BA101 Midterm #2
account cycle (6-steps)
1- analyze source documents 2 - record transactions in journal 3 - transfer post journal entries to ledger 4 - take a trial balance 5 - prepare financial statements 6 - analyze financial statements
5 standards for a useful form of money
1. Portability 2. Divisibility 3. Stability 4. Durability 5. Uniqueness
Program evaluation & review technique (PERT)
A method for analyzing the tasks involved in completing a given project, estimating the time needed to complete each task, and identifying the minimum time needed to complete the total project (critical path)
letter of credit (international)
A promise by the bank to pay the seller a given amount if certain conditions are met.
Operations Management
A specialized area in management that converts or transforms resources (including human resources) into goods and services.
Acid test or quick ratio (equation & stability)
Acid test ratio = cash + account receivable + market securities / current liabilities 0.5-1.0 is satisfactory
current ration (equation & stability)
Current Ratio = Current Assets / Current Liabilities $2+ is stable
operating (5 roles)
Involves day-to-day decision making by managers, which is often facilitated by budgeting ... managing day-to-day funds, credit operations, inventory, capital operations, capital expenditures, acquiring funding
3 types of US money supply
M1 - quick and easy access (cash, coins, checks) M2 (most) - M1 & money in saving accounts, mutual funds, etc. M3 - M2 & big deposits such as institutional money market fund
falling dollar value
The amount of goods and services you can buy with a dollar decreases. (bad for Americans)
rising dollar value
The amount of goods and services you can buy with a dollar increases. (good for Americans)
discount rate
The interest rate on the loans that the Fed makes to banks (rate increases = slows)
primary markets (stocks/bonds)
The primary market for stock issuance works in a similar way to the bond primary market. However, some terminology is different. A firm that is going public (or selling shares of ownership for the first time) is going to perform an initial public offering (IPO). These IPOs are sometimes called new equity offerings. However, much of the underwriting occurs in a similar manner, which we have discussed above.
computer-integrated manufacturing (CIM)
The uniting of computer-aided design with computer-aided manufacturing. Expensive but cuts 80% of programming time
Baldrige Award
US award for seven measures of quality ... leadership; strategic planning; customer and market focus; measurement, analysis, and knowledge management; human resource focus; process management; and results
Material Requirements Planning (MRP)
a computer system that forecasts sales & schedules the precise quantity of materials needed to make the product by
electronic funds transfer (eft)
a computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents
fixed-position layout
a layout that brings all resources required to create the product to a central location (airplanes)
six sigma quality
a quality measure that allows only 3.4 defects per million opportunities
promissory note
a written contract with a promise to pay a supplier a specific sum of money at a definite time
acquiring short-term funding (goal)
address cash flow problems, unexpected expenses, monthly dispenses
general expenses (operating expense)
administrative expenses
Gross sales
all sales of business
money (defined)
anything accepted as payment for goods & services
ratio analysis (4-types)
assessments of firms financial performance with ratios liquidity, leverage/debt, profitability, activity ratios
fundamental accounting equation (balance sheet)
assets = liabilities + owner's equity
fixed assets
assets that are relatively permanent, such as land, buildings, and equipment
Gantt Chart
bar graph showing production managers what projects are being worked on and what stage they are in at any given time
debt financing
borrowing money from financial institutions (bank or bonds) to repay with interest
capital budget
budget for major asset purchases (property, building, equipment)
trade credit
buying on credit - goods and services now and paying for them later
equity financing
buys stocks & takes on new owners of business
short-term forecast
cash flow forecast predicts revenues/costs/expenses for period of 1 year or less
working capital
cash, accounts receivable, inventory, total current assets
Statistical Quality Control (SQC) & statistical process control (SPC)
checks quality at every phase to reduce overall inspection costs
facility location
choosing location based on costs of labor/materials & consumer convenience
debt to equity ratio
compares amount you owe to amount you own (ratio +2.0 is considered risky)
3 computer inventions in production/operations
computer aided design (CAD), computer aided manufacturing (CAM), Computer integrated manufacturing (CIM)
ledger
computer software that help accountants track expenses
just-in-time inventory (JiT)
computer system keeps minimum inventory on premise, delivering materials just before they are needed (requires ERP)
cost of goods sold (function & equation)
cost of materials used to produce goods firm sells costs of goods sold = purchase price + freight charges + storage costs
Production
creation of finished goods & services using factors of production
accounts payable
current bills (1-year) company owes
net income/net earnings/net profit (equation)
deducting all expenses form revenue before taxes
debt to owners' equity ratio - % (leverage (debt) ratio)
degree to which firm relies on borrowed funds for operations debt to owners equity ratio (%) = total liabilities/ owners equity
cash flow
depicts how balance sheet changes from year to year
balance sheet (function & 3 components)
depicts net worth & financial condition of firm. Includes assets, liabilities, owner/stockholder's equity
cash flow
difference between cash coming in and going out of business (operations, investments, financing reduce)
barter
direct trading of goods & services
statement of cash flows
distribution of cash receipts & cash disbursements in a firm (how was money spent?)
yield (stock formula)
dividend / price
dividends
earnings distributed to stockholders
earnings per share (EPS) - profitability ratio
earnings help stimulate firms growth & determine stockholder dividends BASIC EPS = net income after taxes / # of common stock shares outstanding
inventory turnover ratio - activity ratios
effectiveness of how management is turning over inventory (higher is better, less waste in storage) inventory turnover = costs of goods sold / average inventory
ISO 14001 Standards
environmentally conscious businesses
leverage ratios
evaluate firms debt
Operations management planning (6 tasks)
facility location, facility layout, materials requirement, purchasing, inventory, quality control
accounting disciplines (6-types)
financial accounting, managerial, auditing, tax accounting, gov & not-for-profit accounting
goodwill
firm's reputation/superior products/location
financial accounting (function, report, and types)
generates financial info for people outside organization (gov/public) annual report, private vs. public accountant
managerial accounting
generates info to managers inside the organization (production marketing, budgeting, minimize taxes)
depreciation
good lose value over time, loss of value written off as expense
net sales
gross sales minus returns, discounts, allowances
venture capital
groups of people investing in company taking large ownership
liquidity ratios (2 types)
how fast a company can turn assets into cash to pay off its short-term liabilities ... from cash flow statement current ration & acid test/quick ratio
gross profit/margin (function & equation)
how much business earned by making/selling merchandise gross profit/margin = net sales - costs of goods sold
return on sales - profitability ratio
how well is firm generating income from sales? return on sales = net income/net sales
critical path
in a PERT network, the sequence of tasks that takes the longest time to complete
production process (3 steps)
inputs to production control to outputs/assembly process
current assets
items that can be converted into cash within one year
factors of production (5)
land, labor, capital, entrepreneurship, & knowledge
auditing
legal check to review and evaluate info used to prepare financial statements independent audit performed by third-party
secured loan (commercial banks)
loan backed by collateral
unsecured loan
loan guaranteed only by a promise to repay it
continuous process
long production yields goods over time (pharmaceuticals)
bonds payable
long term loans to bond holders
intangible assets
long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value
flexible manufacturing
machines do multiple tasks
quality control
maintain what consumer wants & reduce errors
government & not-for-profit accounting
makes sure government is fulfilling obligations to make proper use of taxpayer/ratepayer money
federal reserve (3 tools & goal)
manages money supply, or amount of money available to buy goods/services ... balances inflation with unemployment ... concerned with economic growth and the creation of jobs reserve requirement, open-market operations, discount rate
financial management (overview)
managing firms resources & determining how to acquire money
selling expenses (operating expense)
marketing and distribution of goods/services (advertisements, supplies)
mass manufacturing
maximizes production of limited number of goods
profitability (performance) ratios (3-types)
measure how effective resources are being used to achieve profits, predict growth & management performance earnings per share (EPS), return on sales, return on equity
return on equity - profitability ratio
measures risk of failure or loss for investors (greater than 15% is reasonable) return on equity (%) = net income after tax / total owners equity
inventory control
minimize costs by managing inventory
revenue (function & equation)
monetary value received for goods sold, services rendered, & other payments (rent) revenue = products sold x price per product
earnings per share (stock formula)
net income / number of shares
bottom line (equation)
net income or loss of firm profit/loss = revenue - sales returns/costs/expenses/taxes
other types of banks (5)
online banking, commercial banks, savings & loan associations, credit unions, nonbanks
business activities (3)
operating, investing, financint
book value (stock formula)
owners equity/number of shares
secondary markets (stocks/bonds)
owners trade previously issued securities
long-term liabilities
payments due in longer than 1 year
current liabilities
payments due within 1 year
facility layout (4 types)
physical arrangement of resources to increase efficiency (assembly-line, modular, fixed-position, process)
process manufacturing
physically or chemically changing materials (glass to computer chips)
cash budget
predicts borrowing by cash inflows and outflows
long-term forecast
predicts revenues, sales, longer than one year
tax accounting
prepares taxes and advises on tax strategies
deflation
prices decline due to surplus of goods/services
lean manufacturing
production of goods with less resources
retained earnings
profits kept by a company reinvested. Can be sold as long-term financing
assembly process
puts parts together
leverage (long-term financing)
raising funds through borrowing
double-entry bookkeeping
recording transactions in journal and ledger to minimize errors
accounting
recording/classifying/analyzing financial transactions in an organization (language of business)
operating expenses (3 types)
rent, salaries, supplies, utilities, and insurance inquired by firm to operate selling expenses, general expenses, depreciation
4 technological innovations for production & operations
robotics, 3D printing, sensors, nano manufacturing improve efficiency
purchasing
searches for high quality materials at lowest price from best manufacture (technology helps a lot)
factoring
selling accounts receivable to intermediary firms for cash
intermittent process
short production creates specific custom orders by manipulating machinery
commercial paper
short-term unsecured debt issued by large corporations (100k+)
notes payable
short/long term loans from banks
process layout
similar equipment and functions are grouped together
Enterprise Resource Planning (ERP)
single platform that combines MRP with other divisions to produce streamlined process
trial balance
summary of all financial data on ledgers
financial statement (3 types)
summary of financial transactions occurring over specific period indicating health & stability of firm ... balance sheet, income statement, statement of cash flows
income statement (function)
summary of resources coming into and exiting business to calculate profit (net income) or net loss
mass customization
tailoring products to meet large number of individual consumers (Apple products or M&M)
modular layout
teams of workers combine to produce more complex units of the final product
ISO 9001 Standards
the common name given to quality management and assurance standards
Federal Deposit Insurance Corporation (FDIC)
the government agency that insures customer deposits if a bank fails
reserve requirement
the percentage of deposits that banking institutions must hold in reserve (increase = slows)
open-market operations
the purchase and sale of U.S. government bonds by the Fed (sells bonds = slows)
computer-aided design (CAD)
the use of computers in the design of products
computer-aided manufacturing (CAM)
the use of computers in the manufacturing of products (3D printing)
operating/master budget
ties together all firms budgets
inflation
too much money chasing too few goods
control procedures (2)
verify products are delivered on time, budget, and to specifications ... PERT & Gantt charts
assembly-line layout
workers do few tasks at time (outdated)
telecomuting
working from home is very effiient
assets
you have, cash ... resource owned by business having value
liabilities
you owe, debts ... something company owes
owner/stakeholder's equity (equation)
you own ... owners' rights to assets of business w/out debt equity = assets - liabilities
