Study Guide: Chapter 7, Domain 6: PO 5 Flashcards
1
Q
GAAP
(Generally Accepted Accounting Practices)
A
Conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. The highest level of such principles are set by the Financial Accounting Standards Board (FASB).
2
Q
Accounting
A
Recording and reporting of financial transactions, including the origination of the transaction, its recognition, processing, and summarization in financial statements.
3
Q
Audit
A
A professional examination of a company’s financial statement by a professional accountant or group to determine that the statement has been presented fairly and prepared using Generally Accepted Accounting Principles (GAAP).
4
Q
Internal Control
A
Process designed to provide reasonable assurance regarding achievement of various management objectives such as the reliability of financial reports.
5
Q
Accrual
A
The recognition of an expense or revenue that has occurred but has not yet been recorded.
6
Q
Accrual Basis
A
Recognizes revenue when earned, rather than when collected. Expenses are recognized when incurred rather than when paid. (i.e. When I speak)
7
Q
Cash Basis
A
Revenues and expenditures are recorded when they are received and paid. (i.e. When I actually receive my check)
8
Q
Bank Reconciliation
A
A process by which an accountant determines whether and why there is a difference between the balance shown on the bank statement and the balance of the cash account in the firm’s general ledger.
9
Q
Break-Even Point
A
The point at which total revenues equals total costs. Profit equals ZERO!
10
Q
Chart of Accounts (CoA)
A
A financial organizationaltoolthat provides a complete listingof every account in an accounting system. An account is a unique record for each type of asset, liability, equity, revenue and expense.
11
Q
First In, First Out (FIFO)
A
Accounting method of valuing inventory under which the costs of the first goods acquired are the first costs charged to expense.
12
Q
Last In, First Out (LIFO)
A
Accounting method of valuing inventory under which the costs of the last goods acquired are the first costs charged to expense. Commonly known as LIFO.
13
Q
P/E Ratio
A
A ratio that is used as a way of measuring investor confidence in a company and comparing stocks for profitability. It is found by dividing market price per share by earnings per share (EPS).
14
Q
Assets…
A
are cash, accounts receivable, or assets expected to be converted into cash, sold, or consumed either within one year or in the normal operating cycle for the business
15
Q
Non-permanent assets…
A
are permanent in nature such as land, buildings, equipment.
16
Q
Intangible Assets…
A
are permanent in nature such as land, buildings, equipment.
17
Q
Current Liabilities…
A
includes debts due within the current year or accounting period
18
Q
Long term liabilities…
A
refers to mortgages or long term notes payable after a period of time such as a year. As these debts become due, they are reclassified as current liabilities.
19
Q
The Accounting Equation
A
Assets = Liabilities + Owner’s Equity
OR
Assets – Liabilities = Owner’s Equity
20
Q
Revenue
A
refers to the amount received for goods or services rendered. Revenue is realized and recorded when the sales are made or when the service takes place.
21
Q
Expenses…
A
are outflows of resources or costs incurred by the company. This can include salaries, taxes, rent, utilities, supplies used, and depreciation. (The difference between revenues and expenses is a net profit or loss for the company.)
22
Q
REVENUE – EXPENSES = INCOME
A
REVENUE – EXPENSES = INCOME
23
Q
A balance sheet…
A
reports a company’s assets, liabilities and shareholders’ equity at a specific point in time (balance on that day). It is a financial statement that provides a snapshot of what a company owns and what it owes, as well as the amount invested by shareholders.
24
Q
The balance sheet…
A
shows a company’s resources or assets while also showing how those assets are financed whether through debt as shown in under liabilities or through issuing equity as shown in shareholder’s equity. The balance sheet provides investors and creditors alike with a snapshot as to how effectively a company’s management is using their resources.
25
A profit and loss statement...
often referred to as the income statement, is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a fiscal quarter or year. These records provide information about a company's ability – or lack thereof – to generate profit by increasing revenue, reducing costs, or both.
26
The profit and loss statement...
is also referred to as "statement of profit and loss," "statement of operations," "statement of financial results," and "income and expense statement."
27
The P&L or income statement...
provides the top line and bottom line for a company. The statement begins with an entry for revenue, known as the "top line," and subtracts the costs of doing business, including cost of goods sold, operating expenses, tax expense, interest expense and any other expenses (sometimes referred to as extraordinary expenses or one-time expenses). The difference, known as the bottom line, is net income, also referred to as profit or earnings.
28
The P&L statement...
reveals the company's realized profits or losses for the specified period of time by comparing total revenues to the company's total costs and expenses. Over time, it can show a company's ability to increase its profit, either by reducing costs and expenses or by increasing its sales. Companies publish income statements annually, at the end of the company's fiscal year, and may also publish them on a quarterly basis. Accountants, analysts, and investors study a P&L statement carefully, scrutinizing cash flow and debt financing capabilities.
29
From an accounting standpoint, revenues and expenses are listed on the P&L statement when they are incurred, not when the money flows in or out.
From an accounting standpoint, revenues and expenses are listed on the P&L statement when they are incurred, not when the money flows in or out.
30
Net Income or Net Profit
The excess of net revenue over expenses
31
Net Loss
When expenses exceed revenue.
32
Statement of Owner’s Equity...
shows money put in by the stockholders or owners as capital
33
Statement of Cash Flows
summarizes sources and uses of cash; indicates whether enough cash is available to carry on routine operations. Typically created monthly or on an as needed basis. It is important that a company has enough cash on hand to fund its payroll and pay other bills.
34
Bonds
Bonds do not represent ownership (like stocks), but instead represent a debt owed by the issuer.
35
Stocks and bonds tend to have an inverse relationship in price. (Stocks up – bonds down and vice versa)
Stocks and bonds tend to have an inverse relationship in price. (Stocks up – bonds down and vice versa)
36
The interest from corporate bonds is taxable. Risk can vary.
The interest from corporate bonds is taxable. Risk can vary.
37
Investment grade bonds are considered low risk.
Investment grade bonds are considered low risk.
38
Speculative bonds (aka junk bonds) are considered medium to high risk.
Speculative bonds (aka junk bonds) are considered medium to high risk.
39
Government bonds are issued by U.S. Treasury and other federal government agencies. Low risk. Do not have to pay state or local taxes on income.
Government bonds are issued by U.S. Treasury and other federal government agencies. Low risk. Do not have to pay state or local taxes on income.
40
Municipal bonds are issued by states, counties, cities and towns. You do not have to pay federal, state or local taxes on the income from municipal bonds. Considered relatively safe investments.
Municipal bonds are issued by states, counties, cities and towns. You do not have to pay federal, state or local taxes on the income from municipal bonds. Considered relatively safe investments.
41
Mutual Funds...
an investment fund that consists of stocks, bonds and other investments focused on an investment strategy (such as balance – good earnings with acceptable risk or growth – high earnings with greater risk)
42
Mutual Funds...
Operated through professional investment company based on the fund’s investment objectives.
43
Mutual Funds...
Individual investor owns a small fraction of each share of stock or bond that is purchased.
44
Mutual Funds...
Mutual funds are diversified – they contain a variety of investments, which reduces risk.
45
Operating Budgets
outline anticipated revenues and expenses for a period of time and project cash flow in and out.
46
Master Budgets
detail ALL financial planning areas of a business.
47
Flexible Budgets
include a range of production units and show a comparison between the various levels.
48
Static Budgets
are geared to a single level of activity and include actual costs vs. budgeted costs showing the difference (or variance) between the two.
49
If actual costs exceed the budgeted costs the variance is...
UNFAVORABLE
50
If the budgeted amount exceeds the actual cost the variance is...
FAVORABLE
51
General Ledger
A general ledger is the report of all of the company's accounts. In its simplest form, the top half of a ledger page is divided from the bottom half by a line. Credits are recorded on one side of the line and debits are recorded on the other side of the line. The general ledger represents a combination of a number of journals, which might include the cash receipt journal, the cash payments journal, the sales journal, the sales returns journal, the purchases journal, the purchases returns journal, and the general journal.
52
Combination Journals
In combination journals, simple financial transactions are recorded in one of the journal accounts as a single line entry. Sometimes a single financial transaction affects more than one journal account. These transactions are referred to as compound journal entries, complex journal entries or combined journal entries. These transactions require multiple line entries.
53
Time Frame
One big difference between a general ledger and a combination journal is the amount of time each covers. A general ledger provides financial information from all journal accounts on a periodic basis, typically monthly, though some ledgers are compiled weekly, quarterly or annually. Entries into combination journals are recorded as each financial transaction occurs, and either updated immediately or at the end of each business day.
54
Common Uses
The general ledger provides management and auditors with a broad overview of the financial health of the organization. It includes total credits and debits. Combination journals detail individual transactions. General ledgers are typically organized in a simple two-column configuration of credits and debits on a single page, while combination journals might include multiple columns from all accounts encompassing multiple pages.
55
Debits and Credits
Debits are posted on the left side of T-Account Journals and credits are posted on the right side. The account being debited is always listed first.
56
Debits and Credits
YOUR DEBITS MUST ALWAYS EQUAL YOUR CREDITS.
57
Asset Accounts
increase by debits (left side) and decrease by credits (right side)
58
Liability Accounts
increase by credits (right side) and decrease by debits (left side)
59
What is a T-Account?
An informal term for a set of financial records that uses double-entry bookkeeping. The term describes the appearance of the bookkeeping entries.
60
Cash
is the first asset listed on the balance sheet
61
Rent Expense Account
Long term liability, since rent is owed and you're committed for a certain period of time
62
Cash Account
Asset, you have money!
63
Accounts Payable Account
Tracts the company's short term obligations (current liability)
64
Accounts Payable
Amounts due to vendors or suppliers for goods or services received that have NOT YET BEEN PAID FOR.
65
Accounts Payable Balance
The sum of all outstanding amounts owed to vendors.
66
The increase or decrease in total AP from the prior period appears on the company's balance sheet.
The increase or decrease in total AP from the prior period appears on the company's balance sheet.
67
Management...
...may choose to pay its outstanding bills as close to their due dates as possible in order to improve cash flow.
68
Proper double-entry bookkeeping...
...requires that there must be an offsetting debit and credit for all entries made into the general ledger.
69
To record accounts payable...
the accountant credits accounts payable when the bill or invoice is received.
70
What is the ultimate goal of HR?
Attract, engage, develop, reward, and retain talent.
71
Talent Acquisition (types of services)
Recruiting and sourcing candidates for hire, screening, interviewing, offering letters, & onboarding.
72
Talent Acquisition (types of job roles)
Talent Sourcer, Coordinator, Recruiter, Talent Acquisition, Staffing Manager
73
AAP (Affirmative Action Plan)
A written set of specific results-oriented efforts. procedures and demographic/workforce reporting to be followed by all US federal contractors holding contracts of $50,000 or more and with 50 or more employees.
74
Employee relations
Refers to management & staff practices & communications regarding workplace decisions, employment laws, grievances, & problem/conflict resolution.
75
Labor relations
Refers to unions, policies and procedures, & collective bargaining agreements.
76
Employment-at-will
A legal doctrine stating the employer or employee may terminate an employment at any time, for any or no reason, and with or without notice.
77
Title VII of the Civil RIghts Act (1964)
States that an employer cannot discriminate based on five protected classes (race, religion, color, gender, national origin). Employers (public or private) that employ 15 or more people are subject to Title VII. Some state and local laws subject these laws to employers with fewer than 15 employees.
78
The EEOC (Equal Employment Opportunity Commission)
The US federal agency responsible for publishing guidelines, enforcing EEO laws, & investigating complaints based on race, religion, gender (inc. pregnancy), national origin, age, or disability.
79
Employment branding
Positions a particular organization to project a public image and culture that current, past, and potential job seekers perceive as the employment experience at the company:
* branding helps the organization be perceived as an employer of choice in the marketplace
* branding encourages people to want to work for a specific organization.
80
Employer Information Report (EEO-1)
(aka standard form 100); an annual report in the US that shows the representation of female and minority employees in an employer's total workforce. Any employer with 100 or more employees (50 for gov't contractors) must file this form each year.
81
ERISA
(Employee Retirement Income Security Act)
a US federal law that sets minimum standards for pension and health plans in private industry to provide protection for individuals in these plans. ERISA defines fiduciary resp. for those who manage & control plan assets, req. plans to establish a grievance & appeals process for participants, & gives participants the right to sue for benefits and breaches of fiduciary duty.
82
L&D (Learning & Development)
Refers to the team within the organization that provides training and educational opportunities within an org. to enhance existing skills, increase job-related knowledge, and build employees' performance competencies. Usually aligns with the HR dep'ts workforce plan to achieve strategic organizational goals and objectives.
83
Performance Management
The performance assessment of employees to gauge their progress toward individual, departmental, and organizational skills.
84
Talent acquisition involves:
The process of finding proper sources of qualified candidates (sourcing); the strategic approach to identifying, attracting, and onboarding top talent; and the HR activities that build and maintain a workforce.
85
Employee relations programs...
...are intended to bolster employee productivity, motivation, and morale.
86
Employee relations programs...
...support employees and employers by ensuring effective use of employee skills and abilities to accomplish the organization's mission
87
Employee relations programs...
...provides fair and consistent treatment to all employees., which builds commitment to jobs and increases loyalty to the organization.
88
Employee relations programs...
...focuses on issues directly affecting employees, such as pay and benefits, work-life balance, and safe working conditions.
89
How do employees benefit from an employee relations program?
Policies supporting the organization's philosophies, mission, and values; procedures for addressing employee-related issues (how to resolve problems in the workplace); employee relations strategies (based on industry, location, company size and ind. leadership philosophies.
90
How do employees benefit from an employee relations program?
Communication channels through which management informs workers of the latest business developments and allows employees to express feelings, opinions, concerns, & question or challenge management decisions or labor issues.
91
Sexual harassment...
...a form of discrimination as outlined in the US Title VII Equal Employment Opportunity Act.
92
How is sexual harassment defined?
Unwelcome sexual advances, request for sexual favors, & other verbal or physical conduct of a sexual nature.
93
What is a condition of sexual harassment?
Quid pro quo (Latin for "something for something); applies when an authority figure offers or even hints that they will give the employee something (such as a raise or promotion) in return for that employee's satisfaction of a sexual nature.
94
What is a condition of sexual harassment?
A hostile environment is created when an employee feels uncomfortable or frightened to be in the workspace due to offensive behavior, intimidation, or abuse by a coworker or superior.
95
What is an organizational policy?
A course or method of action to guide decisions.
96
An organizational procedure is...
...a series of established or approved actions accomplished in a certain way or in a specified sequence to implement a workplace policy.
97
Why are policies and procedures essential in the workplace?
They facilitate and encourage professional practices and behaviors; promote compliance with regulations statutes, and accreditation requirements (HIPAA, EEOC, and ERISA requirements).
98
Why are policies and procedures essential in the workplace?
Reduce inconsistencies and variations in productivity and outcomes; standardize practices across multiple departments within an organization.
99
Why are policies and procedures essential in the workplace?
Reduce reliance on memory, which when overtaxed can be a major source of human errors or oversights.
100
What are the circumstances in which harassment can occur?
They can be the victim's superior, a supervisor in another area, an agent of the employer, a coworker, or a non-employee such as a vendor representative.
101
How can you ensure understanding and adherence to policies and procedures?
*Ask mgr. or HR for clarification if the policies, etc. are unclear.
*Read notices and email updates to stay informed
* Network with colleagues and management (formally & informally)
* Get involved in opportunities to develop policies (serving on a task force, etc.)
* Attend staff or mgmt. meetings to hear updates on org. changes
102
What can organizational policies and procedures do?
They can define, regulate, & inform about the operations of an organization so empl. can knowingly and willingly comply with expected behaviors.
103
What is the history of performance evaluations?
Formal evaluations date back more than 60 years.
* originally used to justify income, wages or salary increases.
104
Performance appraisals have been broadened to...
...include many facets of a professional's work history, achievements, areas for improvement, & future goals.
105
What are SMART goals?
Specific
Measurable
Attainable
Relevant
Time-bound
106
Debits and credits
Basic entries in financial journals based on what's known as the DOUBLE ENTRY SYSTEM
107
Where are debits and credits recorded?
DEBITS: left side
CREDITS: right side
108
What's the definition of DEBITS and CREDITS?
If you DEBIT a cash account, you INCREASE the amount of cash on hand; if you debit an ACCOUNTS PAYABLE account, you DECREASE the amount of the PAYABLE LIABILITY.
109
Debit and credit cash
Debit cash: whenever cash is RECEIVED.
Credit cash: whenever cash is PAID OUT.
110
Chart of accounts
A listing of all the different accounts that go in the GENERAL LEDGER.
111
Financial statements are...
...a road map showing the performance of the company.
112
What are the typical components of FINANCIAL STATEMENTS?
BALANCE SHEET: detailing what the company owns and what it owes.
INCOME STATEMENT: showing company performance by detailing its profits and losses.
STAKEHOLDER'S EQUITY: this shows how equity (company shares held by stockholders) changes from one year to the next and how it affects the balance sheet.
CASH FLOW: statement showing the movement of cash during the reporting period.
FOOTNOTES: this shows the details of the balance sheet and income statements
113
What is another name for a balance sheet?
STATEMENT OF FINANCIAL POSITION
114
What is a budget?
A tool to help align the goals and strategic objectives of an organization.
115
What are the basic elements of a budget called?
Expenses (discretionary and nondiscretionary) & revenue.
116
What should you consider when assembling a budget?
* Personnel & non-personnel expenses for an operation. All items in each category should include an explanation of how the figures are calculated.
117
What steps should the budgeting process follow to create, track, and balance the budget?
* Strategic vision
* Goals
* Revenue projection
* Fixed cost projections
* Variable costs
* Goal-related projects
* Ensuring the BUDGET IS BALANCED
118
Strategic vision
Cannot be accomplished without goals; goals require projects, & projects require funding.
119
Goals...
...support the overall mission; taking accountability for every goal requiring financial support.
120
Revenue projections...
Support accountability for goals; based on previous financial performance and projected income growth.
121
Fixed cost projections...
Include payroll, utilities, and rent. These are "fixed" because they can be predetermined with a high degree of certainty.
122
Variable costs...
...include overtime, supplies, and materials. They should be budgeted and the actual expenses incurred should be MANAGED AGAINST THE BUDGETED NUMBERS.
123
Goal-related projects
Should be budgeted under the appropriate department...
124
A balanced budget...
The last step in budgeting; variances between budgeted revenues & expenses should be reconciled. Management at every level should track the budget, preferably MONTHLY so any issues can be corrected quickly.
125
What is petty cash?
Small, accessible amounts of cash for minor business expenses (parking fees, postage, & other small expenses).
126
A petty cash fund MUST be accounted for with proper documentation...
1. The person requiring cash completes a VOUCHER for disbursement of funds
2. The custodian approves the voucher and provides the funds from PETTY CASH (typically a locked cash box or drawer)
3. The person submits a RECEIPT to the custodian once the purchase is made.
4. The custodian logs each disbursement in a LEDGER or other record
5. Extra cash left after the purchase is returned to the fund
127
ATM (automated teller machine)
an electronic unit that allows customers basic financial transactions such as deposits, withdrawals, & the ability to check balances; usually available 24 hours a day.
128
Automatic deductions
A convenient way to pay recurring expenses; sometimes referred to as ACH TRANSACTIONS (automated clearning house--a US based electronic network for clearing financial transactions)
129
Cash disbursement journal
* used to record all expenses
* similar to a checkbook ledger where expenses and deposits are recorded
* entries are based on certain expense codes & placed in the appropriate columns in the journal, which is used to create annual balance sheets & other financial statements
130
Cash short and over
An account in the income statement documenting the availability of funds in a cash account. Most commonly used for petty cash funds. If there's a deficit=EXPENSE; overage=REVENUE
131
Certificate of deposit (CDs)
Bank accounts that have a fixed requirement for the amount on deposit & a fixed length of time during which the amount must remain on deposit; typically pay more than a regular savings account.
132
Checking account
A bank account on which the owner can write checks to make payments for goods and services; should be RECONCILED AGAINST THE BANK STATEMENT on a monthly basis.
133
Debit cards
Payment cards used to pay for goods and services from a checking or savings account without needing to carry cash or checks.
134
Direct deposit
An electronic transfer from the payer's account directly to the recipient's account.
135
Electronic banking
Refers to any non-paper transaction, such as electronically transferring funds from one account to another rather than using paper checks or cash transfers.
136
Facsimile signature
A reproduction of an actual signature that can be saved & inserted into electronic documents or can be added by imprinting or stamping.
137
FDIC (Federal Deposit Insurance Corporation)
Created by the Banking Act of 1933 and operates as an independent agency. Insures deposits against bank failure, maintains confidence in the banking system, & ensures stability in the system by promoting sound banking practices.
138
Interest
A percentage paid by the bank into a bank account based on the account structure and the amount of money on deposit.
139
Lock box
A box that's accessible by the bank & used by an organization that wants a bank to collect its accounts receivables when customers send payments. The bank can access the lock box and process the payments for the company.
140
Overdraft
Refers to money being drawn on an account that exceeds the amount actually on deposit.
141
Safe deposit box
A box kept in the bank's vault and used by bank customers to store valuables (such as marriage licenses & property deeds).
142
Savings account
Pays variable amounts of interest depending on the account structure and the amount of money on deposit. These accounts do not include checks or debit cards.
143
Statement reconciliation
Involves comparing the monthly bank statement transactions with the transactions recorded in the checkbook ledger. Considered to be reconciled when all transactions match & the account balance at the end of the statement month matches the statement ending balance.
144
Deposits
Counts cash and checks and calculates the total.
145
Withdrawals
Takes money from an account.
146
Transfers of cash
Typically accomplished online as ELECTRONIC TRANSFERS through the online banking system.
147
What's the difference between the ACCOUNT BALANCE and AVAILABLE BALANCE?
The account balance shows the total amount in the account; available balance reflects pending deposits or withdrawals.
148
Safe money-handling procedures
* Restrict access to cash-handling & storage areas--authorized personnel only.
* All cash and related items must be stored in a fireproof safe in a secure area.
* The amount of funds secured in a safe or vault overnight, during weekends, or long holidays should be kept to a reasonable minimum. Excess funds should be deposited in the designated depository.
149
What's a project?
A temporary endeavor undertaken to create a unique product, service, or result, as defined by PMI (Project Management Institute); has a beginning & end date & is unique in that it sits outside of day-to-day operations.
