Card Set Information
U of I
Elements of A Good Accounting System
• Make comparisons about performance.
• Generate reports, tax documents & financialstatements.
• Accurately account for all resources.
• Minimize theft and fraud.
• Do all the above at low cost.
Are budget or accounting figures always exact?
What is the difference between anaccountant and a CPA?
– Guaranteed Acceptable Accounting Principles
Considerations of Accounting
• Budgets should be considered as planningtools for businesses. Helps to set goals.
• Cash budgets are a critical way we have tocontrol our business
.• Through budgets and accounting we reduceeverything to dollar terms thus they arecomparable.-
Cash vs. Accrual Systems
• Cash– Report revenues only when actually receivedand expenditures when actually made.
• Accrual– Payments and debits recognized when acommitment is made - not the transaction.
Why are income statements important
– Show if you have earned a profit
What do income statement consist of?
– Cost of goods sold
= Operating profit
Why are balance sheets important?
Shows the financial health of the firm at anygiven moment.
Why is it called a balance sheet?
– Because assets always equal equities
– On the left side, what the business has on theright who owns it.
Why are Cash Budgets important??
• Important because they measure cash flow.
• It helps answer the vital question
: Will be able to pay our bills on time.
• It shows when cash will come in and when it needs to go out
What is depreciation?
– Non-cash expense
– Takes the cost of a long term asset andincrementally reduces it to show its declining value.
What is a return on sales?
Is a measure of operating efficiency. For every dollar in sales what is the profit?
What is Return on Investment (ROI)
A measure of financial efficiency. What profit are you getting from the entire investment
What are the 4 costs of doing business?
• Fixed costs
• Variable Costs
• Mixed costs
• Break-even analysis
What are Ratios: Debt, Liquidity &Profitability for?
• To assess the same firm/profit center overtime
• To compare different firms/profit centers
• The value and use of any ratio dependsupon your needs and objectives
What are the debt ratios?
• Debt to equity
• Maturities of long term debt
• Fixed-charge coverage
• Degree of financial leverage
• Cash flow to total debt
What the the liquidity ratios?
• Current ratio How many times firm cancover liabilities with current assets
• Quick or acid test
Using most liquid assets
• Inventory turn over by unit of time
• Accounts receivable turnover by unit of time
What are the profitability ratios?
• Net profit margin after tax
• Net profit margin before tax
• Earnings per share
• Return on equity after tax
What are the advanatages of consumer credit
• More likely to become repeat customers
• May purchase things they wouldn’t haveotherwise
• Tent to overspend
• Pay less attention to price
• Easier to sell them things
• Purchase items of higher quality
• Appeals to those not wanting to carry cash
What are the disadvantages of customer credit?
• Tie up money in accounts receivable
• Credit refusal may cause ill will
• Credit customers tend to return more items
• More bookkeeping needed
• Some just won’t pay
• Sometimes competition forces us into it
Why is size important in choosing a facility?
Too small and efficiency will suffer
Larger than needed and the cost will be too high - money wasted.
What are the four factors in considering your space needs?
– inventory & storage
– work areas & offices
– displays & restrooms
Why is appearance important in the building?
The physical appearance gives customers their first impression. Very important for retail establishments
Negatives of buidling a building for your business.
– high fixed expense
– hassle of construction
What are the positives of bulding a new building for your business?
+create ideal image for customers
+may have no other available choice
What the negatives of buying a building?
– settling for something less than ideal
– cost of remodeling/codes must be added
– the area may decline
– like building, cuts down on your mobility
What are the positives of buying a building?
+may be good investment (appreciation)
+can do what you want with building
+like building, favorable tax deductions
What are the negatives of leasing a building?
– limitations in remodeling
– additions become property of owner
– if successful expect rent hikes
– lease may not be renewed
– owner may be reluctant to fix things
– cost, prime space on Green $15.25/sq’/yr
What are the positives of leasing a business?
+no large initial cash outlay
+mobility not a problem
Why are storefronts important?
Sends message (image) to customers.
What are the three basic styles of storefronts?
Why is signage important?
Good medium for mobile society
Always on the job & cost efficient
Easy to use, control and change
What elements should your signage include?
Message should be visible, simple &clear
Readable from where the audience is
What interior problems are reported by employees?
– poor lighting
– lack of privacy
– excessive noise
What was the tax reform act of 1986
$120 billion swap from individual to business
– Increased complexity of tax code - again
When is record keeping important?
If you are going to have any hope of not payingtoo much taxes an excellent record keepingsystem is mandatory.
Records must be:
Can you backtrack your expenses?
What are some things to keep track of?
Cash receipts (gross income)
Deductible business expenses
Self-employment taxes - what you take
What are partners liable for in taxes?
Partners are liable for their share of thebusiness income regardless of whether ornot they received any of it personally
What is the cost of goods
what they cost to make or buy
a little more difficult to measure for manufactoring
What are some of the expenses assoiated with starting a business?
These expenses are considered capitalexpenditures and must be deducted over 60mos. or more.
: market research, location analysis,consulting and training
What are the 4 tests with salaries and wages?
Ordinary and necessary (related to thebusiness)
Reasonable (compared to similar businesses)
Services rendered (actually performed)
Paid in current year
What are wages associated with depreciation?
Item must be employed by the business orused to produce income.
Its useful life is determinable and longer than1 year.
It must wear out or become obsolete.
What are 4 tests that are associted with bed debts?
Legal obligation (debtor-creditor relationship)
Must actually incur a loss.
Must make a reasonable attempt to recoverloss.
Partial loss is OK for IRS.
What are some expenses associated with travel?
Ordinary and necessary
Not extravagant - reasonable for your position.
Can cover meals, lodging, transp. laundry, phone.
You may deduct US travel that mixes business andpleasure
Keep accurate records
: receipts, documentdeparture & return times, purpose of trip, itinerary
What are some expenses associated with transportation?
If used only for business then everything isdeductible
: gas, repairs, ins., interest, loan etc.
If mixed use you must break out costs.
Again, record keeping is very important. It isadvisable to keep a log book
What are some expenses with meals?
Not lavish & directly related to business.
Must have substantial business decision; before,during or after. Only 80% deductible
What are some expenses associated with entertainment?
More than a general expectation of earning incomeor some other benefit.
During this time you did engage in business
Main purpose was business transaction.
What are some expenses associated with gifts?
Cannot exceed $25 and be deductible
Under $4 & with the company name fully deductible
Same some taxes that you pay? 5
optional retirement programs
Name 4 other taxes that you pay
State and city income taxes
Excise tax on specific products
What is the goal of tax accounting?
The goal of tax accounting is to recognize operating expenses ASAP and postponesales revenues a long as possible
In a small business enviroment Because of close relationship the entrepreneur can better observe employees to:
give them more responsibility, train, reward
be supportive when things are tough
Problem in Managing Staff:
Discipline is problem in fam atmosphere
Boss can expect too much
Boss can be too busy to listen to problems
How should you define your organization?
in terms of skills not on individuals
be sure to include yourself
What is the benefit of writing job desciptions?
They can help you focus on staff needs and skills
What 6 features should a job description include?
Major and Minor Duties
Skills and Training Needed
Salary and Other Compensation
What are the positives of hiring within?
+ Know their work habits
+ Low cost of recruiting
+ Transition to new job can be smooth
+ Can motivate others to work hard
What are the negatives of hiring within?
May cause inbreeding- lack of fresh ideas
Complacency - too easy
New hire must be qualified to avoid resentment
What are advantages of hiring people from competitors?
+ Employee already has skills - no training
+ Has inside knowledge of competition
+ May bring new ideas
What are some negatives of hiring from competitors?
– The competition may do it to you
– Starts an upward bidding spiral for employees
What are the advantages of hiring from an outside source?
May be the only source
Surprizing source of new talent
What are some negatives of hiring from an outside source?
may not have exact match in skills
more training needed (time and money)
What are some ways you can go about hiring new employees?
ask current and former employess
state and private employement agencies
newspapers and trade publications
What are 6 things that determine that salary that you pay?
• Overall job climate
• What the competition pays, inc. benefits
• Prevailing union rates
• Minimum wage
• Local cost of living
• Workman’s comp & other required costs
• Your ability to pay.
Why are preformace appraisals so important
To give rewards where they are mostneeded.
• Show where training is needed
• Shows that you care
.• Justifies future personnel actions
Name the three types of e-business
what is the UP type of e business
between you and a parent company or supplier B2B
this is the biggest sector of e-business
what is the DOWN type of e-business
between you and your customers B2C
What is the ACROSS type of e-business
between you and similar firms or competition B2B
Name some types of e-business: direct marketing
retail dot com
copperatives= one site many vendors
Name 5 advantages of retail/traditional e-business approach
• It is theirs to loose.
• They already have the customers.
• They have brand identity (logo &trademarks)
• They already know the market
• They already know the distribution channelsand suppliers.
What is the importance of website design for a e-business
Can make or break an e-business
attractive, consistent and easy to use
what are some customer expectations of an website
ease of use
Name 3 ways of communicating with customers through website
transaction order processing mechanism
what is display mechanism in regards to communication with customers
showing your goods in a positive way
same three types of website management
vendor hosted with software required
in house hosting
name some marketing strategies of e-businesses
adversting and data mining
oneline testimonials and ratings
accept ebiz returns are stores
name some ways e-business' can be personalized/customer service focused
Help and search functions.
• Online one-to-one text based chats.
• Internet telephony.
• Automated response to email.
• To retain customers and increase spending.
• Reduce expensive labor costs
Name some security issues that go along with e-businesses
collecting data on consumers
selling customer data
intrusive push technology
Name some trends in e-business
shopping bots and price comparison services
cost of good e-business may rival traditional stores
future built on credibility
interactivity vs. shovel aproach
innovators often left customers dissatisfied
traditonal retailers adopting eCommerce cautiously
P2P transactions on the rise
name some miscallenous issues that have to do with e-business
push technology and pop up windows
software that blocks advertising
stickiness and click through
Online auctions are_____
micro business opportunities
very easy to start
often more work
potential for unlimited growth
consumer behavior- auction fever
what is the old dot com business model
based on assumption the web was the new way sales were going to be made
advertise revenue a key factor
as effectiveness drops agrgressiveness rises
what is the new business model for dot com business
growth in direct email advertisitng
sponsorship of webpages
quick adjustment and cancellation of ads
use web to inform not direct sales
Name the five elements of a purchasing plan
what is the concept of title ownership
risl of loss
what is involved in inventory management
inventory control systems
physical inventory count
just in time
slow moving inventory
how much money does shoplifting cost for business
cost businesses over 20 billion a year
what are the 5 profiles of shoplifters
vagrants, alcoholics and addicts
how can you detect shoplifters?
they work alone or in groups
when few staff are around
linger in one area for a long time
refuse help of sales people
frequently look around
have thier own ways of concealing goods
how can you deteer shoplifters
learn to look
install mechanical devices
set up the store layout a specific way
what do you do when catching a shoplifter
do not have physical contact
if possible approach outside the store
don't accuse people of stealing
what percentage of employees steal from the company?
why is employee theft such a big problem?
don't want to admit it
how can you avoid employee theft
what the workaholic
watch the disgruntled employee
show a high moral standard
run a tight ship and watch catch control
look at facility and security
hire honest people
Your business is an extension of ___
Name four responsibilites is the basis of strategic planning
the only reason to act unethically in small business is ______
short term financil gain
name some ethical issues are:
persons with diabilites
ism and other biases
cheating on taxes
misrepresenting a product or service