DECA Business Finance Role-Play Prep

Internal Control

Process that assures achievement of reliable financial reporting, and compliance with business law

Audit

Official inspection of an individual or organization's accounts by an independent body

Financial reporting

External financial information given under the full disclosure principle

Income statement

Revenue, tax expense, post-tax profit or loss for discontinued operations and for the disposal of these operations, profit or loss, total comprehensive income

Statement of comprehensive income

statement of income plus the income that is not on the income statement because it is not realized

Balance sheet

reports an organization's financial position at a specific moment. reports assets, liabilities, and stockholders' equity (difference between amount of assets and liabilities). Current assets and liabilities are separate from long-term assets and liabilities

Statement of cash flows

states major inflows and outflows of a company, provides information about a company's gross receipts and gross payments for a specified period of time. These are reported under one of these categories: operating activities, investing activities, financing activities. It also reports the amount of interest paid, the amount of income taxes paid, and any significant investing and financing activities which did not require the use of cash

Statement of stockholders' equity

presents additional information about changes in other equity accounts (often as notes in financial statements)

Quarterly

once every quarter of a year

Securities and Exchange Commission

regulates securities industry

Working capital

Current assets minus current liabilities

customer deposit

a customer gives a business money in advance, before the good or service has been provided

Asset

Something tangible gained in a previous transaction

Stockholder equity

assets minus liabilities

Business customs - North America

conduct business over a meal, firm handshake, verbal contracts are not binding

Business customs - U.S.

informal, many different styles, time is money, ask questions to reach quick agreement, informal greetings

Business customs - Canada

strongly regional, similar business etiquette to U.S. but tend to be more polite, restrained, French and English

Business customs - Mexico

Similar to Latin American customs, Spanish, be punctual but they may not, signs of status and wealth viewed well, persistence shows seriousness, negotiations move slowly, nothing finalized over phone

Business customs - Western Europe

Similar to America, but a few key differences that could make or break, shake hands with each person at beginning and end, punctuality and advance scheduling of meetings, gifts are abnormal and exchanged towards the end, English spoken but effort to speak local language is appreciated

Business customs - Eastern Europe

Initial meetings are very reserved, punctuality is expected, meetings on time, business is formal but personal relationships are important. 30.000 means 30 thousand

Business customs - Latin America

Fastest growing markets, rich in recourses, relaxed, lively atmosphere, Spanish (except in Brazil, where language is Portuguese). Appearances and accommodations make a good impression, and personal space is less strictly defined (they may stand close, it is rude to back away). Business conducted in person, can take many meetings

Business customs - Pacific Rim

China - get to know you before conducting business, networking through an intermediary, you are not an individual but a representative of your company. Rank is important and scheduling in advance, send meeting agendas in English and simplified, personal meetings more effective. Indonesia - formal, handshake, business cards (read them and don't write on them) even when dealing with other Westerners, Bahasa, English, French. Japan - Don't touch or party with them, highly stratified so seniors sit with seniors, bow deeper when speaking to seniors. Malaysia - no PDA, respect Islam, remove your shoes when entering someone's home. Singapore - restrained, cool, reserved, English, be earnest, courteous, punctual, precise. Rule-followers, don't criticize local customs, don't open a gift in front of the giver, be modest but take the gift. Thailand - proud of culture and Buddhism, monarchy. Press palms together and raise them. Remove shoes before entering a home. Vietnam - do not become annoyed in public, make appointments well in advance, be punctual. First meeting is an ice-breaker, even a verbal promise MUST be kept.

Australia - minimum formalities, get to the point, don't bargain, American-style techniques are unfavorable, be modest, Asia in general - don't look directly in the eye, and also address ranks from highest to lowest

Business customs - Middle East

Different working week, as Friday is Islamic holy day, many countries have Friday/Saturday off with a few exceptions. Avoid business around time of religious holiday. Plans are made less in advance, time is less rigid. Personal and professional life are less separated, so face to face communication is key, organize physical meetings. Bring multiple copies of things as the person you are meeting with may not be the decision maker. Learn simple Arabic greetings, handshakes are longer than in the West, wait for the other person to withdraw his/her hand first. Some conservative women choose not to shake hands with men. Business cards in Arabic (read right to left) and English. Small talk is very important, ask about health of their family. Be patient in negotiations, and it is difficult to negotiate with them. Do not disagree outright, body language is important (no pointing, thumbs up, crossing legs, or pointing sole of shoe at someone). Less personal space, dress nicely and conservatively but do NOT don the traditional clothing. Avoid using left hand, accept hospitality.

Business customs - South Asia

Business cards are incredibly important, bring 20-30. Face matters, so criticize privately and kindly. No is not a common answer, they are less direct. Connections are very important, name drop. Do not insist on paying, allow the boss, eldest, or head of the table to offer.

Business customs - Northern Africa

Slower pace, long-term outlook. Socializing and building trust is a key prerequisite to business. When entering a social function, shake hands with the person to your right and continue to the left. "How are you" in the local language is said before the handshake. Always greet people first when you enter. Exchange pleasantries, inquire about family, do not be direct. In rural areas and villages, stop by the local chief FIRST, remove your hat, keep your hands out of your pockets, do not cross your legs. In colonial countries European custom is allowed. Soft handshakes are common.

Business customs - South Africa

Gift giving is not normal, and do not present gifts with the left hand (use the right or both hands). Gifts will be opened upon receipt, and meetings can be held over lunch or dinner in a nice restaurant. Meals at the home of a white South African will include a pool-side barbecue. The handshake is the most common greeting, but there are a variety of handshakes among ethnic groups. Use titles and surnames to speak to people, and make appointments starting at 9 A.M. Do not rush deals, South Africans are very casual and business cards have no formal exchange rule. They prefer a "win-win" scenario.

Depreciation

Accounting method of allocating loss in value of an asset over its life. The loss in value shows up as an expense on a balance sheet until the asset has reached a value of $0, at which point that expense can be written off

financial accounting

seeks to provide information to investors/creditors, government agencies, and other outside parties

general purpose financial statement

summarizes recent historical financial information for external users

managerial accounting

day-to-day, customized, detailed reports used to aid managers in making decisions

types of general purpose financial statements

balance sheet, income statement, statement of cash flows

criteria of general purpose financial statements

comparable and credible

statement of retained earnings

security

tradable financial asset

corporate bond

debt security issued by a corporation and sold to investors. During the duration of the investment the creditors earn interest from the issuer until the investment matures. At the end of the time period specified when the security is purchased, the corporation gives the creditors their investment back. Typically issued in blocks of $1,000

collateral

if a company that issues bonds cannot afford to pay the bonds back, they may pay with physical assets

cost of common stock

number of shares to sell is decided by the board, while the valuation of the company is determined by accountants working for firms working for the stock exchange (based on current value and projections)

Initial Public Offering

the first time a company sells stock on the public exchange

payment system

a system used to settle financial transactions through the transfer of money, including institutions, instruments, people, rules, procedures, standards, and technology that make that exchange possible

generally accepted accounting principles

general rules and standards of accounting that must be used by all businesses providing information to investors or creditors in order to create comparable general purpose financial statements, determined by

Collection System

ways that companies collect money from customers (cash, check, online, etc.) After sending an overdue invoice, accountants should make phone calls, send letters of demand, and then contact a debt collection agency.

scope of services

when a small business needs services from another business, independent contractor, or professional, this agreement helps define what services that business expects to receive

fee structures

an account of the amounts that a business or bank charges for various services or activities

system integration (banking)

can connect to many other assets and financial information, a one stop shop

scope of services (banking)

what kind of services a bank provides

short-term financial management

budgeting and planning financially for a period of a year or less, balancing short-term income and expenses to meet creditors' obligations. Short-term debt is more unpredictable as it is affected by day-to-day changes in the economy

cash management

the corporate process of collecting and managing cash and using it for (short-term) investing

working capital

current assets minus current liabilities, helps to show whether the company has enough short term assets to cover its short term debt

accounts payable

money owed by a business to its suppliers, shown as a liability on a balance sheet

accounts payable schedule

listing of all venders in the accounts payable ledger that the company currently owes money, and the current account balances

accounts receivable

a legally enforceable claim for payment held by a business for goods or services that customers ordered but have not paid for. The outstanding invoices a company has or the money the company is owned from its client

working capital ratio

current assets / current liabilities. If this is below zero, the company has negative.

working capital cycle

amount of time it takes to turn the current assets and current liabilities into cash, through collecting receivables and sometimes stretching accounts payable

employee benefits

non-wage compensation provided to employees in addition to their normal wages or salaries

obsolescence

a product becomes outdated and no longer used

planned obsolescence

purposefully implemented strategy that ensures the current version of a product will become obsolete within a known period. Guarantees that consumers will demand future replacement, can be achieved through introduction of a superior replacement or a product design meant to cease proper function within a certain time, thus cultivating desire to get a new product

lease

a contractual arrangement where a lessee pays a lessor for use of an asset (rental agreement)

trade credit

agreement in which a customer can purchase goods on account (without cash), paying at a later date. After the delivery of the goods, a trade credit is usually given for a certain short period of time (a month or three). Short-term debt that does not require any outright interest

capital market

market for buying and selling equity and debt instruments. They channel savings and investment between suppliers of capital such as investors and users of capital such as businesses.

equity security

stock

debt security

bond

primary market

companies can sell new stock and bonds to investors without or before an initial public offering, making as much direct profit as possible

secondary market

trade existing securities on the stock market or the bond market, on exchanges or electronic trading systems. The original sellers do not make money from the sale

capital investment

funds invested in a firm or enterprise for the purpose of furthering its business objectives, often a large investment

project portfolio management

solvency

ability to pay debts, possession of assets in excess of liabilities

managing a loan

keep a healthy credit score, look for ways to make more money instead of taking on new debt, pay more when you can, seek government assistance, and communicate with the lender

investment portfolio

passive investment of securities in a portfolio, made with the expectation of earning a return

direct investment

taking a large stake in a target company and becoming involved in its day-to-day management

portfolio management

dividend

a distribution of a company's earnings, decided by the board, to its shareholders

cash dividend

most common dividend type, on the date of declaration, the board resolves to pay a certain dividend amount in cash to investors. The date of record is the date on which dividends are assigned to investors, and on the date of payment the company issues dividend

stock dividend

issuance by a company of common stock to common shareholders without consideration, if the company issues less than 25% the total of previously outstanding shares

stock split

company issues more than 25% of the total of previous outstanding shares of common stock

property dividend

company issues a non-monetary dividend

scrip dividend

a company may not have enough funds to issue future dividends, so it instead issues a note to pay shareholders at a later date

liquidating dividend

when the board wishes to return capital originally contributed by shareholders, and may be a precursor to shutting down a business

dividend reinvestment plan

allows investors to reinvest cash dividends by purchasing additional shares on the dividend payment date, often at a considerable discount (not marketable through stock exchange, come directly through a company)

financial planning process steps

Establish the goal/relationship

Gather data

Analyze data

Develop a plan

Implement the plan

Monitor the plan

financial risk

possibility that shareholders will lose money when they invest in a company that has debt, if the company's cash flow proves inadequate to meet obligations

creditor

lender

risk measures

statistics that are historical predictors of investment risk and volatility

treasury management personnel

control management of an enterprise's holdings, with the ultimate goal of managing the firm's liquidity and mitigating its operational, financial, and reputational risk.

CFA

chartered financial analyst

CTP

certified treasury professional, certified turnaround professional

Accounting standard setting bodies

national or international organizations in charge of setting Generally Accepted Accounting Principles

FASB

Financial Accounting Standards Board

SEC

Securities and Exchange Comission

GASB

Governmental Accounting Standards Board

IFRS vs. GAAP

IASB

International Accounting Standards Board

short-term financial planning

companies develop short-term plans to meet budget and investment goals within one fiscal year. have a higher degree of certainty

responsibility centers

segments in a company where individual managers have accepted authority and accountability, these managers prepare a responsibility report to evaluate each center (budgeted performance, actual performance)

revenue center

authority over sales only, very little control over cost (look only at revenues to see their performance) so they find costly ways to increase sales

cost center

provide goods or services to other parts of the company, with no control over sales prices (can only be evaluated based on total cost), so quality of goods sometimes suffers

profit center

business with a larger business (store in a mall) whose managers control own revenues and expenses. They select merchandise to buy and sell, and can set their own prices. Evaluated based on controllable profit margin, but aren't held accountable for the assets they use

investment center

authority and responsibility for revenues, expenses, and investments made in centers. Return on investment is used to evaluate performance. But they can work to reduce assets instead of increase profit.

managerial accounting responsibility center

cost center, investment center, profit center, revenue center

flexible budget

adjusts for changes in volume of activity

transfer price

price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments. used when individual entities of a firm are treated and measured as separate entities