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ADM1300 Final: Final Exam Study Notes-ADM1300

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David Delcorde

Introduction to Business Management Final Exam Notes ADM1300 Accounting Accounting vs. Bookkeeping Accounting: recording, classifying, summarizing, and interpreting of financial transactions to provide management and other interested parties with information Managerial Accounting – focused on internal operations Financial Accounting – focuses on preparing financial statements for persons inside and outside the company Bookkeeping: recording transactions (in journals, ledgers) Generally Accepted Accounting Principles:
 Consistency in Comparisons (Agreed Upon Practices) 1. Revenue Recognition - Revenues are recorded for the accounting period in which sales are completed and collectible (or collected) - The earnings cycle must be completed and this occurs when: - The sale is complete and the product has been delivered; and, - The sale price to the customer has been collected or is collectible (accounts receivable) 2. Matching - Expenses will be matched with revenues to determine net income for an accounting period 3. Full Disclosure - Financial statements should include not just numbers, but also interpretations and explanations by management so that external users can better understand information contained in the statements Assets, Liabilities, and Owner’s Equity Assets: things of value owned by the firm - Cash - Accounts receivable (money owed by customers) - Inventory - Investments - Buildings - Vehicles - Equipment - Patents & copyrights (intangible assets) Liabilities: debts owed by the firm to others - Accounts payable (money owed to others for merchandise purchased on credit but not yet paid) - Interest payable (on debt instruments or loans) - Bonds payable (long-term loans to the business) - Notes payable (short-term loans from banks) - Taxes payable - Salaries payable Owner’s Equity (or Shareholders’ Equity): the amount owners (or shareholders) invest in the business plus accumulated profits less dividends or other withdrawals of profits - Cumulative amount of all the owners have invested in the company plus all the profits (and losses) that have accumulated since the business commenced - Always equals the book value of the assets – liabilities - In a partnership, it is called “partners’ equity” or “capital” - In a sole proprietorship, it is called “owner’s equity” or “capital” - In a corporation, it is called “shareholders’ equity” - Common stock - Retained earnings (accumulated profit remaining) - Owner’s Equity (or Shareholders’ Equity) is NOT CASH! The Accounts of Accounting Accounting has three types of accounts: Revenue Accounts, Costs of Goods Sold Accounts, and Expense Accounts Revenue Accounts - Hold information of all sources of income - Royalties, sales, rentals, commissions Cost of Goods Sold Account - All costs occurring when a company sells a product - Transportation, storage, packaging, manufacturing Expense Accounts - Expenses when running a business - Rent, insurance, salaries, utilities, advertising The Fundamental Accounting Equation Double Entry Bookkeeping - A debit entry will increase an account with a debit balance, but decrease an account with a credit balance - A credit entry will increase an account with a credit balance but decrease an account with a debit balance A “T- Account” DB | CR | | Ledger: a general ledger is a collection of (T) accounts Posting: transferring the journal entries to the T-accounts in the general ledger The Accounting Cycle Income Statement Revenues and expenses Income Statement Formulae: - Beginning Inventory + Purchases – Ending Inventory = Cost of Goods Sold - Revenue – Cost of Goods Sold = Gross Margin (Gross Profit) - Gross Margin – Operating Expenses = Net Income (Profit) Before Taxes - Net Income Before Taxes – Income Taxes = Net Income (Profit) Balance Sheet Assets and liabilities Assets = Liabilities + Owner’s Equity - Note – the logic of the fundamental accounting equation: - If a firm has no debts, then: - Assets = Owners’ Equity (the owners own everything) - If a firm has debts, then: - Assets – Liabilities = Owners’ Equity (the owners own everything except the amount due others) - The equation can be rearranged: - Assets = Liabilities + Owners’ Equity Depreciation of the Balance Sheet - Assets do not last forever, but some are expected to last longer than others - Assets that are consumed within one accounting cycle are conventionally expensed: - Office supplies - Rent - Assets expected to last longer than one accounting cycle are depreciated – the cost of the asset is amortized (or spread or allocated) over its useful life and recorded systematically as “depreciation expense” - Depreciation expense is NOT cash - Many methods of calculating depreciation expense: - Straight-line - Units of production - Declining balance - As depreciation is expensed each year, it is accumulated in a “contra-asset account” (accumulated depreciation) and the net book value of the asset is expressed “net of accumulated depreciation” Working Principle: Defined as the difference between current assets and current liabilities Financial Ratios - Profitability ratios - Measure how much operating income or net income a company is able to generate relative to its assets, owner’s equity and sales - Asset utilization ratios - Measure how well a firm uses its assets to generate each $1 of sales - Liquidity ratios - Measure the speed with which a company can turn its assets into cash to meet debt obligations as they fall due - Debt utilization ratios - Measure how much debt a company is using relative to other sources of capital (investing more money in equity, selling shares) - Per share data - Measures how much earnings or dividends are being earned for every share held Profitability Ratios Asset Utilization Ratios Liquidity Ratios Breakeven Analysis Control Process Steps in the Control Process Step 1 — establishing objectives and standards - Output standards - Measure performance results in terms of quantity, quality, cost, or time. - Input standards - Measure effort in terms of amount of work expended in task performance. Step 2 — measuring actual performance - Goal is accurate measurement of actual performance results and/or performance efforts. - Must identify significant differences between actual results and original plan. - Effective control requires measurement. Step 3 — comparing results with objectives and standards - Need for action reflects the difference between desired performance and actual performance - Comparison methods: - Historical comparison - Relative comparison - Engineering comparison Step 4 — taking corrective action - Taking action when a discrepancy exists between desired and actual performance. - Management by exception - Giving attention to situations showing the greatest need for action. - Types of exceptions - Problem situation - Opportunity situation Gantt Chart For a new cell phone Critical Path Method and Program Evaluation and Review Technique Chart (CPM/PERT) Marketing Utilities Marketing creates utilities, the ability of a product satisfying the wants and needs of humans Place Utility - Making a product available where the a consumer can to buy it Time Utility - Making the product available when a consumer can buy it Ownership Utility - Transferring ownership of the product from the seller to the buyer Form Utility - Transferring raw materials into a form that consumers wish to buy Market Segmentation - Demographic - Age, sex, race, ethnicity, income, education, occupation, family size, religion, social class - Geographic - Climate, terrain, natural resources, population density - Psychographic - Personality characteristics, motives, lifestyles - Behaviouristic - Consumer’s behaviour toward the product - A total market approach – firms try to appeal to everyone and assume that all buyers have similar wants and needs - Sugar, flour, salt, heating oil - Market segmentation – dividing the total market into groups of people who have relatively similar needs and wants - A concentration approach to market segmentation – developing one marketing strategy for a single market segment - Jaguar, Lotus, Patek Philipe, Rolex, Omega, Gucci - A multi-segment approach to market segmentation – aiming marketing efforts at more than one segment in a similar product market and developing a marketing strategy for each - Bicycles: racers, commuters, children The Marketing Mix refers to the 4 P’s Product - Convenience products are bought frequently and for immediate consumption without a lengthy search - Shopping products are purchased after buyer has compared competitive products - Specialty products are products that the buyer searches for and makes a special effort to obtain The Life Cycle of a Product Distribution - Two key intermediaries (or middlemen): - Wholesalers – buy from producers or from other wholesalers and sell to retailers (usually do not sell in significant quantities directly to consumers) - Retailers – buy products from wholesalers and sell them to consumers for home and household use, rather than for re-sale Marketing Channels for Consumer Products The Promotion Mix Publicity Sales
 Advertising Promotion Personal
 Selling Advertising - A paid form of non-personal communication transmitted through a mass medium - All advertising possesses four basic features: - A verbal and/or visual message - A sponsor who is identified - Delivery through at least one medium - Payment by the sponsor to the media carrying the message The Marketing Process A multi-step process 1. Conduct research 2. Identify a target market 3. Design a product to meet the need based on research, then conduct product testing 4. Determine a brand name and design a package 5. Set a price 6. Select a distribution system 7. Design a promotional program Motivation and Teams Motivation: The process that account for an individual’s willingness to exert high levels of effort to reach organizational goals, conditioned by the effort’s ability to satisfy some individual need. What is Motivation? Effort- a mesure of intensity or drive Direction- toward organizational goals Need- a personalized reason to exert effort Motivation works best when individual needs are compatible with organizational goals The Motivation Process (Compare and Contrast) Unsatisfied Need —> Tension —> Effort —> Satisfied Need —> Tension Reduction Effort - Intensity - Direction - Persistence - Maslow’s Hierarchy of Needs describes this well (Physiological, Safety, Social, Esteem, Self-Actualization) Early Theories of Motivation Theory X and Theory Y Theory X- Little ambition, dislike work, avoid responsibility, require supervision (Extrinsic) Theory Y- Self-direction, desire responsibility, like work (Intrinsic) Herzberg’s Motivation-Hygiene Theory - Job satisfaction and job dissatisfaction are created by different factors Hygiene factors: extrinsic (environmental) factors that create job dissatisfaction Motivators: intrinsic (psychological) factors that create job satisfaction - This theory attempted to explain why job satisfaction does not result in increased performance - The opposite of satisfaction is not dissatisfaction, but rather no satisfaction Herzberg’s Motivation-Hygiene Theory Motivators Hygiene Factors - Achievement - Supervision - Recognition - Company Policy - Work itself - Relationship with Supervisor - Responsibility - Working Conditions - Advancement - Salary - Growth - Relationship with Peers - Personal Life - Status - Security McClellenad’s Three-Needs Theory Three acquired (not innate) needs — achievement, power, and affiliation — are major motives in work. Need for Achievement (nAch): The drive to succeed and excel in relation to a set of standards. Need for Power (nPow): The need to make others behave in a way that they would not have behaved otherwise. Need for Affiliation (nAff): The desire for friendly and close interpersonal relationships. Goal-Setting Theory The proposition that specific goals increase performance and that difficult goals, when accepted, result in higher performance than do easy goals. - Working toward a goal is a major source of job motivation - The specificity of
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