Unit 3 - Chapters 15 & 16

Appropriate Level of Inventory Determination

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

Handling ADA Requirements

1. Determine if you are subject to any of the provisions of the ADA 2. Obtain the services of experts on the ADA to evaluate the level of your compliance 3. Work diligently to meet the requirements to which you are subject

Risks Associated with Specific Business Operations

1. Events related to the property of the business 2. Events related to personnel 3. Events related to customers and others

Managing Risk from Employee Violation of Government Regulations

1. Have a written policy provided to each employee 2. Conduct training of managers and employees concerning those policies 3. Immediately and consistently act upon receipt of any complaint

Goals of Accounts Receivable

1. Minimize the time that passes between credit sale and when the cash is received 2. Keep number of bad accounts as low as possible

Use of Accounts Receivable as Source of Financing

1. You can pledge your receivables as collateral for a commercial loan 2. You can sell your receivables to a finance company in a process called factoring

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

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

Insurance

A contract between two or more parties in which one party agrees, for a fee, to assume the risk of another

Co-Insurance

A contract stipulation that requires a policyholder to carry insurance in an amount equal to a stated minimum percentage of the market value of the property insured

Physical Inventory

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

Property

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

Plant

A general term for the facilities of a business

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

Using an Internal Audit as a Tool to Manage Risk

A properly conducted, independent internal audit will give you: An evaluation of your overall level of business risk; An objective evaluation of your risk control structure; A systematic analysis of your business processes and controls; Information on irregularities detected during the audit process; Review of your firm's compliance with relevant regulations; A review of the existence and value of the assets of your business; Review of operational and financial performance; Recommendations for more effective and efficient use of resources

Internal Control

A set of rules and procedures that work to limit the opportunity for employee theft or malfeasance

Separation of Duties

A type of internal control that separates the physical control of an asset from the person accounting for that asset

Best Practices

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

Joint Venture

An agreement between two or more entities to pool resources in order to complete a project

Surety Bonds

An agreement with an insurance or bonding company that will pay a specified amount in the event that the entity bonded fails to comply with specified contractual requirements

Safety Stock

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

Deductible

An amount of loss that will not be paid by an insurance company

Capital Assets

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

Managing Risks

Best strategy is to develop a business environment that minimizes: 1. Probability of the event occurring 2. Amount of loss that can be experienced if the event does occur

Fidelity Bonds

Bonds that repay employers for losses caused by dishonest or negligent employees; also called dishonesty bonds

Outsourcing

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

Coverages

Contractual provisions of insurance policies that specify what risks the insurance company is assuming

Cost of Owning

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

Pledging Receivables

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

Buyout Insurance

Insurance that provides money to owners of a business to buy the shares of any deceased owner from that owner's heirs

Property of the Business - Specific Forms of Risk

Inventory can be stolen, machinery can break; Buildings can be damaged or destroyed; Land may become contaminated; Patents may be infringed upon

Regulation of the Workplace

Laws and governmental rules that limit the freedom of business owners to manage their businesses as they please

Tax Codes

Laws and regulations that specify the requirements of taxation; include franchise or corporation taxes, income taxes, employee taxes, sales and use taxes, and property taxes

Equipment

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

Employee Theft

Misappropriation of business property by employees of that business

Product Liability

Payment for injury or damage that occurs during the use of the business's products

Insurable Value

The amount of an asset for which a company will write an insurance policy

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 called the reorder point

Payback Period

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

Process

The business activities necessary to convert inputs into desired outputs

Efficiency

The comparison of productivity ratios to see the extent that an organization has generated more outputs with fewer inputs

Replacement Value

The cost incurred to replace one asset with an identical 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

Inputs

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

Productivity

The ratio measure of how well a firm does in using its inputs to create outputs, literally, productivity is outputs divided by inputs; Productivity = Outputs/Inputs

Procedure

The series of steps and activitiesrequired to complete a process

Outputs

The service or product that is produced for sale

Whole of Life Costs

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

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

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

Personnel Insurance

available to protect both you and your employees from specific risks; Life, Disability, Medical coverage

Intellectual Property Rights

comprise the legal rights to use unique features of products or services that provide competitive advantage; If the holder of the intellectual property rights promptly reacts to infringement by making written objections to any and all infractions, can the legal rights be maintained

Credit Insurance

covers abnormal losses from credit customers not paying their bills

Medical

most highly desired form of insurance for most employees

Periodic Inventory

process of physically counting business assets on a set schedule

Firewall

programs or pieces of equipment called routers which serve as abarrier between your PC and the Internet

Key Person

protects you in the event that a key employee dies or is disabled and cannot work

Life Insurance

provided to employees to provide security for their families

Identifying Risk

the first task of developing a comprehensive insurance program; Determine which risks are to be covered: Vehicle liability; Worker's compensation; General liability; Various types of malpractice coverage

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

Business Risk (C16)

the probability that the future state of the business will be less successful than planned, resulting in the loss of value of business assets

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

Most Commonly Identified Sources of Risk

Financial risk; Nonpayment of debts; Changes in technology; Injury and illnesses suffered by employees; Injury from accidents incurred by customers; Natural events; Theft of business property; Misbehavior by employees

Point-of-Sale System

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

Work Instructions

Specific guidance for completingsteps in a process

Antispyware Programs

Spyware are programs designed to report on your keystrokes ordata, or give remote control of your PC to others

Pros of Offering Credit

1. Giving credit increases sales because people who buy on credit tend to buy more 2. Giving credit increases repeat business 3. Providing credit reduces the cost of selling because it is much less expensive to obtain repeat business than it is to get new customers 4. Even though giving credit raises some costs, the increased sales result in increased profit

Events Related to Customers and Others

1. Injuries suffered while upon business property 2. Injury or damage that is caused during the use of the business's products

Managing Risk from Violations of Tax Regulations

1. Keep complete, accurate accounting records 2. Establish a relationship with both an accountant and a lawyer who are expert in tax issues 3. Make paying your taxes your first financial priority

Cost of Disposition

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

Cons of Offering Credit

Credit delays receipt of cash; Must replace the "missing" cash; Sooner or later a customer will not pay

Inventory Valuation

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

Cost of Property Insurance

Determined by: Property's insurable value; Amount of deductible loss; Amount of co-insurance required; Loss limits of the policy

Key Employees

Employees whose experience and skills are critical to the success of a business; Loss of key employees is a particularly acute risk for small businesses

Creation of Best Strategy

Making specific plans for, and arrangements to deal with, foreseeable events; Creating and enforcing an appropriate code of conduct for yourself and all employees; Ensuring that valuable assets are physically secure; Actively working to get rid of any physical hazards in your workplace

Accounts Receivable (C15)

Money owed to your business by customers who purchased your product on credit; Relatively few small businesses today provide credit to customers

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

Factoring

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

Protected Classes

States of being that are expressly prohibited from suffering discrimination: race, color, religion, sex, national origin, gender, age, or disability

Perpetual Inventory

System of recording the receipt and sale of each item as it occurs

Disposal Value

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

Just-In-Time Inventory (JIT)

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

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

Antivirus Program

Viruses are malicious programs designed to damage PCs

Outsourcing to Improve Productivity

1. Know yourself 2. Keep strategy decisions in-house 3. Fully specify tasks that are to be outsourced 4. Know with whom you are contracting

Lock Box

A locked receptacle for money, the keys to which are not available to those who physically handle the receptacle; common example 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

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

Fidelity Bond Facts

consider the following:The scope of coverage; All exclusions; Types of employee dishonesty not covered; Coverage for employee actions off-premises