but the management accounting tool looks forward thinking |
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Cash budget |
This tells me how much money i have in the business |
