Business Review: Income Statement, Cash Flow and Pricing and Markups

The following four questions are examples of the types of concepts which a freshman student in the college of business will be expected to understand. Throughout the students academic career, courses will build upon these ideas. Business is a major which has many different areas of expertise such as Accounting, Marketing, Management, and Business Administration. It is crucial to new students to understand the importance of frequently attending class and networking with other students by classroom participation.

1.   Explain the income statement. What information does it provide?
An income statement is the statement that shows summaries a firm’s operations over a given period of time in terms of profit and loss (Revenue – Expenses = Net Income.)

2.   Why is a statement of cash flow important to a business owner?
The statement of cash flow gives the owner an inside idea as to where the money is going and the route that it took to get to that point. Stakeholders want to know if there is adequate cash to pay workers, creditors, suppliers and IRS.

The World of Business

3.   Explain the difference in financial accounting and managerial accounting.
Managerial Accounting deals more with competition and the numbers that are put on the table to fondle with whereas Financial Accounting deals with the numbers on a wider scale. Financial Accountants do no rely on information to get their jobs done.

4.   Why is budgeting important? Explain the difference in top-down and bottom-up budgeting.
Budgeting is important because it gives you an outline as to how resources should be allocated.
Top-down budgeting – top management prepares the budget with little or no input from middle and supervisory managers
Bottom-up or participatory budgeting - allows middle and supervisory managers to actively participate in the creation of the budget

Pricing and Markup

Marketers refer to the four P's of marketing as Product, Price, Place and Promotion. So when discussing price it is important to consider the variable and external factors that go into making a pricing decision which includes identifying pricing as an interactive decision with markups affecting both the retailer and the consumer.

What is pricing? Pricing is an interactive decision.  Pricing should interact with the services offered by the retailer through merchandise, location, promotion, credit, customer service, store image, and legal constraints. Variable pricing recognizes that differences in demand and cost necessitate that the retailer change prices in a fairly predictable manner. Flexible pricing encourages offering the same products and quantities to different customers at different prices.  Demand for the item being sold affects variable pricing.  I would rather buy a car from a dealer using flexible pricing because with some bargaining the price will go down.

Which Markup do Car Dealers/ Retailers Prefer?

Example Markups: 49.95 – 31.20 = $18.75 markup
Maintained markup is more important to a retailer. Initial markup may be equal to maintained markup if the retailer can always sell the merchandise for the initial markup.