Starting or operating a firm is difficult. Among your many tasks, you have to beat the competition and turn a profit or you will soon be among that 80 percent of firms that don’t make it.Making a profitHow many hats can you wear?
To understand f/s you have to understand their purpose. F/s are nothing more than an information system. Accounting, in one form or another has been around thousands of years but MIS as a management science degree only began in 1974.
If you are in business to make a profit you must monitor the critical variables. In the most general terms, that means that to be successful performance at every level must be tied to standards or achievement which are tied to overall goals of the firm and they are ones that can be measured. That is where accounting comes in and where the need to interpret f/s becomes critical.
Flow chart
Our primary focus is going to be on the IS and the BS because they are inter-related and one can measure most of your critical variables from these two. The IS relates to these two because net income increases the owner’s equity and flows over to the b/s. We will also talk about cash flow and very briefly about the importance of break-even.
Page 7
Page _________in the workbook.
Pages 13 through 16
Page 13Common-sizing
Ratio between capital invested by owners and funds provided by creditorsAbility to cover present interest payments and a measure of ability to handle more debt
I think I’m making a profit so why don’t I have any cash?Sales 10 (Cash collected 0)Exp 9Profit 1
Business in the 700sConsumer in the 600s
25-35 % of available creditDebt/IncomeEmploymentYears at address and employer
