Small Business Management Exam 3 Content

Lessons 7-8

Cash Flow Management

Management of the amount of cash a company generates and uses during a period.

Working Capital

Ensures daily operational liquidity, used to pay bills.

Fixed Capital

Supports long term growth and production, such as land.

Working Capital Formula

WC = Current Assets - Current Liabilities

Charge Accounts

Allows consumers to purchase goods/services and pay at a later date.

Installment Credit

Fixed payments over a set number of months, such as a mortgage or auto loan.

Open End/Revolving Credit

Amounts can be added if the account remains open and in good standing, such as a credit card or line of credit.

MOM

Middle of the month.

EOM

End of month.

CWO

Cash with order.

CBD

Cash before delivery.

COD

Cash on delivery.

Net

Timeframe of the invoice.

Invoice: 2/10, n/30

2% discount if paid within 10 days, full amount due in 30 days.

Depreciation

The loss in value of a fixed asset due to wear and tear and the passage of time, a method of matching the cost of a fixed asset against the revenues that the fixed asset will help produce during its useful life.

Fixed Asset

Funds invested in long terms assets.

Historical Cost Principal

Assets are recorded at their original cost and remains on the books as long as the business owns that asset, no adjustments are made for changes in market value.

Depreciable Cost

The full amount that an asset depreciates over its useful life.

Useful Life

The period of time an asset is expected to help produce revenues.

Salvage/Scrap/Residual Value

The expected market value or selling price at the end of an asset at the end of its useful life.

Book Value/Undepreciated Cost

The value carried on the books or in the accounting record.

Accumulated Depreciation

A contra-asset account that is deducted from the related asset account.

Depreciation Formula

Depreciable Cost = Original Cost - Salvage Value

Depreciation = Depreciable Cost / Useful Life

Fiscal Year

An accounting period for any 12 consecutive months.

Income/Profit & Loss/Operating Statement

Reports the profitability of a business operations for a specific period of time.

Single Step Income Statement Format

Net Income (Loss) = Revenue - Expenses

Multi Step Income Statement Format: Operating Income

Gross Profit = Revenue - Cost of Sales

Operating Income = Gross Profit - Operating Expenses

Multi Step Income Statement Format: Net Income (Loss)

Net Income (Loss) = Non-Operating Income - Non-Operating Expenses

Gross Profit

GP = Net Sales - COGS

Operating/Overhead Expenses

Costs related to marketing and selling products or services, general and administrative expenses and depreciation.

Non-Operating Income and Expenses

Income and expenses that are not directly related to the main function of the business, such as interest paid on a loan.