Business Dynamics Final Exam

Spring 2026

What is Accounting?

The recording, classifying, summarizing, and interpreting of financial events and transactions to help managers and outside parties make decisions.

What are the two main purposes of accounting?

1) Help managers evaluate financial condition and operating performance

2) Report financial information to outside users (investors, creditors, government)

What is financial accounting?

Accounting information prepared for people outside the organization.

What is managerial accounting?

Accounting used internally to help managers make decisions.

What is auditing?

Reviewing and evaluating records used to prepare financial statements.

What is an independent audit?

An unbiased evaluation of the accuracy of financial statements.

What is tax accounting?

Accounting focused on tax returns and tax strategies.

What is bookkeeping?

Recording business transactions.

What is double-entry bookkeeping?

Every transaction is recorded in two places

What is journal?

The first place accounting data is entered

What is a ledger

A record where journal information is grouped into categories/accounts

What are the 6 steps of the accounting cycle?

1) Analyze documents

2) Journalize

3) Post to ledger

4) Prepare trial balance

5) Prepare financial statements

6) Analyze statements

What are 3 major financial statements?

1) Balance Sheet

2) Income Statement

3) Statement of cash flows

What does the balance sheet show?

Financial condition at a specific date

What does the income statement show?

Revenues, expenses, and profit/loss over a period of time

What does the statement of cash flows show?

Cash coming into and leaving the business

What is the accounting equation

Assets = Liabilities + Owners Equity

What are assets?

Economic resources owned by a business

What are currents assets?

Assets convertible to cash within one year

Examples of current assets?

Cash, accounts receivable, inventory

What are fixed assets?

Long-term physical assets like buildings and equipment

What are intangible assets?

Nonphysical assets like patents, trademarks, goodwill

What are liabilities?

Debts owed by a business

What is owner’s equity?

Assets minus liabilities; what owners truly own

What are retained earnings?

Profits kept in the business instead of paid as dividends

Revenue - Cost of Goods Sold equals what?

Gross Profit

Gross Profit - Operating Expenses equals what?

Net Income Before Taxes

Net Incomes Before Taxes - Taxes equals what?

Net Income

What is depreciation?

Systematic write-off of a tangible asset over its useful life

FIFO stands for?

First In, First Out

LIFO stands for?

Last In, First Out

Current Ratio formula?

Current Assets / Current Liabilities

What is considered a good current ratio?

2.0 or higher

Acid-Test Ratio formula?

(Cash + Accounts Receivable + Marketable Securities) / Current Liabilities

Why is the acid-test ratio stricter than the current ratio?

It excludes inventory

Earning Per Share formula?

Net Income After Taxes / Shares Outstanding

Return on Sales formula?

Net Incomes / Net Sales

Inventory Turnover formula?

Cost of Goods Sold / Average Inventory

What does low inventory turnover indicate?

Obsolete inventory or poor buying practices

Debt-to-Equity Ratio formula?

Total Liabilities / Owner’s Equity

Why is debt-to-equity above 1 risky?

The company has more debt than equity

What is a channel of distribution?

The path products take from producer to consumer

What are marketing intermediaries?

Wholesalers, retailers, and transportation companies

Why are intermediaries important?

They increase efficiency and reduce costs

What utilities do intermediaries provide?

Time, place, form, possession, service, information

What is a wholesaler?

A business that sells to retailers, not consumers

What is a rack jobber?

A wholesaler that places products on shelves and owns them until sold

What is a drop shipper?

Ships products directly from manufacturer to buyer

What is a freight forwarder?

Bundles shipments together to reduce costs

What is exclusive distribution?

One retailer in a geographic area

What is selective distribution?

A few retailers carry the product

What is intensive distribution?

Products sold in as many stores as possible

Which transportation mode is the cheapest but slowest?

Ships

Which transportation mode is the most flexible?

Trucks

What is finance?

Acquiring and managing funds

What is financial management?

Managing company resources to meet goals

Three common reasons firms fail financially?

1) Under-capitalization

2) Poor cash flow control

3) Inadequate expense control

What is a budget?

A financial plan allocating resources

What is a capital budget?

Spending plan for major assets

What is a cash budget?

Forecast of cash inflows and outflows

What is trade credit?

Buying now and paying later

What does ‘2/10 net 30” mean?

2 percent discount if paid in 10 days; full amount due in 30 days

What is factoring?

Selling accounts receivable for immediate cash

What is a line of credit?

Preapproved short-term borrowing limit from a bank

What is equity financing?

Raising money through ownership/stocks

What is debt financing?

Borrowing money that must be repaid

What is an IPO?

Initial Public Offering - first public stock sale

What is venture capital?

Investment in high-growth new companies

What is cost of capital?

Minimum return required by lenders and stockholders

What is the primary market?

Market for new stock sales (IPO’s)

What is the secondary market?

Investors trading securities with each other

What is a bond?

A certificate of debt

What is a debenture bond?

Unsecured bond backed only by reputation

What is a callable bond?

Bond company can repay early

What is a convertible bond?

Bond convertible into stock

Advantages of bonds?

1) Interest tax deductible

2) No ownership dilution

What are preferred stocks?

Shares with dividend priority but usually no voting rights

What is a dividend?

Portion of profits paid to stockholders

What is insider trading?

Illegal trading using private information

What is a bull market?

Investors expect prices to raise

What are blue-chip stocks?

Stocks of stable, consistently growing companies

What is a mutual fund?

Pool of investments managed together

What is the Balanced Scorecard philosophy?

Companies must balance financial and nonfinancial performance metrics

What are the four Balanced Scorecard perspectives?

1) Financial

2) Customer

3) Internal Processes

4) Learning & Growth

Why did STRIDE score lowest overall?

Weak metrics multiplied together, especially Market Performance and Asset Management

STRIDE’s strongest metric?

Investment in Future (3.666)

Why was STRIDE’s Investment in Future score high?

Heavy R&D and store-opening investments.

What is a stockout?

Demand exceeding inventory available

Why are stockouts bad?

Lost Sales + unhappy customers + lower market performance score

Did STRIDE have stockouts?

No

What hurt STRIDE’s Manufacturing Productivity score?

Excess production capacity (only 77% used)

Asset Management formula?

Net Revenues / Total Assets

Why was STRIDE’s Asset Management score low?

Too many assets relative to revenues generated

What increases financial risk?

More debt

How does AI connect to Chapter 15 (distribution)?

AI improves supply chain efficiency and distribution

How does AI connect to Chapter 17 (ratios)?

Automates accounting analysis and ratio calculations

How does AI connect to Chapter 18 (financial forecasting)?

Improves financial forecasting and financing decisions

How does AI connect to Chapter 19 (stocks and securities)?

Enables algorithmic trading and affects stock markets

Why is Nvidia important to AI?

Its GPUs power AI infrastructure and large language models

What business areas are impacted by Nvidia growth?

Technology, capital markets, supply chains, and AI infrastructure