Comprehensive Study Guide to Understanding Business: Core Principles and Terminologies
Chapter 1: Understanding Business and the Business Environment
Business: Any activity that seeks to provide goods and services to others while operating at a profit.
Business environment: The surrounding factors that either help or hinder the development of businesses.
Climate change: The movement of the temperature of the planet up or down over time.
Database: An electronic storage file for information.
Demography: The statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income.
E-commerce: The buying and selling of goods over the Internet.
Empowerment: Giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests.
Entrepreneur: A person who risks time and money to start and manage a business.
Factors of production: The resources used to create wealth:
Land
Labor
Capital
Entrepreneurship
Knowledge
Goods: Tangible products such as computers, food, clothing, cars, and appliances.
Greening: The trend toward saving energy and producing products that cause less harm to the environment.
Identity theft: The obtaining of individuals' personal information, such as Social Security and credit card numbers, for illegal purposes.
Loss: When a business's expenses are more than its revenues.
Nonprofit organization: An organization whose goals do not include making a personal profit for its owners or organizers.
Outsourcing: Contracting with other companies to do some or all of the functions of a firm, like its production or accounting tasks.
Productivity: The amount of output you generate given the amount of input (e.g., hours worked).
Profit: The amount of money a business earns above and beyond what it spends for salaries and other expenses.
Quality of life: The general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide.
Revenue: The total amount of money a business takes in during a given period by selling goods and services.
Risk: The chance an entrepreneur takes of losing time and money on a business that may not prove profitable.
Services: Intangible products (i.e., products that cannot be held in your hand) such as education, health care, insurance, recreation, and travel and tourism.
Stakeholders: All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address.
Standard of living: The amount of goods and services people can buy with the money they have.
Technology: Everything from phones to computers, mobile devices, medical imaging machines, robots, the Internet, artificial intelligence, social media, and the various software programs and apps that make business processes more effective, efficient, and productive.
Chapter 3: Doing Business in Global Markets
Absolute advantage: The advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.
Balance of payments: The difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.
Balance of trade: The total value of a nation's exports compared to its imports over a particular period.
Common market: A regional group of countries that have a common external tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc (e.g., the European Union).
Comparative advantage theory: Theory that states that a country should sell to other countries those products that it produces most effectively and efficiently, and buy from other countries those products that it cannot produce as effectively or efficiently.
Contract manufacturing: A foreign company's production of private-label goods to which a domestic company then attaches its brand name or trademark; part of the broad category of outsourcing.
Countertrading: A complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.
Devaluation: Lowering the value of a nation's currency relative to other currencies.
Dumping: Selling products in a foreign country at lower prices than those charged in the producing country.
Embargo: A complete ban on the import or export of a certain product, or the stopping of all trade with a particular country.
Exchange rate: The value of one nation's currency relative to the currencies of other countries.
Exporting: Selling products to another country.
Foreign direct investment (FDI): The buying of permanent property and businesses in foreign nations.
Foreign subsidiary: A company owned in a foreign country by another company, called the parent company.
Free trade: The movement of goods and services among nations without political or economic barriers.
General Agreement on Tariffs and Trade (GATT): A 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.
Importing: Buying products from another country.
Import quota: A limit on the number of products in certain categories that a nation can import.
Joint venture: A partnership in which two or more companies (often from different countries) join to undertake a major project.
Licensing: A global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).
Multinational corporation: An organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational management.
North American Free Trade Agreement (NAFTA): Agreement that created a free-trade area among the United States, Canada, and Mexico.
Offshore outsourcing: Contracting with other companies abroad to do some or all of the functions of a firm, like its production or accounting tasks.
Sovereign wealth funds (SWFs): Investment funds controlled by governments holding large stakes in foreign companies, real estate, and other investments.
Strategic alliance: A long-term partnership between two or more companies established to help each company build competitive market advantages.
Tariff: A tax imposed on imports.
Trade deficit: An unfavorable balance of trade; occurs when the value of a country's imports exceeds that of its exports.
Trade protectionism: The use of government regulations to limit the import of goods and services.
Trade surplus: A favorable balance of trade; occurs when the value of a country's exports exceeds that of its imports.
United States–Mexico–Canada Agreement (USMCA): Free-trade agreement among the United States, Mexico, and Canada that replaced NAFTA in an effort to create more balanced and reciprocal trade.
World Trade Organization (WTO): The international organization that replaced the General Agreement on Tariffs and Trade, and was assigned the duty to mediate trade disputes among nations.
Chapter 7: Management and Leadership
Autocratic leadership: Leadership style that involves making managerial decisions without consulting others.
Brainstorming: Coming up with as many solutions to a problem as possible in a short period of time with no censoring of ideas.
Conceptual skills: Skills that involve the ability to picture the organization as a whole and the relationships among its various parts.
Contingency planning: The process of preparing alternative courses of action that may be used if the primary plans don't achieve the organization's objectives.
Controlling: A management function that involves establishing clear standards to determine whether an organization is progressing toward its goals and objectives, rewarding people for doing a good job, and taking corrective action if they are not.
Decision making: Choosing among two or more alternatives.
Empowerment: Giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests.
Enabling: Giving workers the education, training, and tools they need to make decisions.
External customers: Dealers, who buy products to sell to others, and ultimate customers (or end users), who buy products for their own personal use.
Free-rein leadership: Leadership style that involves managers setting objectives and employees being relatively free to do whatever it takes to accomplish those objectives.
Goals: The broad, long-term accomplishments an organization wishes to attain.
Human relations skills: Skills that involve communication and motivation; they enable managers to work through and with people.
Internal customers: Individuals and units within the firm that receive services from other individuals or units.
Knowledge management: Finding the right information, keeping the information in a readily accessible place, and making the information known to everyone in the firm.
Leading: Creating a vision for the organization and communicating, guiding, training, coaching, and motivating others to work effectively to achieve the organization's goals and objectives in a timely manner.
Management: The process used to accomplish organizational goals through planning, organizing, leading, and controlling people and other organizational resources.
Middle management: The level of management that includes general managers, division managers, and branch and plant managers who are responsible for tactical planning and controlling.
Mission statement: An outline of the fundamental purposes of an organization.
Objectives: Specific, short-term statements detailing how to achieve the organization's goals.
Operational planning: The process of setting work standards and schedules necessary to implement the company's tactical objectives.
Organizing: A management function that includes designing the structure of the organization and creating conditions and systems in which everyone and everything work together to achieve the organization's goals and objectives.
Participative (democratic) leadership: Leadership style that consists of managers and employees working together to make decisions.
Planning: A management function that includes anticipating trends and determining the best strategies and tactics to achieve organizational goals and objectives.
PMI: Listing all the pluses for a solution in one column, all the minuses in another, and the implications in a third column.
Problem solving: The process of solving the everyday problems that occur. Problem solving is less formal than decision making and usually calls for quicker action.
Staffing: A management function that includes hiring, motivating, and retaining the best people available to accomplish the company's objectives.
Strategic planning: The process of determining the major goals of the organization and the policies and strategies for obtaining and using resources to achieve those goals.
Supervisory management: Managers who are directly responsible for supervising workers and evaluating their daily performance.
SWOT analysis: A planning tool used to analyze an organization's strengths, weaknesses, opportunities, and threats.
Tactical planning: The process of developing detailed, short-term statements about what is to be done, who is to do it, and how it is to be done.
Technical skills: Skills that involve the ability to perform tasks in a specific discipline or department.
Top management: Highest level of management, consisting of the president and other key company executives who develop strategic plans.
Transparency: The presentation of a company's facts and figures in a way that is clear and apparent to all stakeholders.
Vision: An encompassing explanation of why the organization exists and where it's trying to go.
Chapter 8: Structuring Organizations for Today's Challenges
Benchmarking: Comparing an organization's practices, processes, and products against the world's best.
Bureaucracy: An organization with many layers of managers who set rules and regulations and oversee all decisions.
Centralized authority: An organizational structure in which decision-making authority is maintained at the top level of management at the company's headquarters.
Chain of command: The line of authority that moves from the top of a hierarchy to the lowest level.
Core competencies: Those functions that the organization can do as well as or better than any other organization in the world.
Cross-functional self-managed teams: Groups of employees from different departments who work together on a long-term basis.
Decentralized authority: An organizational structure in which decision-making authority is delegated to lower-level managers more familiar with local conditions than headquarters management could be.
Departmentalization: The dividing of organizational functions into separate units.
Digital natives: Young people who have grown up using the Internet and social networking.
Economies of scale: The situation in which companies can reduce their production costs if they can purchase raw materials in bulk; the average cost of goods goes down as production levels increase.
Flat organizational structure: An organizational structure that has few layers of management and a broad span of control.
Formal organization: The structure that details lines of responsibility, authority, and position; that is, the structure shown on organization charts.
Hierarchy: A system in which one person is at the top of the organization and there is a ranked or sequential ordering from the top down of managers who are responsible to that person.
Informal organization: The system that develops spontaneously as employees meet and form cliques, relationships, and lines of authority outside the formal organization; that is, the human side of the organization that does not appear on any organization chart.
Inverted organization: An organization that has contact people at the top and the chief executive officer at the bottom of the organization chart.
Line organization: An organization that has direct two-way lines of responsibility, authority, and communication running from the top to the bottom of the organization, with all people reporting to only one supervisor.
Line personnel: Employees who are part of the chain of command that is responsible for achieving organizational goals.
Matrix organization: An organization in which specialists from different parts of the organization are brought together to work on specific projects but still remain part of a line-and-staff structure.
Networking: The process of establishing and maintaining contacts with key managers in one's own organization and other organizations and using those contacts to weave strong relationships that serve as informal development systems.
Organizational (or corporate) culture: Widely shared values within an organization that provide unity and cooperation to achieve common goals.
Organization chart: A visual device that shows relationships among people and divides the organization's work; it shows who is accountable for the completion of specific work and who reports to whom.
Real time: The present moment or the actual time in which something takes place.
Restructuring: Redesigning an organization so that it can more effectively and efficiently serve its customers.
Span of control: The optimal number of employees a manager supervises or should supervise.
Staff personnel: Employees who advise and assist line personnel in meeting their goals.
Tall organizational structure: An organizational structure in which the pyramidal organization chart would be quite tall because of the various levels of management.
Virtual corporation: A temporary networked organization made up of replaceable firms that join and leave as needed.
Chapter 9: Production and Operations Management
Assembly process: The part of the production process that puts together components.
Computer-aided design (CAD): The use of computers in the design of products.
Computer-aided manufacturing (CAM): The use of computers in the manufacturing of products.
Computer-integrated manufacturing (CIM): The uniting of computer-aided design with computer-aided manufacturing.
Continuous process: A production process in which long production runs turn out finished goods over time.
Critical path: In a PERT network, the sequence of tasks that takes the longest time to complete.
Enterprise resource planning (ERP): A newer version of materials requirement planning (MRP) that combines the computerized functions of all the divisions and subsidiaries of the firm—such as finance, human resources, and order fulfillment—into a single integrated software program that uses a single database.
Facility layout: The physical arrangement of resources (including people) in the production process.
Facility location: The process of selecting a geographic location for a company's operations.
Flexibility manufacturing: Designing machines to do multiple tasks so they can produce a variety of products.
Form utility: The value producers add to materials in the creation of finished goods and services.
Gantt chart: Bar graph showing production managers what projects are being worked on and what stage they are in at any given time.
Intermittent process: A production process in which the production run is short and the machines are changed frequently to make different products.
ISO 9001: The common name given to quality management and assurance standards.
ISO 14001: A collection of the best practices for managing an organization's impact on the environment.
Just-in-time (JIT) inventory control: A production process in which a minimum of inventory is kept on the premises and parts, supplies, and other needs are delivered just in time to go on the assembly line.
Lean manufacturing: The production of goods using less of everything compared to mass production.
Mass customization: Tailoring products to meet the needs of a large number of individual customers.
Materials requirement planning (MRP): A computer-based operations management system that uses sales forecasts to make sure that needed parts and materials are available at the right time and place.
Operations management: A specialized area in management that converts or transforms resources (including human resources) into goods and services.
Process manufacturing: That part of the production process that physically or chemically changes materials.
Production: The creation of finished goods and services using the factors of production: land, labor, capital, entrepreneurship, and knowledge.
Production management: The term used to describe all the activities managers do to help their firms create goods.
Program evaluation and review technique (PERT): A method for analyzing the tasks involved in completing a given project, estimating the time needed to complete each task, and identifying the minimum time needed to complete the total project.
Purchasing: The function in a firm that searches for quality material resources, finds the best suppliers, and negotiates the best price for goods and services.
Quality: Consistently producing what the customer wants while reducing errors before and after delivery to the customer.
Six Sigma quality: A quality measure that allows only defects per million opportunities.
Statistical process control (SPC): The process of taking statistical samples of product components at each stage of the production process and plotting those results on a graph. Any variances from quality standards are recognized and can be corrected if beyond the set standards.
Statistical quality control (SQC): The process some managers use to continually monitor all phases of the production process to ensure that quality is being built into the product from the beginning.
Telecommuting: Working from home via computer and modem.
Chapter 13: Marketing: Helping Buyers Buy
Benefit segmentation: Dividing the market by determining which benefits of the product to talk about.
Brand name: A word, letter, or group of words or letters that differentiates one seller's goods and services from those of competitors.
Business-to-business (B2B) market: All the individuals and organizations that want goods and services to use in producing other goods and services or to sell, rent, or supply goods to others.
Consumer market: All the individuals or households that want goods and services for personal consumption or use and have the resources to buy them.
Customer relationship management (CRM): The process of learning as much as possible about customers and doing everything you can over time to satisfy them—or even exceed their expectations—with goods and services.
Demographic segmentation: Dividing the market by age, income, and education level.
Environmental scanning: The process of identifying the factors that can affect marketing success.
Focus group: A small group of people who meet under the direction of a discussion leader to communicate their opinions about an organization, its products, or other given issues.
Geographic segmentation: Dividing the market by cities, counties, states, or regions.
Marketing: The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.
Marketing concept: A three-part business philosophy:
(1) A customer orientation
(2) A service orientation
(3) A profit orientation
Marketing mix: The ingredients that go into a marketing program:
Product
Price
Place
Promotion
Marketing research: The analysis of markets to determine opportunities and challenges, and to find the information needed to make good decisions.
Market segmentation: The process of dividing the total market into groups whose members have similar characteristics.
Mass marketing: Developing products and promotions to please large groups of people.
Niche marketing: The process of finding small but profitable market segments and designing or finding products for them.
One-to-one marketing: Developing a unique mix of goods and services for each individual customer.
Primary data: Data that you gather yourself (not from secondary sources such as books and magazines).
Product: Any physical good, service, or idea that satisfies a want or need plus anything that would enhance the product in the eyes of consumers, such as the brand name.
Promotion: All the techniques sellers use to inform people about and motivate them to buy their products or services.
Psychographic segmentation: Dividing the market using the group's values, attitudes, and interests.
Relationship Marketing: Marketing strategy with the goal of keeping individual customers over time by offering them products that exactly meet their requirements.
Secondary data: Information that has already been compiled by others and published in journals and books or made available online.
Target marketing: Marketing directed toward those groups (market segments) an organization decides it can serve profitably.
Test marketing: The process of testing products among potential users.
Volume (or usage) segmentation: Dividing the market by usage (volume of use).
Chapter 14: Developing and Pricing Goods and Services
Brand: A name, symbol, or design (or combination thereof) that identifies the goods or services of one seller or group of sellers and distinguishes them from the goods and services of competitors.
Brand association: The linking of a brand to other favorable images.
Brand awareness: How quickly or easily a given brand name comes to mind when a product category is mentioned.
Brand equity: The value of the brand name and associated symbols.
Brand loyalty: The degree to which customers are satisfied, like the brand, and are committed to further purchases.
Brand manager: A manager who has direct responsibility for one brand or one product line; called a product manager in some firms.
Break-even analysis: The process used to determine profitability at various levels of sales.
Bundling: Grouping two or more products together and pricing them as a unit.
Commercialization: Promoting a product to distributors and retailers to get wide distribution, and developing strong advertising and sales campaigns to generate and maintain interest in the product among distributors and consumers.
Competition-based pricing: A pricing strategy based on what all the other competitors are doing. The price can be set at, above, or below competitors' prices.
Concept testing: Taking a product idea to consumers to test their reactions.
Convenience goods and services: Products that the consumer wants to purchase frequently and with a minimum of effort.
Dealer (private-label) brands: Products that don't carry the manufacturer's name but carry a distributor or retailer's name instead.
Distributed product development: Handing off various parts of your innovation process—often to companies overseas.
Dynamic pricing: Variable pricing strategies responsive to market shifts and real-time conditions.
Everyday low pricing (EDLP): Setting prices lower than competitors and then not having any special sales.
Generic goods: Nonbranded products that usually sell at a sizable discount compared to national or private-label brands.
High-low pricing strategy: Setting prices that are higher than EDLP stores, but having many special sales where the prices are lower than competitors'.
Industrial goods: Products used in the production of other products. Sometimes called business goods or B2B goods.
Knockoff brands: Illegal copies of national brand-name goods.
Manufactures' (national) brands: The brand names of manufacturers that distribute products nationally.
Penetration strategy: Strategy in which a product is priced low to attract many customers and discourage competition.
Price leadership: The strategy by which one or more dominant firms set the pricing practices that all competitors in an industry follow.
Product analysis: Making cost estimates and sales forecasts to get a feeling for profitability of new-product ideas.
Product differentiation: The creation of real or perceived product differences.
Product life cycle: A theoretical model of what happens to sales and profits for a product class over time; the four stages of the cycle are:
Introduction
Growth
Maturity
Decline
Product line: A group of products that are physically similar or are intended for a similar market.
Product mix: The combination of product lines offered by a manufacturer.
Product screening: A process designed to reduce the number of new-product ideas being worked on at any one time.
Psychological pricing: Pricing goods and services at price points that make the product appear less expensive than it is.
Shopping goods and services: Those products that the consumer buys only after comparing value, quality, price, and style from a variety of sellers.
Skimming price strategy: Strategy in which a new product is priced high to make optimum profit while there's little competition.
Specialty goods and services: Consumer products with unique characteristics and brand identity. Because these products are perceived as having no reasonable substitute, the consumer puts forth a special effort to purchase them.
Target costing: Designing a product so that it satisfies customers and meets the profit margins desired by the firm.
Total fixed costs: All the expenses that remain the same no matter how many products are made or sold.
Total product offer: Everything that consumers evaluate when deciding whether to buy something; also called a value package.
Trademark: A brand that has exclusive legal protection for both its brand name and its design.
Unsought goods and services: Products that consumers are unaware of, haven't necessarily thought of buying, or find that they need to solve an unexpected problem.
Value: Good quality at a fair price. When consumers calculate the value of a product, they look at the benefits and then subtract the cost to see if the benefits exceed the costs.
Variable costs: Costs that change according to the level of production.
Chapter 15: Distributing Products
Administered distribution system: A distribution system in which producers manage all of the marketing functions at the retail level.
Agents/brokers: Marketing intermediaries who bring buyers and sellers together and assist in negotiating an exchange but don't take title to the goods.
Cash-and-carry wholesalers: Wholesalers that serve mostly smaller retailers with a limited assortment of products.
Channel of distribution: A whole set of marketing intermediaries, such as agents, brokers, wholesalers, and retailers, that join together to transport and store goods in their path (or channel) from producers to consumers.
Contractual distribution system: A distribution system in which members are bound to cooperate through contractual agreements.
Corporate distribution system: A distribution system in which all of the organizations in the channel of distribution are owned by one firm.
Direct marketing: Any activity that directly links manufacturers or intermediaries with the ultimate consumer.
Direct selling: Selling to consumers in their homes or where they work.
Drop shippers: Intermediaries that solicit orders from retailers and other wholesalers and have the merchandise shipped directly from a producer to a buyer.
Exclusive distribution: Distribution that sends products to only one retail outlet in a given geographic area.
Freight forwarder: An organization that puts many small shipments together to create a single large shipment that can be transported cost-effectively to the final destination.
Inbound logistics: The area of logistics that involves bringing raw materials, packaging, other goods and services, and information from suppliers to producers.
Information utility: Adding value to products by opening two-way flows of information between marketing participants.
Intensive distribution: Distribution that puts products into as many retail outlets as possible.
Intermodal shipping: The use of multiple modes of transportation to complete a single long-distance movement of freight.
Logistics: The marketing activity that involves planning, implementing, and controlling the physical flow of materials, final goods, and related information from points of origin to points of consumption to meet customer requirements at a profit.
Marketing intermediaries: Organizations that assist in moving goods and services from producers to businesses (B2B) and from businesses to consumers (B2C).
Materials handling: The movement of goods within a warehouse, from warehouses to the factory floor, and from the factory floor to various workstations.
Merchant wholesalers: Independently owned firms that take title to the goods they handle.
Online retailing: Selling goods and services to ultimate customers (e.g., consumers) over the Internet.
Outbound logistics: The area of logistics that involves managing the flow of finished products and information to business buyers and ultimate consumers.
Place utility: Adding value to products by having them where people want them.
Possession utility: Doing whatever is necessary to transfer ownership from one party to another, including providing credit, delivery, installation, guarantees, and follow-up service.
Rack jobbers: Wholesalers that furnish racks or shelves full of merchandise to retailers, display products, and sell on consignment.
Retailer: An organization that sells to ultimate consumers.
Reverse logistics: The area of logistics that involves bringing goods back to the manufacturer because of defects or for recycling materials.
Selective distribution: Distribution that sends products to only a preferred group of retailers in an area.
Service utility: Adding value by providing fast, friendly service during and after the sale and by teaching customers how to best use products over time.
Social commerce: A form of electronic commerce that involves using social media, online media that support social interaction, and user contributions to assist in the online buying and selling of products and services.
Supply chain (value chain): The sequence of linked activities that must be performed by various organizations to move goods from the sources of raw materials to ultimate consumers.
Supply-chain management: The process of managing the movement of raw materials, parts, work in progress, finished goods, and related information through all the organizations involved in the supply chain; managing the return of such goods, if necessary; and recycling materials when appropriate.
Telemarketing: The sale of goods and services by telephone.
Time utility: Adding value to products by making them available when they're needed.
Utility: In economics, the want-satisfying ability, or value, that organizations add to goods or services when the products are made more useful or accessible to consumers than they were before.
Wholesaler: A marketing intermediary that sells to other organizations.
Chapter 17: Understanding Accounting and Financial Information
Accounting: The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions.
Accounting cycle: A six-step procedure that results in the preparation and analysis of the major financial statements.
Accounts payable: Current liabilities involving money owed to others for merchandise or services purchased on credit but not yet paid for.
Annual report: A yearly statement of the financial condition, progress, and expectations of an organization.
Assets: Economic resources (things of value) owned by a firm.
Auditing: The job of reviewing and evaluating the information used to prepare a company's financial statements.
Balance sheet: Financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts:
Assets
Liabilities
Owners' equity
Bonds payable: Long-term liabilities that represent money lent to the firm that must be paid back.
Bookkeeping: The recording of business transactions.
Cash flow: The difference between cash coming into and cash going out of a business.
Certified public accountant (CPA): An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA).
Cost of goods sold (or cost of goods manufactured): A measure of the cost of merchandise sold or cost of raw materials and supplies used for producing items for resale.
Current assets: Items that can or will be converted into cash within one year.
Depreciation: The systematic write-off of the cost of a tangible asset over its estimated useful life.
Double-entry bookkeeping: The practice of writing every business transaction in two places.
Financial accounting: Accounting information and analyses prepared for people outside the organization.
Financial statement: A summary of all the transactions that have occurred over a particular period.
Fixed assets: Assets that are relatively permanent, such as land, buildings, and equipment.
Fundamental accounting equation: The mathematical basis for the balance sheet:
Government and not-for-profit accounting: Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers, and others according to a duly approved budget.
Gross profit (or gross margin): How much a firm earned by buying (or making) and selling merchandise.
Income statement: The financial statement that shows a firm's profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expenses, and the resulting net income or net loss.
Independent audit: An evaluation and unbiased opinion about the accuracy of a company's financial statements.
Intangible assets: Long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value.
Journal: The record book or computer program where accounting data is first entered.
Ledger: A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place.
Liabilities: What the business owes to others (debts).
Liquidity: The ease with which an asset can be converted into cash.
Managerial accounting: Accounting used to provide information and analyses to managers within the organization to assist them in decision making.
Net income or net loss: Revenue left over after all costs and expenses, including taxes, are paid.
Notes payable: Short-term or long-term liabilities that a business promises to repay by a certain date.
Operating expenses: Costs involved in operating a business, such as rent, utilities, and salaries.
Owners' equity: The amount of the business that belongs to the owners minus any liabilities owed by the business.
Private accountant: An accountant who works for a single firm, government agency, or nonprofit organization.
Public accountant: An accountant who provides accounting services to individuals or businesses on a fee basis.
Ratio analysis: The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements.
Retained earnings: The accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends.
Statement of cash flows: Financial statement that reports cash receipts and disbursements related to a firm's three major activities:
Operations
Investments
Financing
Tax accountant: An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies.
Trial balance: A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced.
Chapter 18: Financial Management
Budget: A financial plan that sets forth management's expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm.
Capital budget: A budget that highlights a firm's spending plans for major asset purchases that often require large sums of money.
Capital expenditures: Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights.
Cash budget: A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.
Cash flow forecast: Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.
Cost of capital: The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.
Debt financing: Funds raised through various forms of borrowing that must be repaid.
Equity financing: Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).
Factoring: The process of selling accounts receivable for cash.
Finance: The function in a business that acquires funds for the firm and manages those funds within the firm.
Financial control: A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.
Financial management: The job of managing a firm's resources so it can meet its goals and objectives.
Financial managers: Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.
Leverage: Raising needed funds through borrowing to increase a firm's rate of return.
Line of credit: A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available.
Operating (or master) budget: The budget that ties together the firm's other budgets and summarizes its proposed financial activities.
Promissory note: A written agreement with a promise to pay a supplier a specific sum of money at a definite time.
Risk/return trade-off: The principle that the greater the risk a business takes, the higher the potential return required.
Secured loan: A loan backed by collateral (something valuable, such as property).
Term-loan agreement: A promissory note that requires the borrower to repay the loan in specified installments.
Trade credit: The practice of buying goods and services now and paying for them later.
Unsecured loan: A loan that doesn't require any collateral.
Venture capital: Money that is invested in new or emerging companies that are perceived as having great profit potential.