MEGA 017 Business Certification

transactions

Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity that involves the exchange of the company's assets, the establishment or payoff of a debt, or the deposit from or payout of money to the company's owners.

8 steps of the accounting cycle

1. Transactions 2. Journal entries 3. Posting 4. Trial balance 5. Worksheet 6. Adjusting journal entries 7. Financial statements 8. Closing the books

capitalist economy

1. Two-class system: Historically a capitalist society was characterized by the split between two classes of individuals--the capitalist class, which owns the means for producing and distributing goods (the owners) and the working class, who sell their labor to the capitalist class in exchange for wages. The economy is run by the individuals (or corporations) who own and operate companies and make decisions as to the use of resources. But there exists a "division of labor" which allows for specialization, typically occurring through education and training, further breaking down the two class system into sub-classes (eg the middle class). 2. Profit motive: Companies exist to make a profit. The motive for all companies is to make and sell goods and services only for profits. Companies do not exist solely to satisfy people's needs. Even though some goods or services may satisfy needs, they will only be available if the people have the resources to pay for them. 3. Minimal government Intervention: Capitalist societies believe markets should be left alone to operate without government intervention. However, a completely government-free capitalist society exists in theory, only. Even in the United States--the poster child for capitalism--the government regulates certain industries, such as the Dodd-Frank Act for financial institutions. By contrast, a purely capitalist society would allow the markets to set prices based on demand and supply for the purpose of making profits. 4. Competition: True capitalism needs a competitive market. Without competition, monopolies exist and instead of the market setting the prices, the seller is the price setter, which is against the conditions of capitalism. 5. Willingness to change: The last characteristic of capitalism is the ability to adapt and change. Technology has been a game changer in every society and the willingness to allow change and adaptability of societies to improve inefficiencies within economic structures is a true characteristic. The combination of policies the federal government would most likely follow during a recession would be Increasing government spending and increasing the money supply.

joint ventures

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants' other business interests.

partnerships

A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business. Partnership doesn't always mean two people. There are many large partnerships who have thousands of partners.

declining balance method of depreciation

A common depreciation-calculation system that involves applying the depreciation rate against the non-depreciated balance. Instead of spreading the cost of the asset evenly over its life, this system expenses the asset at a constant rate, which results in declining depreciation charges each successive period. For example, if an asset that costs $1,000 is depreciated at 25% each year, the deduction is $250.00 in the first year and $187.50 in the second year, and so forth.

corporations

A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.

restrictive endorsement

A person who endorses a paycheck (signs the back of it) by simply signing his or her name on the back of the check is making a restrictive endorsement.

qualified endorsement

An endorsement on a financial instrument, such as a check, that limits the endorser's liability.That is, the endorser may write "without recourse" as a qualified endorsement. It indicates that the endorser is not responsible in the event that an institution such as a bank refuses to make payment on the instrument.

itemized deductions

An itemized deduction is an eligible expense that individual taxpayers in the United States can report on their federal income tax returns in order to decrease their taxable income. Most taxpayers are allowed a choice between the itemized deductions and the standard deduction. You might benefit from itemizing your deductions on Form 1040, Schedule A if you: • Have itemized deductions that total more than the standard deduction you'd receive • Had large, uninsured medical and dental expenses • Paid mortgage interest and real estate taxes on your home • Had large, unreimbursed expenses as an employee • Had a large, uninsured casualty (fire, flood, wind) or theft losses • Made large contributions to qualified charities • Had large, unreimbursed miscellaneous expenses

gauging profit or loss

As a businessperson, you want to be able to gauge your profit or loss on month by month, quarter by quarter, and year by year bases. To do that, Revenue and Expense accounts must start with a zero balance at the beginning of each accounting period. In contrast, you carry over Asset, Liability, and Equity account balances from cycle to cycle.

trial balance

At the end of the accounting period (which may be a month, quarter, or year depending on a business's practices), you calculate a trial balance.

Owners equity =

Contributed Capital + Retained Earnings

FIFO v. LIFO

During a period of increasing prices, the use of the FIFO method of valuing inventory rather than the LIFO method will result in a lower cost of merchandise sold.

accounting or historical cost

In accounting under the traditional historical cost paradigm, historical cost is the original nominal monetary value of an economic item.[1] Historical cost is based on the stable measuring unit assumption. In some circumstances, assets and liabilities may be shown at their historical cost, as if there had been no change in value since the date of acquisition. The balance sheet value of the item may therefore differ from the real value.

Net Income =

Income − Expenses

Retained Earnings =

Net Income − Dividends

Break-Even Point

Number of units that must be sold in order to produce a profit of zero (but will recover all associated costs). In other words, the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company.

Federal Income Tax (FICA)

The FICA tax (Federal income tax) is an employee salary reduction that is, by law, matched by the employer.

actual rate of interest

The actual rate of interest on a savings account is called the effective rate--An effective interest rate is one that is calculated for a standard time, usually 1 year, in which case, it is known as an effective annual rate. Investments can more easily be compared using effective interest rates.

variable costs equal fixed costs

The break-even point of a business is the level of output or sales at which the revenue received by the business is exactly equal to the cost of making (or selling) that output. In the examples below we show you how to calculate the break-even point of a retailer. However, the process described is exactly the same for other types of firms such as manufacturers who will be concerned to find the break-even level of output when they produce goods.

debit

The destination account is debited (that is, an entry is made on the left side). Total debits must equal total credits for each transaction. Individual transactions may require multiple debit and credit entries to record. (consumer)

balance

The difference between the total debits and total credits in a single account is the account's balance. If debits exceed credits, the account has a debit balance; if credits exceed debits, the account has a credit balance.[3] For the company as a whole, the totals of debit balances and credit balances must be equal as shown in the trial balance report, otherwise an error has occurred.

Total Revenue

The product of forecasted unit sales and unit price, i.e., forecasted unit sales times unit price.

credit

The source account for the transaction is credited (that is, an entry is made on the right side of the account's ledger). Individual transactions may require multiple debit and credit entries to record. (seller/supplier/business)

statue of frauds

The statute of frauds refers to the requirement that certain kinds of contracts be memorialized in a writing, signed by the party to be charged, with sufficient content to evidence the contract.

journal entries

The transaction is listed in the appropriate journal, maintaining the journal's chronological order of transactions. The journal is also known as the "book of original entry" and is the first place a transaction is listed.

posting

The transactions are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the business's accounts.

nominal damages

This kind of damages reflects a legal recognition that a plaintiff's rights have been violated through defendant's breach of duty or wrongful conduct. The amount awarded is ordinarily a trifling sum, such as a dollar, which varies according to the circumstances of each case. In certain jurisdictions, the amount of the award might include the costs of the lawsuit.

full endorsement

This term applies to an endorsement where the person endorsing names a person who the money will be paid to.

limited partnerships

Two or more partners united to conduct a business jointly, and in which one or more of the partners is liable only to the extent of the amount of money that partner has invested. Limited partners do not receive dividends, but enjoy direct access to the flow of income and expenses. This term is also referred to as a "limited liability partnership" (LLP).

Uniform Commercial Code (UCC)

Under the UNIFORM COMMERCIAL CODE, an instrument that is negotiable must be payable on demand or at a definite time. The Uniform Commercial Code (UCC), a comprehensive code addressing most aspects of commercial law, is generally viewed as one of the most important developments in American law. The UCC text and draft revisions are written by experts in commercial law and submitted as drafts for approval to the National Conference of Commissioners on Uniform State Laws (referred to as the Uniform Law Commissioners), in collaboration with the American Law Institute. The Commissioners are all attorneys, qualified to practice law, including state and federal judges, legislators and law professors from throughout the United States and its territories. These quasi-public organizations meet and decide whether to endorse these drafts or to send them back to the experts for revision. The revision process may result in several different revisions of the original draft. Once a draft is endorsed, the Uniform Law Commissioners recommend that the states adopt these rules. The UCC is a model code, so it does not have legal effect in a jurisdiction unless UCC provisions are enacted by the individual state legislatures as statutes. Currently, the UCC (in whole or in part) has been enacted, with some local variation, in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands.

worksheet

Unfortunately, many times your first calculation of the trial balance shows that the books aren't in balance. If that's the case, you look for errors and make corrections called adjustments, which are tracked on a worksheet. Adjustments are also made to account for the depreciation of assets and to adjust for one-time payments (such as insurance) that should be allocated on a monthly basis to more accurately match monthly expenses with monthly revenues. After you make and record adjustments, you take another trial balance to be sure the accounts are in balance.

closing the books

You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts.

adjusting journal entries

You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts. You don't need to make adjusting entries until the trial balance process is completed and all needed corrections and adjustments have been identified.

financial statements

You prepare the balance sheet and income statement using the corrected account balances.

consignment

a bailment for sales purposes

dividends

a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).

break-even point for a profit-oriented enterprise

is achieved when total revenue equals total costs.

sole proprietorship

also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. Most businesses in the U.S. are organized as SOLE PROPRIETORSHIPS. A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss etc. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a "sole" proprietorship in contrast with partnerships (which have at least 2 owners).

Phi Beta Lambda

an organization for a college senior who is a business education major

Compensatory damages

are paid to compensate the claimant for loss, injury, or harm suffered as a result of (see requirement of causation) another's breach of duty. (e.g., in a negligence claim under tort law). When a seller breaches a contract and refuses to give up a unique gold coin, the buyer would seek Compensatory damages.

marketing mix

classification for developing an effective marketing strategy, which encompasses: product, price, placement (distribution) and promotion. When it's a consumer-centric marketing mix, it has been extended to include three more Ps: people, process and physical evidence, and three Cs: cost, consumer and competitor. Depending on the industry and the target of the marketing plan, marketing managers will take various approaches to each of the four Ps.

fixed costs

do not vary with sales. For example, one of the fixed costs of a high street shop is the rent paid for the property. The rent is still the same whether the shop sells one item or thousands.

selling expense

fees paid to credit card companies by the seller.

cost is divided into what two types?

fixed & variable

MACRO

in information processing is stored keystrokes for frequently used functions that can be accessed with only one or two keystrokes.

specific performance

is an order of a court which requires a party to perform a specific act, usually what is stated in a contract. It is an alternative to awarding damages, and is classed as an equitable remedy commonly used in the form of injunctive relief concerning confidential information or real property.

sales revenue

is calculated at any level of sales by multiplying the price of the item, by the number of units sold.

blank endorsement

is only a signature, not indicating the payee. The effect of this is that it is payable only to the bearer - legally, it transforms an order instrument ("pay to the order of (the payee)") into a bearer instrument ("pay to the bearer").

GROSS DOMESTIC PRODUCT (GDP)

is the monetary value of all final goods and services produced in a given year.

licensed endorsement

licensure by endorsement? is a streamlined application process that is available to individuals who are: Licensed in another state that has significantly comparable licensing requirements to New York State

basic accounting equation / balance sheet equation

represents the relationship between the assets, liabilities, and owner's equity of a business. It is the foundation for the double-entry bookkeeping system. For each transaction, the total debits equal the total credits. In a corporation, capital represents the stockholders' equity. Since every business transaction affects at least two of a company's accounts, the accounting equation will always be "in balance," meaning the left side should always equal the right side. Thus, the accounting formula essentially shows that what the firm owns (its assets) is purchased by either what it owes (its liabilities) or by what its owners invest (its shareholders equity or capital). For example: A student buys a computer for $945. This student borrowed $500 from his friend and spent another $445 earned from his part-time job. Now his assets are worth $945, liabilities are $500, and equity $445. The formula can be rewritten: Assets - Liabilities = (Shareholders' or Owners' Equity)

Database Management System

software that handles the storage, retrieval, and updating of data in a computer system.

law of demand

states that a decline in the price of a good will tend to cause consumers to purchase more of that good.

totals of the trial balance are equal

the accountant knows that equal amounts of debits and credits have been posted.

economic cost

the gains and losses in money, time and resources of one course of action compared to another. The comparison includes the gains and losses precluded by taking a course of action, as the those of the course taken itself. Economic cost differs from accounting cost because it includes opportunity cost.

opportunity cost

the loss of potential gain from other alternatives when one alternative is chosen

proxy

the stockholder has authorized the management to vote the stockholder's shares (someone to vote for him).

total costs =

total fixed costs + total variable costs

variable costs

vary with sales. For example, imagine that a bookshop buys in books for an average price of £5 each. It then resells the books for a higher price. For the bookshops the variable cost is £5 per unit.