BUSN 101 Midterm Kelly + Williams

value

The relationship between the price of a good or a service and the benefits that it offers its customers.

business

Any organization or activity that provides goods and services in an effort to earn a profit.

profit

The money that a business earns in sales (or revenue), minus expenses, such as the cost of goods and the cost of salaries.

loss

When a business incurs expenses that are greater than its revenue.

entrepreneurs

People who risk their time, money, and other resources to start and manage a business.

standard of living

The quality and quantity of goods and services available to a population.

quality of life

The overall sense of well-being experienced by either an individual or a group.

factors of production

natural resources, capital, human resources, and entrepreneurship

speed-to-market

The rate at which a new product moves from conception to commercialization.

General Agreement on Tariffs and Trade (GATT)

An international trade agreement that has taken bold steps to lower tariffs and promote free trade worldwide.

macroeconomics

The study of a country’s overall economic dynamics, such as the employment rate, the gross domestic product, and taxation policies.

microeconomics

The study of smaller economic units such as individual consumers, families, and individual businesses.

fiscal policy

Government efforts to influence the economy through taxation and spending.

budget surplus

Overage that occurs when revenue is higher than expenses over a given period of time.

budget deficit

Shortfall that occurs when expenses are higher than revenue over a given period of time.

monetary policy

Federal Reserve decisions that shape the economy by influencing interest rates and the supply of money.

commercial banks

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public.

open market operations

The Federal Reserve function of buying and selling government securities, which include treasury bonds, notes, and bills.

discount rate

The rate of interest that the Federal Reserve charges when it loans funds to banks.

Federal Deposit Insurance Corporation (FDIC)

A federal agency that insures deposits in banks and thrift institutions for up to $250,000 per customer, per bank.

reserve requirement

A rule set by the Fed, which specifies the minimum amount of reserves (or funds) a bank must hold, expressed as a percentage of the bank’s deposits.

pure competition

A market structure with many competitors selling virtually identical products. Barriers to entry are quite low.

natural monopoly

A market structure with one company as the supplier of a product because the nature of that product makes a single supplier more efficient than multiple, competing ones. Most natural monopolies are government sanctioned and regulated.

supply

The quantity of products that producers are willing to offer for sale at different market prices.

equilibrium price

The price associated with the point at which the quantity demanded of a product equals the quantity supplied.

mixed economies

Economies that embody elements of both planned and market-based economic systems.

consumer price index (CPI)

A measure of inflation that evaluates the change in the weighted-average price of goods and services that the average consumer buys each month.

inflation

A period of rising average prices across the economy.

hyperinflation

An average monthly inflation rate of more than 50%.

disinflation

A period of slowing average price increases across the economy.

deflation

A period of falling average prices across the economy.

producer price index (PPI)

A measure of inflation that evaluates the change over time in the prices that business pay each other for goods and services on a weighted average.

absolute advantage

The benefit a country has in a given industry when it can produce more of a product than other nations using the same amount of resources.

comparative advantage

The benefit a country has in a given industry if it can make products at a lower opportunity cost than other countries.

balance of trade

A basic measure of the difference in value between a nation’s exports and imports, including both goods and services.

balance of payments surplus

Overage that occurs when more money flows into a nation than out of that nation.

balance of payments deficit

Shortfall that occurs when more money flows out of a nation than into that nation.

countertrade

International trade that involves the barter of products for products rather than for currency.

importing

Buying products domestically that have been produced or grown in foreign nations.

exporting

Selling products in foreign nations that have been produced or grown domestically.

direct investment

When firms either acquire foreign firms or develop new facilities from the ground up in foreign countries.

joint ventures

When two or more companies join forces—sharing resources, risks, and profits, but not actually merging companies— to pursue specific opportunities.

partnership

A voluntary agreement under which two or more people act as co-owners of a business for profit

strategic alliance

An agreement between two or more firms to jointly pursue a specific opportunity without actually merging their businesses. Strategic alliances typically involve less formal, less encompassing agreements than partnerships.

quotas

Limitations on the amount of specific products that may be imported from certain countries during a given time period.

voluntary export restraints (VERs)

Limitations on the amount of specific products that one nation will export to another nation.

embargo

A complete ban on international trade of a certain item, or a total halt in trade with a particular nation.

tariffs

Taxes levied against imports.

World Trade Organization (WTO)

A permanent global institution to promote international trade and to settle international trade disputes

World Bank

An international cooperative of 189 member countries, working together to reduce poverty in the developing world.

International Monetary Fund (IMF)

An international organization of 188 member nations that promotes international economic cooperation and stable growth.

common market

A group of countries that have eliminated tariffs and harmonized trading rules to facilitate the free flow of goods among the member nations.

social audit

A systematic evaluation of how well a firm is meeting its ethics and social responsibility goals.

Sarbanes–Oxley Act

Federal legislation passed in 2002 that sets higher ethical standards for public corporations and accounting firms. Key provisions limit conflict-of-interest issues and require financial officers and CEOs to certify the validity of their financial statements.

sole proprietorship

A form of business ownership with a single owner who usually actively manages the company.

unlimited liability

When businesses formed as sole proprietorships or business partnerships cannot pay their bills, all or part of the business owner’s personal financial assets, such as cash, bank accounts, investments, or homes, can be seized to pay the business debts.

general partnership

A partnership in which all partners can take an active role in managing the business and have unlimited liability for any claims against the firm.

corporation

A form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners

articles of incorporation

The document filed with a state government to establish the existence of a new corporation.

limited liability

When owners are not personally liable for claims against their firm. Owners with limited liability may lose their investment in the company, but their other personal assets are protected.

limited liability company (LLC)

A form of business ownership that offers both limited liability to its owners and flexible tax treatment.

limited partnership

A partnership that includes at least one general partner who actively manages the company and accepts unlimited liability and one limited partner who gives up the right to actively manage the company in exchange for limited liability.

C corporation

The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders.

S corporation

A form of corporation that avoids double taxation by having its income taxed as if it were a partnership.

statutory close (or closed) corporation

A corporation with a limited number of owners that operates under simpler, less formal rules than a C corporation.

nonprofit corporation

A corporation that does not seek to earn a profit and differs in several fundamental respects from C corporations.

conglomerate merger

A combination of two firms that are in unrelated industries.

horizontal merger

A combination of two firms that are in the same industry.

vertical merger

A combination of firms at different stages in the production of a good or service.

merger

A corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

divestiture

The transfer of total or partial ownership of some of a firm’s operations to investors or to another company.

Franchise Disclosure Document (FDD)

A detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least 14 calendar days before the franchise agreement is signed.

franchise

A licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, business methods, and other property in exchange for monetary payments and other considerations.

franchisor

The business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations.

franchisee

The party in a franchise relationship that pays for the right to use resources supplied by the franchisor.

distributorship

A type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.

angel investors

Individuals who invest in start-up companies with high growth potential in exchange for a share of ownership.

venture capital firms

Companies that invest in start-up businesses with high growth potential in exchange for a share of ownership.

Small Business Administration (SBA)

An agency of the federal government designed to maintain and strengthen the nation’s economy by aiding, counseling, assisting, and protecting the interests of small businesses.

Small Business Development Centers (SBDCs)

Local offices—affiliated with the Small Business Administration—that provide comprehensive management assistance to current and prospective small business owners.

SCORE (Service Corps of Retired Executives)

An organization—affiliated with the Small Business Administration—that provides free, comprehensive business counseling for small business owners from qualified volunteers.

business plan

A formal document that describes a business concept, outlines core business objectives, and details strategies and timelines for achieving those objectives.

accounting

A system for recognizing, organizing, analyzing, and reporting information about the financial transactions that affect an organization.

financial accounting

The branch of accounting that prepares financial statements for use by owners, creditors, suppliers, and other external stakeholders.

generally accepted accounting principles (GAAP)

A set of accounting standards that is used in the preparation of financial statements.

Financial Accounting Standards Board (FASB)

The private board that establishes the generally accepted accounting principles used in the practice of financial accounting.

balance sheet

A financial statement that reports the financial position of a firm by identifying and reporting the value of the firm’s assets, liabilities, and owners’ equity.

accounting equation

Assets = Liabilites + Owners Equity

assets

Resources owned by a firm.

liabilities

Claims that outsiders have against a firm’s assets.

owners’ equity

The claims a firm’s owners have against their company’s assets (often called “stockholders’ equity” on balance sheets of corporations).

net income

The difference between the revenue a firm earns and the expenses it incurs in a given time period.

statement of cash flows

The financial statement that identifies a firm’s sources and uses of cash in a given accounting period.

horizontal analysis

Analysis of financial statements that compares account values reported on these statements over two or more years to identify changes and trends.

operating budgets

Budgets that communicate an organization’s sales and production goals and the resources needed to achieve these goals.

financial budgets

Budgets that focus on the firm’s financial goals and identify the resources needed to achieve these goals.

master budget

A presentation of an organization’s operational and financial budgets that represents the firm’s overall plan of action for a specified time period.

management accounting

The branch of accounting that provides reports and analysis to managers to help them make informed business decisions.

implicit cost

The opportunity cost that arises when a firm uses owner-supplied resources.

activity-based costing (ABC)

A technique to assign product costs based on links between activities that drive costs and the production of specific products.