Business Chapter 16 Study Guide.docx

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Business Administration
BUS 201
Peter Tingling

Financial managers • Those managers responsible for planning and overseeing the financial resources of a firm Finance • The business function involving decision about a firm’s long-term investments and obtaining the funds to pay for those investments 1. Determining a firm’s long-term investments 2. Obtaining funds to pay for those investments 3. Conducting the firm’s everyday financial activities 4. Managing the risks that the firm takes Responsibilities of the financial manager • Cash flow management o Managing the patter in which cash flows into the form in the form of revenues and out of the firm in the form of debt payments • Financial control o The process of checking actual performance against plans to ensure that the desired financial status is achieved. • Financial planning o A description of how a business will reach some financial position it seeks for the future; includes projections for sources and uses of funds.  What funds are needed to meet immediate plans?  When will the firm need more funds?  Where can the firm get the funds to meet both its short and long term needs? Short term Expenditures (operating) • Accounts payable o Unpaid bills owed to suppliers plus wages and taxes due within a year. • Accounts receivable o Funds due from customers who have bought on credit.  Credit policy • Rules governing a firm’s extension of credit to customer. • Inventory o Materials and goods currently held by the company that will be sold within the year o Raw materials inventory  The portion of a firm’s inventory consisting of basic supplies used to manufacture products for sale. o Work-in-process inventory  The portion of a firm’s inventory consisting of goods partway through the production process o Finished goods inventory  The portion of a firm’s inventory consisting of completed goods ready for sale. Long term expenditures (capital) • Mainly for fixed assets, lasting use and value • Not normally sold or converted to cash • Required a very large investment • Represent binding commitment of company funds that continues long into the future. Sources of short term funds • Trade credit o The granting of credit by a selling firm to a buying firm.  Open book credit • Form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming  Promissory notes • Form of trade credit in which buyers sign promise-to-pay agreements before merchandise is shipped  Trade draft • Form of trade credit in which buyers must sign statements of payment terms attached to merchandise by sellers.  Trade acceptance • Trade draft that has been signed by the buyer • Secured short term loans o A short-term loan in which the borrower is required to put up collateral  Collateral • Any asset that a lender has the right to seize if a borrower does not repay a loan • Inventory as collateral • Accounts receivable as collateral • Unsecured short term loans o A short term loan in which the borrower is not required to put up col
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