Management Accounting Centerpiece The Profit Model

Model For Final Accounts

Suppose you're the new president of the company that has been used as the main example for studying external financial statements throughout the previous chapters. You ask me, the chief accountant and controller of the business, to prepare a profit report for your decision-making, planning, and control purposes. Soon thereafter I present to you the profit report shown in Exhibit O on page 166. It contains highly confidential information that would not be released outside the business. Exhibit O...

To Accelerate or

Most business buildings last 50, 75, or more years. Yet under the federal income tax law the cost of nonresidential buildings used by a business can be depreciated over 39 years (31.5 years before 1993). Most autos and light trucks used by businesses last 10 years or longer, but can be depreciated over 5 years under the tax law. In brief, the federal income tax law permits business fixed assets to be depreciated over a shorter number of years than the actual useful lives of the assets. This is...

Why Footnotes

A typical annual report contains more than the basic three financial statements. This chapter focuses on one additional piece of information in annual financial reports footnotes to financial statements. Footnotes provide the so-called fine print. Without footnotes financial statements would be incomplete, and possibly misleading. Footnotes are an essential supplement to financial statements. Top-level managers should never forget that they are responsible for the company's financial statements...

Useful Layout to See the Interlocking Nature of Financial Statements

The balance sheet and income statement for this business are introduced in Exhibits B and C in Chapter 2. The cash flow statement is presented for the first time here. The cash flows of the company for the year are discussed in Chapter 1, and are presented in an informal summary (Exhibit A). The actual cash flow statement of the business is now shown in Exhibit D. Exhibit D shows the general flow of connections between the three financial statements. Sales...

The Trouble with Conventional Financial Statement Reporting

Unfortunately, the way financial statements are presented to business managers and other interested readers does not pave the way for understanding how making profit drives the financial condition and cash flow of the business. You can miss the vital interplay between the income statement and the balance sheet because each statement is presented like a tub standing on its own feet interconnections between these two financial statements are not made explicit. Exhibits B and C in Chapter 2...

Importance of Cash Flows Cash Flows Summary for a Business

Business managers, lenders, and investors, quite rightly, focus on cashflows. Cash inflows and outflows are the heartbeat of every business. So, we'll start with cash flows. For our example we'll use a midsize company that has been operating many years. This established business makes a profit regularly and, equally important, it keeps in good financial condition. It has a good credit rating banks are willing to lend money to the company on very competitive terms. If the business needed more...

Two Types of Footnotes

First, the main accounting methods used by the business are identified and briefly explained. For instance, the particular accounting method used to determine the company's cost of goods sold expense and its ending inventory cost is identified Chapter 20 explains these methods . For many expenses and even for sales revenue most businesses can choose between two or three generally accepted accounting methods. The company's selections of accounting methods have to be...