Business 101 Exam #2 Study guide

Chapter 5, C, 17, 7, and 11.

Sole Proprietorship

easy to start, keep profits, no special taxes. disadvantages: unlimited liability, limited resources, limited growth.

Partnerships

manages business, has unlimited liability, invests money, no management role, liability limited to investment. advantages: more resources, shared skills, longer survival, no special taxes.

Corporations

limited liability, raising capital, perpetual life, easy ownership transfer. disadvantages, initial cost, paperwork, double taxation.

C vs. S Corporation

C: profits may be taxed (twice). S: corporation avoids double taxation, profits pass through to shareholders.

LLC’s

Limited Liability, flexible ownership, taxation options, flexible profit distribution. DO Not issue stock, ownership is generally nontransferable.

Mergers and Acquisitions

Merger- 2 firms form 1 company, horizontal (same industry), vertical (different stages of related industries), Conglomerate: unrelated industries.

Franchising

Franchisor grants right to franchise, advantages: management/market support, recognized brand, financial assistance, lower failure rate. disadvantages: startup costs, shared profits, restrictions.

Cooperatives (Co-ops)

Business owned and controlled by members (producers, consumers, or workers), who pool resources for mutual benefit; governed democratically.

Managing Risk

natural risks, accidents, terrorist attacks, hackers, etc. Risks can cause losses of property, equipment, etc.

Insurance Fundamentals

Insurance Policy: written contract promising payment for all or part of a loss.

Premium: fee paid for insurance coverage.

Claim: request for payment submitted after a loss.

Business insurance coverage

Businesses buy insurance primarily to transfer financial risk and protect against potentially devastating losses. Worker’s compensation benefits are available regardless of who was at fault. BOP (Business Owner’s Property) combines property and liability insurance.

Role of Accounting

accounting records, classifies, summarizes, and interprets financial transactions to help managers and stock holders make decisions.

Accounting Cycle

Six Steps: analyze source documents, journalize transactions, post to ledger, prepare trial balance, prepare financial statements, analyze statements.

BookKeeping

Recording business transactions using double-entry bookkeeping, every transaction affects at least 2 accounts.

Financial statements

balance sheets (assets, liabilities, owner’s equity), income statement (revenues, expenses, profit/loss), statement of cash flows (operations, investing, financing activities),

Accounting equation

assets = liabilities + owners equity, must always remain balanced.

Assets, Liabilities, Equity

assets are resources owned, liabilities are debts owed, owners’ equity is the owners claim after liabilities are subtracted.

Income and Profit

revenue is money earned from sales, net profit/loss = revenue minus sales returns, costs, expenses, and taxes.

Inventory Methods

FIFO assumes oldest inventory is sold first . LIFO, assumes newest inventory is sold first.

Transaction Effects

Buying equipment with cash exchanges one asset (cash) for another asset (equipment), owner investments and profitable operations increase owners’ equity.

ratio analysis

liquidity ratios measure ability to convert assets into cash, leverage ratios measure debt use. profitability ratios measure profit performance. Activity ratios measure inventory turnover and efficiency.

Accounting careers

Private accountants work for one organization. public accountants provide accounting services on a fee basis. CPAs pass professional examinations and continuing education requirements.

Managers and Management

management is the process of accomplishing organizational goals through 4 functions. planning, organizing, leading, and controlling modern managers are collaborative, team oriented, coach employees, communicate effectively, and must be globally prepared.

4 functions of management

Planning: determining goals and strategies. Organizing: create structure and allocate resources. Leading: create vision, motivate, communicate, coach, and guide employees. Controlling: measure performance, compare results with objectives, reward success, and take corrective action.

Planning and Decision Making

“What is our reason for being”, (Mission Statement),

SWOT Analysis

Evaluates: strength, Weaknesses, Opportunities, Threats.

Types of Planning

Strategic: 3 + years. Tactical: Medium plans. Operational: day to day. Contingency: (Plan B).

Management Levels

TOP (CEO and executives). Middle (responsible for tactical planning and control). Supervisory/first-line management directly supervises employees and daily activities.

Leadership Styles

Autocratic Leadership: managers make decisions without consulting others. Participate/ democratic leadership employees help make decisions. Free-Rein leadership- employees have substantial freedom to achieve objectives.

Control Function

Purpose: ensure organizational performance matches planned objectives. Key activities include measuring performance, comparing results to standards, rewarding good performance, and taking corrective action when needed.

Key Terms

Decision Making, Problem Solving, Brainstorming,

Human Resource Management (HRM)

Process of determining HR needs and recruiting, selecting, etc. Employees are viewed as a key organizational resource and laws have rewritten old workplace practices.

Employment Laws

Civil Rights Act of 1964, 1991. 64: Prohibits discrimination based on race, color, etc. 91: expanded remedies by allowing compensatory and punitive damages and jury trials in discrimination cases.

Human Resource Planning and Recruitment

human planning, inventory employees, conduct job analysis, assess future demand, assess future demand. recruitment uses both internal and external sources.

Training and development

short-term job skills, development focuses on long-term growth. Orientation, on-the-job training, etc.

Performance Management

Performance Appraisal is an evaluation that measures employee performance against established standards.

Scheduling and Employee Movement

Job sharing occurs when two part-time employees share one full-time position. flextime allows employees some choice in work hours; compressed workweeks condense hours into fewer days. reassignment is a horizontal move to a different position at a similar level/pay grade. Promotion moves an employee to a higher-level position with greater responsibility and pay.