afm final

22 Pages

Accounting & Financial Management
Course Code
AFM 131
Robert Sproule

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AFM 131 – Introduction to Business in North America Chapter 1: Managing within the Dynamic Business Environment Business-any activity that seeks to provide goods and services to others while operating at a profit Profit-the amount a business wars above and beyond what it spends for salaries and other expenses Entrepreneur-a person who risks time and money to start and manage a business Revenue-the total amount of money a business takes in during a given time period by selling goods and services Loss-when a business`s expenses are more than its revenues Risk-the chance an entrepreneur takes of losing time and money on a business that may not prove profitable Stakeholders-all the people who stand to gain or lose by the policies and activities of a business Offshoring-sourcing part of the purchased inputs outside of the country Outsourcing-assigning various functions, such as accounting, production, security, maintenance, and legal work to outside organizations Non-Profit Organization-an organization whose goals do not include making a personal profit for its owners or organizers Factors of Production-the resources used to create wealth, land, labour, capital goods, entrepreneurship, and knowledge Business Environment-the surrounding factors that either help or hinder the development of business Regulations-rules or orders made by government to carry out the purposes set out in statures Technology-inventions or innovations from applied science or engineering research Productivity-the amount of output that is generated given the amount of input E-commerce-the buying and selling of goods and services over the internet E-business-any information system or application that empowers business processes Database-an electronic storage file in which information is kept; one use of databases is to store vast amounts of information about customers Identity Theft-obtaining personal information about a person and using that information for illegal purposes Empowerment-giving front-line workers the responsibility, authority, and freedom to respond quickly to customer requests Demography-the statistical study of the human population with regards to its size, density, and other characteristics such as age, race, gender and income Baby-Boom Echo-a demographic group of Canadians that were born in the period from 1980 to 1995; the children of the baby boomers Baby Boomers-a demographic group of Canadians that were born in the period from 1947-1966 Goods-tangible products such as computers, food, clothing, cars and appliances Services-intangible products (products you cannot hold in your hands) such as education, health care, insurance, recreation, and travel and tourism Chapter 2-How Economic Issues Affect Business Economics-the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals Macroeconomics-the part of economic study that looks at the operation of a nation`s economy as a whole Microeconomics-the part of economic study that looks at the behaviour of people and organizations in particular markets Resource Development-the study of how to increase resources and the creation of the conditions that will make better use of those resources Invisible Hand-a phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all Capitalism-an economic system in which all or most of the factors of production and distribution are privately owned and operated for profit Supply-the quantity of products that manufacturers or owners are willing to sell at different process at a specific time Demand-the quantity of products that people are willing to buy at different process at a specific time Market Price-the price determined by supply and demand Perfect Competition-the market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product Monopolistic Competition-the market situation in which a large number of sellers produce products that are very similar but that are perceived by buyers as different Oligopoly-a form of competition in which just a few sellers dominate the market Monopoly-a market in which there is only one seller for a product or service Socialism-an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people Communism-an economic and political system in which the state/government makes all the economic decisions and owns all of the major factors of production Free-Market Economy-an economy in which the market largely determines what goods and services are produced, who gets them, and how the economy grows Command Economy-an economy in which the government largely determines what goods and services are produced, who gets them, and how the economy grows Mixed Economies-economic systems in which some allocation of resources is made by the market and some by the government Gross Domestic Product (GDP)-the total value of goods and services produced in a country in a given year Standard of Living-the amount of goods and services people can buy with the money they have Quality of Life-the general well-being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time, and everything else that leads to satisfaction and joy Productivity-the total output of goods and services in a given period divided by the total hours of labour required to provide them Unemployment Rate-the percentage of the labour force that actively seeks work but is unable to find work at a given time Inflation-a general rise in the prices of goods and services over time Disinflation-a situation in which price increases are slowing (inflation rate is decreasing) Deflation-a situation in which prices are declining Stagflation-a situation in which the economy is slowing but prices are going up regardless Consumer Price Index (CPI)-monthly statistic that measures the pace of inflation or deflation Business Cycles (Economic Cycles)-the periodic rises and falls that occur in economies over time Recession-two or more consecutive quarters of decline in the GDP; a severe recession (depression) Chapter 3-Competing in Global Markets Exporting-selling goods and services to another country Importing-buying goods and services from another country Free Trade-the movement of goods and services among nations without political or economic disruption Comparative Advantage Theory-states that a country should sell to other countries those products that it produces most efficiently and effectively, and buy from other countries those products that it cannot produce as effectively or efficiently Absolute Advantage-exists when a country has the ability to produce a particular good or service using fewer resources and at a lower cost than another country Balance of Trade-a nation’s ratio of exports to imports Trade Deficit (unfavourable balance of trade)-occurs when the value of a country’s imports exceed that of its exports Balance of Payments-the difference between money coming into a country (exports) and money leaving the country (imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment Licensing-a global strategy in which a firm (licensor) allows a foreign company (licensee) to produce its products in exchange for a fee (royalty) Contract Manufacturing-a foreign country’s production of private-label goods to which a domestic company then attaches its brand name or trademark (outsourcing) Joint Venture-a partnership in which 2 or more companies (often from different countries) join to undertake a major project of to form a new country. Benefits: shared technology/risk, shared marketing/management expertise, entry in to foreign markets, shared knowledge Strategic Alliance-a long-term partnership between 2 or more companies established to help each company build competitive market advantages Foreign Direct Investment (FDI)-the buying of permanent property and business in foreign nations Foreign Subsidiary-a company owned in a foreign country by the parent company Multinational Corporation-an organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management Culture-the set of values, beliefs, rituals, and institutions held by a specific group of people Ethnocentricity-an attitude that one’s own culture is superior to all others Exchange Rate-the value of one nation’s currency relative to the currencies of other countries Devaluation-lowering the value of a nation’s currency relative to other currencies Countertrading-a complex form of bartering in which several countries may be involved, each trading goods for goods or services for services Trade Protectionism-the use of government regulations to limit the import of goods and services Dumping-selling products in a foreign country at lower prices than those charged in the producing country Tariff-a tax imposed on imports Import Quota-a limit on the number of products in certain categories that a nation can import Embargo-a complete ban on the import or export of a certain product or the stopping of all trade with a particular country General Agreement on Tariffs and Trade (GATT)-a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions World Trade Organization (WTO)-the international organization that replaces the GATT and was assigned the duty to mediate trade disputes among nations International Monetary Fund (IMF)-an international bank that makes short-term loans to countries experiencing problems with their balance of trade World Bank (International Bank for Reconstruction and Development)-an autonomous United Nations agency that borrows money from the more prosperous countries and lends it to less-developed countries to develop their infrastructure Producers’ Cartels-organizations of commodity-producing countries that are formed to stabilize or increase prices to optimize overall profits in the long run Common Trade (Trading Bloc)-a regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange North American Free Trade Agreement (NAFTA)-agreement that created a free-trade area among Canada, the United States, and Mexico Chapter 4-The Role of Government in Business National Policy-government directive that placed high tariffs on imports from the United States to protect Canadian manufacturing, which had higher costs Crown Corporation-a company that is owned by the federal or provincial government Privatization-the process of governments selling crown corporations Marketing Boards-organizations that control the supply or pricing of certain agricultural products in Canada Fiscal Policy-the federal government’s effort to keep the economy stable by increasing or decreasing taxes or government spending Deficit-occurs when a government spends over and above the amount it gathers in taxes for a specific period of time (namely, a fiscal year) National Debt (federal debt)-the accumulation of government surpluses and deficits over time Surplus-an excess of revenues over expenditures Federal Budget-a comprehensive report that reveals government financial policies for the coming year Monetary Policy-the management of the money supply and interest rates Transfer Payments-direct payments from governments to other governments or to individuals Equalization-a federal government program for reducing fiscal disparities among provinces Industrial Policy-a comprehensive, coordinated government plan to guide and revitalize the economy Chapter 6: Forms of Business Ownership Sole Proprietorship-a business that is owned and operated by one person, without forming a corporation; advantages-ease of start-up/shutdown, own boss, pride of ownership, retention of company profit, no special taxes, less rules; disadvantages-unlimited liability and risk of personal losses, limited financial resources, managements difficulties, overwhelming time commitment, few fringe benefits, limited growth, limited lifespan, possibly pay higher taxes Partnership-a legal form of business with two or more parties; advantages-more financial resources, shared management and pooled skills and knowledge, longer survival, shared risk, no special taxes, less rules; disadvantages-unlimited liability, division profits, disagreements among partners, difficult to terminate, possibly pay higher taxes General Partnership-a partnership in which all owners share in operating the business and in assuming liability for the business’s debts Limited Partnership-a partner with one or more general partners and one or more limited partners General Partner-an owner/partner who has unlimited liability and is active in managing the firm Limited Partner-an owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment Limited Liability-the responsibility of the business’s owners for losses only up to the amount they invest; limited partners and shareholders have limited liability Partnership Agreement-legal document that specifies the rights and responsibility of each partner Corporation-a legal entity with authority to act and have liability separate from its owners; advantages- limited liability, more money for investment, size, perpetual life, ease of ownership change, ease of attaining talented employees, separation of ownership from management; disadvantages-extensive paperwork, double taxation, two tax returns, size, difficult to terminate, possible conflict with shareholders/board of directors, initial cost Public Corporation-corporation that has the right to issue shares to the public, so its shares may be listed on the stock exchange Private Corporation-corporation that is not allowed to issue stock to the public, so its shared are not listed on stock exchanged, it is limited to 50 or fewer shareholders Corporate Governance-the process and policies that determine how an organization interacts with its stakeholders, both internal and external Liability-for a business, it includes the responsibility to pay all normal debts and to pay because of a court order or law, for performance under a contract, or payment of damages to a person or property in an accident Articles of Incorporation-a legal authorization from the federal or provincial/territorial government for a company to use the corporate format Merger-the result of two firms forming one company Acquisition-one company’s purchase of the property and obligations of another company Vertical Merger-the joining of two companies involved in different stages of related business Horizontal Merger-the joining of two firms in the same industry Conglomerate Merger-the joining of firms in completely unrelated industries Leveraged Buyout (LBO)-an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing Franchise Agreement-an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell its goods and services in a given territory; advantages-management and marketing assistance, personal ownership, nationally recognized name, financial advice and assistance, lower failure rate; disadvantages-large start-up cost, shared profit, management regulation, coattail effects, restriction on selling, fraudulent franchisors Franchisor-a company that develops a product concept and sells others the rights to make and sell the products Franchise-the right to use a specific business’s name and sell its goods or services in a given territory Franchisee-a person who buys a franchise Co-operative-an organization that is owned by members and customers, who pay an annual membership fee and share in any profits Chapter 7-Entrepreneurship and Starting a Small Business Entrepreneurship-accepting the challenge of starting your own business; amount of wealth creation, speed of wealth creation, risk, innovation, new idea, independence, challenge, family patters, profit, immigrants, self-direction, determination, action oriented, highly energetic, tolerant of uncertainty, ability to learn quickly Small and Medium-sized Enterprises (SMEs)-refers to all businesses with fewer than 500 employees; financial need, lack of promotion, women returning to workforce, family and personal responsibility, public awareness, part-time, higher rate of women success Entrepreneurial Team-a group of experiences people from different areas of business who join together to form a managerial team with the skills needed to develop, make, and market new product Micro-Enterprise-a small business defined as having fewer than 5 employees Micropreneurs-small business owners with fewer than 5 employees who are willing to accept the risk of starting and managing the type of business that remains small, lets them do the kind of work they want to do, and offers them a balanced lifestyle; computer technology, corporate downsizing, change in social attitudes, getting new customers, managing time, keeping work and family separate, abiding nu city ordinances, managing risk Incubators-centers that provide hands on management assistance, education, information, technical and vital business support service, networking resources, financial advice, as well as advice on where to go to seek financial assistance Business Establishment-has at least one paid employee, annual sales revenue of $30 000, or is incorporated and has filled a federal corporate income tax return at least one in the previous three years Employer Business-meets one of the nosiness establishment criteria and usually maintains a payroll of at least one person, possibly the owner Small Business-a business that is independently owned and operated, is not dominant in its field, and meets certain standards of size in terms of employees or annual revenues; service businesses, retail businesses, construction firms, wholesales, manufacturing Business Plan-a detailed written statement that describes the nature of the business, the target market, the advantages the business will have in relation to competition, and the resources and qualifications of the owner(s) Venture Capitalists (VCs)-individuals or companies that invest in new businesses in exchange for partial ownership of those businesses Angel Investors-private individuals who invest their own money in potentially hot new companies before they go public Market-people with unsatisfied wants and needs who have both the resources and the willingness to buy Chapter 16-Understanding Accounting and Financial Information Accounting-the recording, classifying, summarizing, and interpreting of financial events to provide management and other interested parties the information they need to make good decisions Managerial Accounting-accounting used to provide information and analysis to managers within the organization to assist them in decision making Financial Accounting-accounting information and analyses prepared for people outside the organization Annual Report-a yearly statement of the financial condition, progress, and expectation of an organization Chartered Accountant (CA)-an accountant who has met the examination, education, and experience requirements of the Canadian Institute of Chartered Accountants Certified Management Accountant (CMA) - an accountant who has met the examination, education, and experience requirements of the Society and Management Accountants of Canada Certified General Accountant (CGA) -an accountant who has met the examination, education, and experience requirements of the Certified General Accountants Association of Canada Private Accountant-an accountant who/ works for a single firm, government agency, or non-profit organization Public Accountant-an accountant who provides his or her accounting services to individuals or businesses on a fee basis Forensic Accounting-a relatively new area of accounting that focuses its attention on fraudulent activity Compliance-the job of reviewing and evaluating records used to prepare a company’s financial statements Independent Audit-an evaluation and unbiased opinion about the accuracy of a company’s financial statements Accounting Cycle-a six-step procedure that results in the preparation and analysis of the two major financial statements; the balance of the spread sheet and income tax statement Bookkeeping-the recording of business transactions Journal-the record book or computer program where accounting data are first entered Double-Entry Bookkeeping-the concept of every business transaction affecting at least two accounts Accounts-different types of assets, liabilities, and owners’ equity Fundamental Accounting Equation-assets=liabilities + owners’ equity (this is the basis for the balance sheet) Ledger-a specialized accounting book in which information from accounting journals is accumulated into accounts and posted so that managers can find all of the information about a specific account in one place Trial Balance-a summary of all of the data in the account ledgers to show whether the figures are correct and balanced Financial Statement-a summary of all of the transactions that have occurred over a particular period Balance Sheet-the financial statement that reports a firm’s financial condition at a specific time Assets-economic resources (things of value) owned by a firm Liquidity-how fast an asset can be converted into cash Current Assets-items that can or will be converted into cash within one year Capital Assets-assets that are relatively permanent, such as land, buildings, and equipment Intangible Assets-long term assets (patents, trademarks, copyrights) that have no real physical form but do have value Liabilities-what the business owes to others (debts) Owners’ Equity-the amount of the business that belongs to the owners minus any liabilities owed by the business Income Statement-the financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarises all of the resources that have come into the firm (revenue), all of the resources that have left the firm, and the resulting net income Net Income or Net Loss-revenue left over after all costs and expenses, including taxes, are paid Revenue-the value of what is received for goods sold, services rendered, and all other financial sources Costs of Goods Sold (or cost of goods manufactured)-a measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale Gross Profit (gross margin)-how much a firm earned by buying/making and selling merchandise Operating Expenses-cost involved
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