Small Business Management Chapter 16

Equipment

Machinery, tools, or materials used in the performance of the work of the business.

Your Goal in Managing Accounts Receivable

Minimize the time that passes between credit sale and when the cash is received Keep number of bad accounts as low as possible

Factoring

Selling the rights to collect accounts receivable to an entity outside your business.

Inputs

The materials, labor, and energy put into the production of a good or service.

Accounts receivable

money that is owed to your business by your customers Relatively few small businesses today provide credit to customers

Periodic inventory

process of physically counting business assets on a set schedule

Perpetual inventory

recording the receipt and sale of each item as it occurs

Property

A general term for real estate, but it can also be applied as a legal term for anything owned or possessed.

Capital lease

A lease in which at the end of the lease period the asset becomes the property of the lessee, possibly with an additional payment.

Safety stock

An amount of inventory carried to ensure that you will not run out of inventory because of fluctuating levels of sales.

Point-of-sale system

Hardware and software combinations that integrate inventory management directly into accounting software.

Payback period

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset.

Book value

The difference between the original cost of an asset and the total amount of depreciation expense that has been recognized to date.

Cost of operating

The direct cost incurred in using an asset for the purpose for which it was intended.

Disposal value

The net amount realized after subtracting the costs of getting rid of an asset from its selling price.

Whole of life costs

The sum of all costs of capital assets, including acquisition, ownership, operation, and disposal.

Replacement cost

The total cost of replacing an asset with an essentially identical asset.

Quality

a product's or service's fitness for use, measured as durability, reliability, serviceability, style, ease of use, and dependability.

Supply chain

the line of distribution of a product from its start as materials outside the target firm to its handling in the target firm to its handling by sellers into the hands of customers.

Return on investment (ROI)

A capital budgeting equation used to measure the relationship between initial investment and the profits that are expected to be received from making the investment.

Lock box

A locked receptacle for money, the keys to which are not available to those who physically handle the receptacle common example of a lock box is the coin receptacle for parking meters which cannot be opened by the workers who are responsible for collecting the deposited coins.

Operating lease

A long-term rental in which ownership of the asset never passes to the person paying for the lease.

Best practices

Activities identified by authoritative bodies as examples of optimal ways to get things done in a particular industry, profession, or trade.

Capital assets

Assets that are expected to provide economic benefits for periods of time greater than one year.

Cost of owning

Cost incurred in financing, insuring, taxing, or tracking an asset.

Cost of disposition

Cost incurred in the activities necessary to get rid of an asset.

Right amount of inventory is determined by:

Cost of processing an order Cost of keeping merchandise in inventory Cost of lost sales if you run out Time it takes to receive inventory after it's ordered

Use your receivables in two ways to quickly lay your hands on cash:

Customer payments on pledged receivables may be collected either by you and forwarded to the lender, or may be directly collected by the lender You can sell your receivables to a finance company in a process called factoring

Inventory valuation

Determination of the amount of assets held by the firm for sale or production.

Pledging receivables

Giving a third party legal rights to debts owed your business in order to provide assurance that borrowed money will be repaid.

Bar coding

Obtaining a Universal Product Code number and scan-ready visual tag, and printing it on the product or its packaging. Bar codes can then be scanned and recognized by others.

Optimum stocking level

The amount of inventory that results in the minimum cost, when considering the cost of lost sales resulting from running out of stock, the number of units sold per day, and the number of days required to receive inventory Also known as the reorder point

Replacement value

The cost incurred to replace one asset with an identical asset.

Fair market value

The price at which goods and services are bought and sold between willing sellers and buyers in an arm's-length transaction.

Feedback

The process of communicating within or to the organization about how the outputs worked or were received.

Capital budgeting

The process of deciding among various investment opportunities to create a specific spending plan.

Operations

The process of transforming materials, labor, and energy into goods or services.

Microinventory

The purchase of inventory only after a sale is made; very typical with Internet firms.

Acquisition cost

The total cost of acquiring an asset, including such costs as purchase price, transportation, installation, testing, and calibrating in order to ready it for its first productive use.

Plant

general term for the facilities of a business.

Arm's length transaction

A business deal where the parties have a prior relation or affiliation, but where the business is conducted as if they were unrelated. Approach is done to help guard against potential conflicts of interest.

Physical inventory

A count of all the inventory being held for sale at a specific point in time.

Economic order quantity (EOQ)

A statistical technique that determines the quantity of inventory that a business must hold to minimize total inventory cost.

Pull-through system

A term for just-in-time inventory systems in which product is ordered and placed into production only after a sale has been completed.

Just-in-time inventory

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer.

Outputs

The service or product that is produced for sale