Chapter 15: Assets - Inventory and Operations Management

Point-of-sale (POS) System

Hardware and software combinations that integrate inventory management directly into accounting software. e.g. supermarket scanner and multibutton registers at fast-food restaurants

Payback period

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset. pro: simplicity; easy comparison of alternatives that are dissimilar in magnitude of cash flows and overall project life con: it disregards the time value of money; it disregards all cash flows that occur after the payback period

Outsourcing

Contracting with people or companies outside your business to do work for your business

Perpetual inventory

a system of recording the receipt and sale of each item as it occurs pro: instant access to accurate inventory records; easier to manage inventory levels con: high time cost needed for constant record keeping

Periodic inventory

process of physically counting business assets on a set schedule pro: relatively inexpensive and meets the requirements of both local and federal taxing agencies

Factors determining the appropriate level of inventory

1. the cost of processing an order 2. the cost of keeping merchandise in inventory 3. the cost of lost sales if you run out 4. the time it takes to receive inventory after it's ordered

Pledging Receivables

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

Pros and Cons of Leasing

Pro: obtain a very low down payment; the process of negotiating and closing a lease is usually less complicated and expensive than making a purchase and obtaining borrowed funds; much easier for you to replace leased assets than it is to replace assets you own Con: costs more than purchasing; leased assets are usually subject to numerous restrictions on how they may be used, maintained, and disposed of.

Supply chain

a way to think about 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, with placement into the hands of customers

Process

the business activities necessary to convert inputs into desired outputs

Replacement value

the cost incurred to replace one asset with an identical asset pro: accurate con: price of a new asset is higher than the price of the identical asset already in your business

Book value

the difference between the original acquisition cost and the total amount of accumulated depreciation

Productivity

the ratio measure of how well a firm does in using its inputs to create outputs productivity = outputs/inputs

Procedure

the series of steps and activities required to complete a process

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. ROI= (average annual profits)/(average investment) pro: it is easy to calculate; it relies on accounting info with which business owners, lenders, and investors are comfortable con: profits are not the same as cash; ignores the time value of money

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

Operating Lease

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

Pledging vs Factoring Receivables

Pledging: - less liable only for the borrowed amount and accrued interest on the load - chance to collect all receivables - commercial lender will only loan you one-half of the amount that can be collected Factoring: - you get 75 to 80% of the amount due - if a factor does not collect enouigh money to make a profit, it's the factor's problem, not yours.

Inventory

Products that are held for sale to customers

Lease

a rental agreement that specifies a minimum period of time for which you must make rental payments

Disposal value

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

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.

Factoring

selling the rights to collect accounts receivable to an entity outside your business

Work instructions

specific guidance for completing steps in a process