MGT 460 : Review the BBA core
MGT 460 : Review the BBA core MGT 460
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This 3 page Class Notes was uploaded by Winn on Saturday April 16, 2016. The Class Notes belongs to MGT 460 at Marshall University taught by Dr. Uyi Lawani in Spring 2016. Since its upload, it has received 8 views.
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Date Created: 04/16/16
Review the BBA core : accounting, financing , management , economics Explain Important More important Basic Accounting Formula Definition: The basic accounting formula forms the logical basis for double entry accounting. The formula is: Assets = Liabilities + Shareholders' Equity The three components of the basic accounting formula are: Assets. These are the tangible and intangible assets of a business, such as cash, accounts receivable, inventory, and fixed assets. Liabilities. These are the obligations of a business to pay its creditors, such as for accounts payable, accrued wages, and loans. Shareholders' equity. This is funds obtained from investors, as well as accumulated profits that have not been distributed to investors. In essence, a business uses liabilities and shareholders' equity to obtain sufficient funding for the assets its needs to operate. The basic accounting formula must balance at all times. If not, a journal entry was entered incorrectly, and must be fixed before financial statements can be issued. This balancing requirement is most easily seen in the balance sheet (also known as the statement of financial position), where the total of all assets must equal the combination of all liabilities and all shareholders' equity. The basic accounting formula is one of the fundamental underpinnings of accounting, since it forms the basis for the recordation of all accounting transactions. In essence, if both sides of the basic accounting formula do not match at all times, there is an error in the accounting system that must be corrected. The following table shows how a number of typical accounting transactions are recorded within the framework of the accounting equation: Transaction Type Assets Liabilities + Equity Buy fixed assets on Accounts payable (liability) Fixed assets increase credit increases Buy inventory on Accounts payable (liability) Inventory increases credit increases Retained earnings (equity) Pay dividends Cash decreases decreases Pay rent Cash decreases Income (equity) decreases Accounts payable (liability) Pay supplier invoices Cash decreases decreases Sell goods on credit Inventory decreases Income (equity) decreases (part 1) Sell goods on credit Accounts receivable Income (equity) increases (part 2) increases Accounts receivable Sell services on credit Income (equity) increases increases Sell stock Cash increases Equity increases Basic Finance Formula : 1) Calculate the cash flow = Income – Expenses. 2) Leverage ratio using income = Debt payments/ Income 3) Leverage ratio = Total debt / total equity 4) Real return = [ [(1+ investment return)/ ( 1+ inflation rate) ] – 1 ] x 100 5) Percentage increase = ( market price – purchase price) / purchase price 6) Years to double investment = 72 / R ( the annual interest rate of the investment ) Basic Economics Formula : 1) Average Total Cost (ATC) = Total Cost / Q (Output is quantity produced or ‘Q’) 2) Average Variable Cost (AVC) = Total Variable Cost / QAverage 3) Fixed Cost (AFC) = ATC – AVC 4) Total Cost (TC) = (AVC + AFC) X Output (Which is Q) 5) Total Variable Cost (TVC) = AVC X Output 6) Total Fixed Cost (TFC) = TC – TVC 7) Marginal Cost (MC) = Change in Total Costs / Change in Output 8) Marginal Product (MP) = Change in Total Product / Change in Variable Factor 9) Marginal Revenue (MR) = Change in Total Revenue / Change in Q 10) Average Product (AP) = TP / Variable Factor 11) Total Revenue (TR) = Price X Quantity 12) Average Revenue (AR) = TR / Output 13) Total Product (TP) = AP X Variable Factor 14) Economic Profit = TR – TC > 0 15) A Loss = TR – TC < 0 16) Break Even Point = AR = ATC 17) Profit Maximizing Condition = MR = MC