Accounting for Dummies by John A. Tracy Cpa

Author:John A. Tracy, Cpa [John A. Tracy, Cpa]
Language: eng
Format: epub
Tags: Business & Economics, General, Accounting
ISBN: 9781118052358
Publisher: John Wiley & Sons
Published: 2011-04-08T05:46:47+00:00

Chapter 9

Analyzing and Managing Profit

In This Chapter

ᮣ Recognizing the profit-making function of business managers

ᮣ Scoping the field of managerial accounting

ᮣ Centering on profit centers

ᮣ Understanding P&L reports

ᮣ Analyzing profit for fun and profit

As a manager, you get paid to make profit happen. That’s what separates you from the employees at your business. Of course, you should be a motivator, innovator, consensus builder, lobbyist, and maybe sometimes a babysitter, too, but the hard-core purpose of your job is to make and improve profit. No matter how much your staff loves you (or do they love those dough-nuts you bring in every Monday?), if you don’t meet your profit goals, you’re facing the unemployment line.

Competition in most industries is fierce, and you can never take profit performance for granted. Changes take place all the time — changes initiated by the business and changes from outside forces. Maybe a new superstore down the street is causing your profit to fall off, and you figure that you’ll have a huge sale to draw customers, complete with splashy ads on TV and Dimbo the Clown in the store. Whoa, not so fast. First make sure that you can afford to cut prices and spend money on advertising and still turn a profit. Maybe price cuts and Dimbo’s balloon creations will keep your cash register singing, but making sales does not guarantee that you make a profit. Profit is a two-headed beast: Profit comes from making sales and controlling expenses.

This chapter focuses on the fundamental financial factors that drive profit —

what you could call the levers of profit. Business managers need a sure-handed grip on these profit handles. Profit reports prepared for people outside the business don’t disclose all the vital information that business managers need to plan and control profit performance. A manager needs to thoroughly understand external income statements and also needs to look deep into the bowels of the business.

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184 Part III: Accounting in Managing a Business

Helping Managers Do Their Jobs

As previous chapters explain, accounting serves critical functions in a business. A business needs a dependable recordkeeping and bookkeeping system for operating in a smooth and efficient manner. Strong internal accounting controls are needed to minimize errors and fraud. A business must comply with a myriad of tax laws, and it depends on its chief accountant (controller) to make sure that all its tax returns are prepared on time and correctly. A business prepares financial statements that must conform with established accounting standards, which are reported on a regular basis to its creditors and external shareowners. In addition, accounting should help managers in their decision-making, control, and planning. This sub-field of accounting is generally called managerial or management accounting.

This is the first of three chapters devoted to this branch of accounting. In this chapter, I pay particular attention to the internal accounting report to managers that provides essential feedback information needed for controlling current profit performance, and which also serves as the platform for planning future profit performance.

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