BA 101 Midterm 2

Operational Needs Key Areas

- Managing day by day needs of the business - Controlling credit operations - Acquiring need inventory - Making capital expenditures

Accounting

- Often Called the language of business. - Allows us to report financial info about nonprofits like churches, schools, hospitals, frats, and gov. agencies. - The recording, classifying, summarizing, and interpreting of financial events/transactions to provide management and other interested parties the info needed to make good decisions.

5 Standards of Useful Money Form:

- Portability - Divisibility - Stability - Durability - Uniqueness

3 Main Reasons of Financial Failure

- Undercapitalization (Insufficient funds to start the business) - Poor control over cash flow. - Inadequate expense control

Steps in the Accounting Cycle

1. Analyze source documents (Sale Slips, Travel Records) 2. Record transactions in journals 3. Transfer (Post) journal Entries to the ledger 4. Take a trial balance 5. Prepare financial statements (Balance Sheet, Income Statement, Statement of Cash Flows) 6. Analyze Financial Statements

3 Basic Requirements of Production (Grove):

1. Build/Deliver products in response to the demands of the customer at a scheduled delivery time. 2. Provide an acceptable quality level. 3. Provide Everything at the lowest cost possible.

Processing Outputs

1. Entries are made into journals: Recording 2. Effects of journals entries are transformed or posted into ledgers 3. All accounts are summarized

Accounting Cycle

A 6-step procedure that results in the preparation and analysis of the major financial statements.

Cash Budget

A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.

Electronic Funds Transfer (EFT) System

A computerized system that electronically performs financial transactions such as making purchases, paying bills, and receiving paychecks.

Savings and Loan Association (S&L's)

A financial institution that accepts both savings and checking deposits and provides home mortgage loans.

Unsecured Loan

A loan that doesn't require any collateral.

Cost of Goods Sold (Or cost of goods manufactured)

A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.

Reserve Requirement

A percentage of commercial banks checking and savings accounts that must be physically kept in the bank.

Commercial Bank

A profit-seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans.

Trial Balance

A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.

Certificate of Deposit (CD)

A time-deposit (savings) account that earns interest to be delivered at the end of the certificate's maturity date.

Certified Public Accountant (CPA)

Accountant who passes a series of exams established by the American Institute of Certified Public Accountants (AICPA).

Public Accountant

Accountant who provides accounting services to individuals of businesses on a fee basis.

Private Accountant

Accountant who works for a single firm, gov. agency, or nonprofit.

Inputs

Accounting Documents, Sales Documents, Purchasing Documents, Shipping Documents, Payroll records, Bank Records, Travel Records, Entertainment Records.

Financial Accounting

Accounting info and analyses prepared for people outside the organizations.

Managerial Accounting

Accounting sued to provide info and analyses to managers within the organization to assist them in decision making.

Government and Not-For-Profit Accounting

Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.

Pension Funds

Amounts of money put aside by corporations, nonprofit organizations, or unions to cover part of the financial needs of members when they retire.

Tax Accountant

An accountant in tax and law and responsible for preparing tax returns or developing tax strategies.

Independent Audit

An evaluation and unbiased opinion about the accuracy of a companies financial statements.

Federal Deposit Insurance Corporation (FDIC)

An independent agency of the U.S. government that insures bank deposits.

Money

Anything that people generally accept as payment for goods and services.

Accounting Equation

Assets = Liabilities + Owner's Equity

Fixed Assets

Assets that are relatively permanent, such as land, buildings, and equipment.

Acid Ratio

Assets-Inventory / Liabilities

Gantt Chart

Bar graph showing production managers what projects are being worked on and what stage they are in.

Bonds

Borrowing money from the industry.

Capital Budget

Budget that highlights a firm's spending plans for major asset purchases that often require large sums of money.

Open-Market Operations

Buying / Selling of US government bonds by the FED with the goal of regulating the money.

Contribution Margin Equation

CM = Sales - Variable Costs

Iso 14001

Collection of best practices for managing an organizations impact on the environment.

Iso 9001

Common name given to quality management/assurance standards.

Quality

Consistently producing what the customer wants while reducing errors before and after delivery to customer.

Operating Expenses

Costs involved in operating a business (rent, utilities, salaries).

Production

Creation of finished goods/services using the factors of production.

Current Ratio

Current Assets / Current Liabilities

Accounts Payable

Current liabilities involving money owed to others for merchandise or services provided on credit but not yet paid for.

Flexible Manufacturing

Designing machines to do multiple tasks to provide a variety of products.

Barter

Direct trading of goods/services for other goods/services.

Yield

Dividend / Price

Liquidity

Ease with which an asset can be converted into cash

Smart Card

Electronic funds transfer tool that is a combination credit card, debit card, phone card, driver's license card, and more.

Debit Card

Electronic funds transfer tool that serves the same function as checks: withdraws funds from a checking account.

Outputs

Financial Statements, Balance Sheets, Income Statement, Statement of cash flows, Other Reports.

Non Banks

Financial organization that accept no deposits but offer many services provided by regular banks.

Budget

Financial plans that sets forth managements expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm.

Balance Sheet

Financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners' equity.

Statement of Cash Flows

Financial statement that reports cash receipts/disbursements related to a firm's 3 major activities: operations, investments, financing

Cash Flow Forecast

Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.

Finance

Function in a business that acquires funds for the firm and manages those funds within the firm.

Purchasing

Function in a firm that searches for quality material resources, find best suppliers, and negotiates best price for goods/services.

Debt Financing

Funds raised through various forms of borrowing that must be repaid.

Line Of Credit

Given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available.

Output Examples

Goods, Services, and Ideas.

Gross Profit (Or Gross Margin)

How much a firm earned by buying (Or making) and selling merchandise.

Critical Path

In a PERT network, the sequence of tasks that take the longest time to complete.

Robotics

Industrial robots can work 24 hrs/day, 7 days/week with great precision.

The Accounting System

Inputs - Processing - Outputs

Production Processes

Inputs - Production - Outputs

Financial Management

Is the heartbeat of competitive business, and accounting information helps keep it stable.

Current Assets

Items that can or will be converted into cash within one year.

Auditing

Job of reviewing and evaluating the info used to prepare a companies financial statements.

Factors of Production

Land, Labor, Capital, Entrepreneurship, and Knowledge.

Input Examples

Land, Labor, Capital, Entrepreneurship, and Knowledge.

Secured Loan

Loan backed by collateral (Something valuable, such as property).

Intangible Assets

Long-term assets (Patents, Trademarks, Copyrights) that have no real physical form but do have value.

Bonds Payable

Long-term liabilities that represent money lent to the firm that must be paid back.

Capital Expenditures

Major Investments in either tangible long-term assets such as land, buildings, and equipment of intangible assets such as patents, trademarks, and copyrights.

Financial Managers

Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.

Inter-firm Operations Management

Many companies outsource to other companies for engineering, design, and manufacturing.

Liquidity Ratios

Measure a companies ability to turn assets into cash to pay its short-term debts.

Leverage (Debt) Ratios

Measure the degree to which a firm relies on borrowed funds in its operations.

Program Evaluation and Review Technique (PERT)

Method for analyzing the tasks involved in completing a given project, estimating time needed to complete each task, and identifying the minimum time needed to complete the total project.

Equity Financing

Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).

Venture Capital

Money that is invested in new or emerging companies that are perceived as having great profit potential.

Earnings Per Share

Net Income / Number of Shares

Return on Equity

Net Income / Owners' Equity

Credit Unions

Non profit , member-owned financial cooperatives that offer the full variety of banking services to their members.

International Monetary Fund (IMF)

Organization that assists the smooth flow of money among nations.

Book Value

Owners' Equity / Number of Shares

Process Manufacturing

Part of production process that physically or chemically changes materials. Ex. Boiling an Egg.

Assembly Process

Part of the production process that puts together components. Ex. Car = Engine, Frame, Wheels, Etc.

Facility Outlet

Physical arrangement of resources in the production process.

Production Control Examples

Planning, Routing, Scheduling, Dispatching, and Follow-up.

Trade Credit

Practice of buying goods and services now and paying for them later.

Double-Entry Book Keeping

Practice of writing every business transaction in 2 places.

Risk/Return Trade-off

Principle that the greater the risk a lender takes in making a loan, the higher the interest rate required.

Financial Control

Process in which a firm periodically compares it's actual revenues, costs, and expenses with its budget.

Facility Location

Process of selecting a geographic location for a companies operations.

Factoring

Process of selling accounts receivable for cash.

Intermittent Process

Production Process where production run is short or the machines are changed frequently to make different products.

Continuous Process

Production process where long production runs turn out finished goods overtime. Ex. Steel Mill

Letter of Credit

Promise by the bank to pay the seller a given amount of certain conditions are met.

Bankers Acceptance

Promise that the bank will pay some specified amount at a particular time.

Term-Loan Agreement

Promissory note that requires the borrower to repay the loan in specified installments.

Six Sigma Quality

Quality measure that allows only 3.4 defects per million opportunities.

Leverage

Raising needed funds through borrowing to increase a firm's rate of return.

Cost of Capital

Rate of return a company must earn in order to meet the demands of its lender/expectations of its equity holders.

Journal

Record book or computer program where accounting data is first entered.

How Much Money Is Needed =

Revenue - Expense

Net Income or Net Loss

Revenue left over after all costs and expenses, including taxes, are paid.

Notes Payable

Short-term or long-term liabilities that a business promises to repay by a certain date.

Ledger

Specialized accounting book or computer program in which info from accounting journals is accumulated into specific categories and posted so that managers can find all the info about one account in the same place.

Operations Management

Specialized area in operations management that converts resources into goods/services.

Financial Statements

Summary of all transactions that have occurred over a particular period.

Depreciaction

Systematic write-off of the cost of a tangible asset over its estimated useful life.

Mass Customization

Tailoring products to meet the needs of a large number of individual customers.

Money Supply

The amount of money the Federal Reserve Bank makes available for people to buy goods and services.

Ratio Analysis

The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firms financial statements.

World Bank

The bank primarily responsible for financing economic development; also known as the International Bank for Reconstruction and Development.

Operating (Or Master) Budget

The budget that ties together the firm's other budgets and summarizes its proposed financial activities.

Cash Flow

The different between cash coming in/out of a business

Income Statement

The financial statement that shows a firm's profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (Revenue), all the resources that have left the firm, expenses, and the resulting net income or net loss.

Discount Rate

The interest rate that the FED charges for loans to member banks.

Financial Management

The job of managing a firm's resources so it can meet its goals and objectives.

The Federal Reserve (The FED)

The organization in charge of money in the US.

Savings Association Insurance Fund (SAIF)

The part of the FDIC that insures holders of accounts in savings and loan associations.

Lean Manufacturing

The production of goods using less of everything compared to mass production.

Book Keeping

The recording of business transactions

Demand Deposit

The technical name for a checking account; the money in a demand deposit can be withdrawn anytime on demand from the depositor.

Time Deposit

The technical name for a savings account; the bank can require prior notice before the owner withdraws money from a time deposit.

Production Management

The term used to describe all the activities managers do to help their firms create goods.

Total Debt to Total Assets Ratio

Total Debt / Total Assets

Debt to Equity Ratio

Total Debt / Total Owners' Equity

Computer-Integrated Manufacturing (CIM)

Uniting of CAD and CAM

Computer-Aided Manufacturing (CAM)

Use of Computers in the manufacturing of products.

Computer-Aided Design (CAD)

Use of computers in the design of products.

Form Utility

Value producers add to materials in the creation of finished goods and Services.

Liabilities

What the business owes to others (debts).

Balance Sheet Tells A Story

Working Capital

Telecommuting

Working from home via computer/modem.

Promissory Note

Written agreement with a promise to pay a supplier a specific sum of money at a definite time.

Annual Report

Yearly statement of the financial condition, progress and expectations of an organization.

Retained Earnings

the accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.

Owners' Equity

the amount of the business that belongs to the owners minus any liabilities owed by the business.