DECA: Financial Analysis

Explain forms of financial exchange

Cash - paper money

Credit - legal obligation to pay at a later date

Check - legal document confirming consumer's will to pay

Electronic - virtual money

Investments - bought by speculator with expectation of higher yield/returns

Identify types of currency

(paper money, coins, banknotes, government bonds, treasury notes, etc.)

Describe functions of money (medium of exchange, unit of measure, store of value)

medium of exchange- A medium of exchange is an intermediary instrument, such as currency, used to facilitate the sale, purchase, or trade of goods between parties.

unit of measure- he monetary unit to be used

store of value- an asset that maintains its value, rather than depreciating (eg. gold)

Describe sources of income

wages/salaries, interest, rent, dividends, transfer payments, etc

Explain the time value of money

The time value of money is the increase of an amount of money due to interest earned over time or dividends paid. It is the idea that money invested now is worth more later

Explain the purposes and importance of credit

Credit is borrowed to allow individuals to pay at a fixed date in the future and helps economy to grow.

Explain legal responsibilities associated with financial exchanges

Legal responsibility=the officially recognized acs enforced by the gov and conducted by a business or individual in exchange for goods or services

financial capacity to pay; rules and regulations to govern acceptable conduct in securities exchanges

Customers are responsible for all transactions they enter into - including online transactions where they provide credit card or other financial data Bank responsible for fraudulent credit card transactions if credit card agreement offers

Explain the need to save and invest

Saving:

-helps create wealth needed to achieve financial goals

- protect business from emergency

-reduce need for debt

- provide long-term stability

Investing:

-helps one achieve financial needs/goals (saving up for retirement)

- investing will help build wealth over time

-helps you stay in front of inflation

-can help you save on taxes

Set financial goals

Analyze current finances and debts, determine goal based on company's capability, and the factors surrounding it

Develop personal budget

Analyze current assets and debts, needs and wants, develop budget based on analysis, eliminate unneeded, realize needs, wants are for later

Determine personal net worth

A=L + OE

Explain the nature of tax liabilities

amount of tax that an entity is obligated to pay due to taxable event (e.g. income, sale)legal claim on assets - may foreclose (seize/sell property) or impose lien

Interpret a pay stub

1. Identification

contains your identification information and that of your employer.

2. Earnings

This section shows you the number of hours you worked and your hourly rate

3. Deductions

federal and provincial taxes, EI, CPP (Canada Pension Plan)

Prepare bank account documents (e.g., checks, deposit/withdrawal slips, endorsements, etc.)

Writing a check involves writing the date, the name of the payee, the amount of the payment in numerals as well as in words, your signature, and a memo if you choose. When you are cashing or depositing a check made out to you, start by endorsing the check by signing the back of it. Fill out a deposit slip to give to the bank teller with your name and account number, along with the amount of the deposit. Also, be sure to record the amount of the deposit into your checkbook register.

Maintain financial records

Organizing your financial records helps you plan and measure your financial progress, handle routine money matters, determine the money you have now and will have in the future, and make effective decisions about saving and investing. Documents to manage include bank statements, paystubs, ownership certificates, tax forms, etc.

Records may be maintained in a file cabinet, a safe-deposit box, and/or on a computer.

Read and reconcile bank statements

reading a bank statement:

Account: Your account number and type of. account number is shown here.

Period: How far back the transactions. ...

Date: When you made the transaction or. ...

Type of transaction made. ...

Description: What/where the money was. ...

Paid In: The value of the transaction made. ...

Balance: Shows the amount of money you.

To reconcile a bank statement cash balance, add back deposits in transit and deduct uncleared checks. Next, add interest to the cash balance in a company's books and subtract bank fees and rejected checks. Finally, add or deduct any other items or errors to match the bank and book cash balances.

Calculate the cost of credit

Discount %/(100-Discount %) x (360/Allowed payment days - Discount days)

Demonstrate the wise use of credit

Credit payments should add up to be less than the total income for the credit period.

make good credit history

There are many ways to use credit wisely. For instance, you may be able to combine several purchases into one, thus making only one monthly payment. You will likely need a credit card for major and expensive purchases. It is often safer, and more convenient, to use a credit card when shopping or travelling. The wise use of credit will allow you the opportunity to build a better credit history, which means you are seen as a reliable person to other lenders. When using credit, avoid the temptation to buy more than you can afford. Failing to repay a loan or credit card balance will damage your credit history, and could lead to you losing your property or source of income.

Validate credit history

You can validate your credit history by obtaining a copy of your credit report. You can obtain a copy free of charge one time per year from each agency. Once you receive a credit report, look it over carefully for errors or out-of-date information, and be sure to contact the agency promptly to make corrections.

Protect against identity theft

Individuals should avoid sharing personal information such as social security number (SSN) and credit card number to prevent identity theft.

Pay bills

pay any debts and all the bills you have (can be done mobile or in a bank)

Apply for a consumer loan

the best way to get one is to contact a bank or credit institution near you. You can receive consumer loan information about the type of loan that you'd like, and a representative will guide you throughout the application process.

Control debt

Know who and how much you owe. Pay off bills on time, even just minimums. Use incoming cash flow, not savings.

Pay off high interest first. Improve credit.

Recognize signs that you need help, debt relief company or credit counseling agency. Consolidation, settlement, bankruptcy.

Prepare personal income tax forms

All documents should be gathered and all necessary information should be recorded, such as sources of income, amount of income, and sums of tax-deductible donations.

Discuss the nature of retirement planning

Retirement planning means preparing today for your future life so that you continue to meet all your goals and dreams independently. This includes setting your retirement goals, estimating the amount of money you will need, and investing to grow your retirement savings.

Explain the nature of estate planning

estate planning is the process of arranging for the legal disposition and administration of assets after death. Assets can include anything from real estate or a business, to bank accounts, investments and personal belongings.

Describe types of financial-services providers

Retail Bank - FDIC insured (0 risk), deposit/withdraw money, bank profits from investments

Credit Union - borrow money for business purposes

Insurance Company - transfer financial risk in exchange for premium

Brokerage Firm - middleman between investors and equities

Discuss considerations in selecting a financial-services provider

Consider one where...you can get the highest rate of return on a savings account. You can obtain a checking account with low or no fees. You will be able to borrow money when you need it and at a favorable interest rate. You can get free financial advice. It has convenient locations. It has online banking or other special services you may desire.

Explain types of investments

Bonds: by purchasing a bond, you are lending money to a company or business—in return the company or government will eventually pay you back

Stocks: by purchasing stock, you are essentially buying a piece of the company, so you can vote as a shareholder and say what the company can or cannot do

Common stock is a unit of ownership of a company that entities the owner to voting privileges.

Preferred stock is a type of stock that gives the owner the advantage of receiving cash dividends before common stockholders receive them.

Mutual funds: a collection of stocks and bonds that is held by a group of people. By investing in a mutual fund you are sharing in your part of the risk and your part of the reward

Describe the concept of insurance

Insurance is the practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium

Describe the need for financial information

Trends in finance can help businesses make decisions based on funds available and history of profits and losses.

Financial statements are important to investors because they can provide enormous information about a company's revenue, expenses, profitability, debt load, and the ability to meet its short-term and long-term financial obligations.

Explain the concept of accounting

Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

Discuss the role of ethics in accounting

Ethics require accounting professionals to comply with the laws and regulations that govern their jurisdictions and their bodies of work. Avoiding actions that could negatively affect the reputation of the profession is a reasonable commitment that business partners and others should expect

Accounting ethics help companies to maintain professional competence and reputation. They prevent companies and individuals handling accounting information from disclosing financial information, which is considered a breach of trust to the owners of the information and a breach of ethics.

Explain the use of technology in accounting

Most businesses use some type of accounting software to record and report their business transactions. Computerized posting to accounts is faster and eliminates accounting errors that a person might make doing it manually. Daily, weekly, monthly, and annual reports can be generated quickly and accurately. Software is also available for tax collection and reporting.

Describe the nature of cash flow statements

Measure how much money is coming into and going out of a business

Shows the business how much profit they are making and shows them where they may need to cut spending to make a higher profit

Explain the nature of balance sheets

Summarizes a company's assets, liabilities, and shareholders' equity at a certain point in time

Allow investors to see what the business owns, what it owes, and how much was invested in the company by shareholders

a snapshot of a period in time

Describe the nature of income statements

An income statement is a summary of a business' income and expenses during a specific period of time. Often called a profit and loss statement, it is used to calculate revenue, costs and expenses, and profit/loss.

Income statements have several major parts: total sales, net sales, cost of goods sold, gross profit, operating expenses, other income/expenses, net profit/loss before taxes, and net profit/loss after taxes. Some of these figures must be estimated or projected, such as total sales and business expenses.

Explain the role of finance in business

The financial department of a business seeks to lower costs and utilize budget through methods such as budgeting, reporting, and forecasting.

Discuss the role of ethics in finance

Companies and their executives can now be held accountable for misinformation or improper recording of a company's financial situation. A company must keep an accurate, honest, and complete record of its accounting transactions. Finance professionals should be educated about insider trading and other unethical practices.

They must refrain from misrepresenting the facts to achieve short-term goals. Confidentiality must be maintained with regard to clients' personal information as well as company information. Efforts must also be made to avoid conflicts of interest between employees and customers.

Describe the nature of budgets

A budget is a formal, written statement of expected revenue and expenses for a future period of time. To be effective, a budget should be evaluated periodically with actual income and expenses. Revenues may include cash sales, collections on accounts receivable, and other income. Expenses include purchases, insurance, taxes, payroll, and many other things.

Describe the role of financial institutions

A financial institution conducts transactions such as investments, loans or deposits. There are a variety of financial institutions that can provide services in this industry including Commercial Banks, Investment Banks, Insurance Companies, Brokerages, Investment Companies, Unit Investment Trusts (UIT), Face Amount Certificates, Management Investment Companies, and NonBank entities. All of these institutions interact with consumers in attaining their financial goals.

Explain types of financial markets (e.g., money market, capital market, insurance market, commodities markets, etc.)

Money Market- The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less.

Capital market- is a place where buyers and sellers indulge in trade (buying/selling) of financial securities like bonds, stocks, etc. Capital market trades mostly in long-term securities.

A soft insurance market occurs when underwriting standards are looser and premiums are lower than in hard insurance markets. hard insurance market of stricter underwriting criteria and higher premiums.

Commodities Market- trades in raw or primary products rather than manufactured products.

Discuss the nature of convergence/consolidation in the finance industry

Convergence or consolidation in the finance industry is the practice of businesses, such as banks and insurance companies joining forces with each other in order to offer customers a broad range of financial services

Companies would do this to improve profitability by increasing their fee income and expanding their product/service mix. It also helps to reduce the cost of locating and securing new customers.

Describe the relationship between economic conditions and financial markets

When investors are optimistic about the economy, they are more likely to purchase stocks. This is called a bull market. On the other hand, a bear market is when investors are pessimistic about the economy and are likely to sell stocks. When the demand for stock increases, stock values individually and as a whole increase. Likewise, a decline in demand for stocks will cause a drop in stock values.

Describe sources of securities information

Annual reports, newspapers, magazines, and other periodicals. The Wall Street Journal is one of the most respected sources of financial information, as are

Investor's Business Daily, The New York Times, Barron's, Business Week, Forbes, and Fortune.

Explain the nature of statements of changes in equity

Statement of Changes in Equity is the reconciliation between the opening balance and closing balance of shareholder's equity. The difference between the assets and liabilities from one accounting period to the next will give you the movement in equity.

Calculate the time value of money

FV = PV (1 + r)^n

FV-Future value

PV-Present value

r- interest rate

n- # of years the money is being put away for

Describe types of costs used in managerial accounting (e.g., direct cost, indirect cost, sunk cost, differential cost, etc.)

Direct Costs- the expenses a business incurs directly to make a product or service (e.g direct labor, direct materials)

Indirect Costs- costs that are not directly accountable to a cost object (e.g. rent, utilities, administrative salaries)

Sunk Costs- money that has already been spent and cannot be recovered. (e.g training an employee that leaves right after)

Differential Cost- the difference between the cost of two alternative decisions, or of a change in output levels. (e.g Setting the prices of products and services.)

Explain the nature of managerial accounting

Managerial accounting is the process of "identification, measurement, analysis, and interpretation of accounting information" that helps business leaders make sound financial decisions and efficiently manage their daily operations

Discuss the use of variance analysis in managerial accounting

It is a study of the variation (difference) between an actual (forecasted) action and a planned action. Variance analysis carries out a quantitative investigation to find out the difference between the actual cost and the standard cost of production.

Variance analysis is used to assess the price and quantity of materials, labour and overhead costs.

Discuss the nature of cost allocation

Cost allocation is the process of identifying, aggregating, and assigning costs to cost objects. A cost object is any activity or item for which you want to separately measure costs. Examples of cost objects are a product, a research project, a customer, a sales region, and a department.

Discuss the nature of the accounting cycle

The accounting cycle is the series of accounting activities involved in recording financial information within a fiscal period

Steps:

1. analyze transactions

2. journalize transactions

3. post into general ledger

4.prepare worksheet

5. prepare financial statements (income and balance)

6. journalize adjusting and closing entries

7. post adjusting and closing entries

8. prepare post closing trial balance

Distinguish among types of business transactions

External transactions. ...

Internal transactions. ...

Cash transactions. ...

Non-cash transactions. ...

Credit transactions. ...

Distinguish among types of business documentation

Contracts. ...

Documentation of bylaws. ...

Non-disclosure agreement. ...

Employment agreement. ...

Business plan. ...

Financial documents. ...

Transactional documents. ...

Compliance and regulatory documents.

Demonstrate the effects of transactions on the accounting equation

..ask puffer bro

A= L + (R-EX)(OE-D)

Explain the nature of special journals

Special journals are created to help the process of journalizing posting transactions. They are

used when a company has many similar transactions.

Sales journals - record transactions that involve sales on credit.

Cash receipt journals - record transactions that involve payments received using cash.

Purchase journals - record transactions that involve purchases using credit.

Cash payments journals - record transactions that involve expenditures used paid with cash.

Explain cash control procedures (e.g., signature cards, deposit slips, internal/external controls, cash clearing, etc.)

The cashier processes the deposit and matches the total processed to the total stated on the deposit slip to ensure that they match; thus, the deposit slip is a cash processing control for the bank.

internal control procedures: segregation of duties, Immediate listing of cash receipts, payment by cheque, periodic audits

Reconcile cash

A cash reconciliation is the process of verifying the amount of cash in a cash register as of the close of business. The verification can also take place whenever a different clerk takes over a cash register

Explain the nature of accounts payable

Accounts payable refer to the money a company owes its suppliers for goods and services that have been provided and for which the supplier has submitted an invoice

Account for purchases (e.g., purchase requisitions, purchase orders, invoices, vouchers, etc.)

purchase requisition- an internal document used by an employee to purchase goods or services on behalf of their firm

purchase order- an official document issued by a buyer committing to pay the seller for the sale of specific products or services to be delivered in the future.

invoice- It includes the cost of the products purchased or services rendered to the buyer

voucher- Any written documentation supporting the entries reported in the account books, indicating the transaction's accounting accuracy, can be referred to as a voucher. For example, a bill, invoice, receipt

Explain the nature of accounts receivable

Accounts receivable refer to the money a company's customers owe for goods or services they have received but not yet paid for

Explain methods used to value inventory (e.g., FIFO, LIFO, average cost, etc.)

FIFO (first in first out)- assumes that goods purchased or produced first are sold first. In theory, this means the oldest inventory gets shipped out to customers before newer inventory.

LIFO- records the most recently produced items as sold first.

Under the 'average cost method', it is assumed that the cost of inventory is based on the average cost of the goods available for sale during the period.

total cost of production/total units produced

Determine the cost/value of inventory

inventory cost = [beginning inventory + inventory purchases] - ending inventory.

Inventory values can be calculated by multiplying the number of items on hand with the unit price of the items

Explain the nature of payroll expenses (e.g., Social Security tax, Medicare tax, FUTA, SUTA, workers' compensation, etc.)

The Social Security tax is a percentage of gross wages that most employees, employers and self-employed workers must pay to fund the federal program.

Maintain employee earnings records (e.g., timecards, time sheets, etc.)

A time card/time sheet is a method for recording and tracking the amount of an employee's time spent on each job.

Calculate employee deductions

subtract deductions from gross pay= net pay

Account for long-term assets (e.g., record acquisition, record depreciation/amortization, record disposal)

An asset acquisition is the purchase of a company by buying its assets instead of its stock

Amortization is an accounting method for spreading out the costs for the use of a long-term asset over the expected period the long-term asset will provide value

Account for long-term liabilities (e.g., bonds payable, notes payable, leases, etc.)

Bonds payable is a liability account that contains the amount owed to bond holders by the issuer

Notes payable are long-term liabilities that indicate the money a company owes its financiers—banks and other financial institutions as well as other sources of funds such as friends and family.

Identify tax issues for clients

can be caused by lack of expertise, lack of documentation, lack of attention to detail

Discuss the use of cost-volume-profit analysis

a way to find out how changes in variable and fixed costs affect a firm's profit

Discuss the role of standard costing in the preparation and analysis of budgets

Standard costing involves the creation of estimated (i.e., standard) costs for some or all activities within a company. The core reason for using standard costs is that there are a number of applications where it is too time-consuming to collect actual costs, so standard costs are used as a close approximation to actual costs. This results in significant accounting efficiencies

Describe the nature of flexible budgets

A flexible budget adjusts based on changes in actual revenue or other activities

Discuss the nature of annual reports

An annual report is a corporate document disseminated to shareholders that spells out the company's financial condition and operations over the previous year.

Explain the purpose of internal accounting controls

Internal controls function to minimize risks and protect assets, ensure accuracy of records, promote operational efficiency, and encourage adherence to policies, rules, regulations, and laws.

Assess financial accounting fraud risk

The most common warning signs include: Accounting anomalies, such as growing revenues without a corresponding growth in cash flows. Consistent sales growth while competitors are struggling. A significant surge in a company's performance within the final reporting period of a fiscal year.

Determine the components of internal accounting control procedures for a business

segregation of duties, internal audits, trial balances,

Explain the nature of audits and assurance engagements

The objective of an assurance engagement is to obtain sufficient appropriate evidence to express a conclusion, providing reasonable or limited assurance, as to whether the audited body has complied with the specified requirements of the appropriate legislation (the 'criteria') in all material respects.

Distinguish between internal and external audits

Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company. Internal audits are conducted throughout the year, while external auditors conduct a single annual audit.

Describe auditing techniques/procedures

Computer-Assisted Audit Technique (CAAT)

The CAAT method of testing is often used to analyze large volumes of data or a sample of compiled data. Using special software, CAAT testing runs a script over a ledger, spreadsheet, or an entire database, to spot trends, irregularities, and potentially fraudulent entries.

Maintain job order cost sheets

a job cost sheet is maintained for each job. It shows information about the total cost of a particular job. Each job sheet breaks the costs down in terms of direct materials, direct labor, and manufacturing overhead assigned to individual jobs.

Calculate the cost of goods sold

COGS = the starting inventory + purchases - ending inventory.

Explain types of budgeting systems (e.g., top-down, bottom-up, incremental, etc.)

In a top-down planning, departments must generate budgets within the constraints set forth by senior leadership.

In a bottom-up budget, departments create their own budget estimates and send them to senior leadership.

Process preliminary budget detail

A preliminary capital budget is for the one-time costs of acquiring, renovating, or constructing the facility and is separate from the operating budget.

Explain economic and marketplace factors impacting bank portfolio quality

Market Risk. a) Interest Risk. b) Inflation Risk. c) Currency Risk. d) Volatility Risk.

Liquidity Risk.

Credit Risk.

Discuss the nature of depreciation

Depreciation represents how much of an asset's value has been used. It allows companies to earn revenue from the assets they own by paying for them over a certain period of time.

Describe the nature of cash flows

Cash flow is the movement of money into or out of a business, project, or financial product. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.

Uses plus and minus to indicate profit and loss and then total.

Discuss the nature of corporate bonds

The corporate bond is a debt instrument, and the company's payment ability is its backing, typically in the form of profits from future operations. The physical assets of a business entity may also serve as collateral for corporate bonds.

Discuss the cost of common stock

Companies sell shares to grow or expand. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some.

Discuss the nature of Initial Public Offerings

An initial public offering (IPO) is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded.

Describe components of a collection system

Cash payments, primarily from individuals in a retail business

Checks, from individuals in a retail environment and business customers

Credit and debit card payments from individuals and businesses

Online payment methods such as PayPal, from individuals and companies.

Credit or payment plans, from both individuals and business customers.

Other external payment sources, such as insurance companies, in certain types of companies.

Describe the nature of short-term financial management

Short-term financial management involves budgeting and making financial plans for periods of one year or less

Loans are an important component of short-term financial management at businesses. Lenders tend to charge higher interest rates on longer term debts so many business owners attempt to keep costs low by taking out a series of short-term loans rather than one long-term debt.

Describe cash management procedures

The company should ensure cash availability through managing cash on hand, cash deposits in daily, medium, and long term accounts, and cash disbursements to best meet the company cash and liquidity needs while managing risk.

Explain the use of cash budgets

A cash budget is an estimation of the cash inflows and outflows for a business over a specific period of time, and this budget is used to assess whether the entity has sufficient cash to operate.

Analyze the impact of accounts payable schedules on working capital

Increasing accounts payable or accrued liabilities instead of paying cash will not change the amount of the company's working capital. However, the company will have more cash on hand because of the delay in paying out cash. The higher cash balance will result in additional liquidity at least temporarily.

Analyze the impact of accounts receivable collection on working capital cycle

The receivables of any company if managed effectively increase the current assets of company which lead to increase in the working capital of the company on the other hand if the company has excess of receivables it increases the costs by blockage of funds of the company.

Discuss the impact of employee benefits on business financials

improves employees motivation at work --> better performance --> better financials

Discuss the impact of obsolescence on business expense

Obsolescence costs are incurred when an item in inventory becomes obsolete before it is sold or used. Inventory may become obsolete due to product design changes, changes in customer demand, or by remaining unsold after an acceptable shelf life.

Explain the role of capital markets in business finance

Capital markets allow traders to buy and sell stocks and bonds, and enable businesses to raise financial capital to grow. Businesses also have reduced risk and expenses in acquiring financial capital because they have reliable markets where they can obtain funding.

Explain the nature of capital investment

Capital investment is the acquisition of physical assets by a company for use in furthering its long-term business goals and objectives. Real estate, manufacturing plants, and machinery are among the assets that are purchased as capital investments.

Explain methods used to analyze capital investments (e.g., payback period, discounted break-even, net present value, accounting rate of return, internal rate of return, etc.)

Payback period is defined as the number of years required to recover the original cash investment

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.