Chapter 10 - Understanding financial information and accounting - Copy
Chapter 10 - Understanding financial information and accounting - Copy
business decisions.
Managerial and financial accounting
Contribution per unit = selling price per unit – variable cost per unit
This means Shu needs to sell 3,000 scarves to cover her costs.
Financial accounting – generates information for use outside
the organization.
Users- Internal user, external users
Internal – owner, manager, employee
Bank manager, government, potential investors,
Auditing
Bookkeeping
Double-entry bookkeeping
Journal
Ledger
Bookkeeping
Journal
The income statement shows what a firm sells its products for and
what its selling costs are over a specific period.
Cash flows
The statement of cash flows, which provides a summary
of money coming into, and going out of, the firm and
tracks a company’s cash receipts and cash payments.
The statement of cash flows highlights the difference
between cash coming into and cash going out of a
business.
Accounting Equation
Assets = Capital + Liabilities
Tracks the inflow and outflow of cash over a period, detailing how
changes in balance sheet accounts affect cash and cash equivalents.
Liquidity Ratios – the word liquidity refers to how fast an asset can
be converted to cash in order to pay a company’s short- term debts.
Current assets
Current ratio =
Current liabilities
Leverage ratios
Debt
to owners’ equity ratio measures the degree to which the
company is financed by borrowed funds that must be repaid.