Business Fundamentals: The Contemporary Business Landscape

Baruch 2000 - Business Fundamentals: The Contemporary Business Landscape

Instructor: Craig Jaffe, Baruch College, Zicklin School of Business
Contact: Craig.Jaffe@baruch.cuny.edu

Chapter 17: Accounting – What Is It, How It Works, and the Value It Offers Businesses

  • Accounting Definition:

    • The process of recording, classifying, summarizing, and interpreting financial events and transactions.

    • Purpose: Aids company management and stakeholders in making informed decisions.

  • Examples of Financial Events and Transactions:

    • Purchasing inventory from a supplier.

    • Selling inventory to customers.

    • Acquiring insurance.

    • Paying employees.

    • Utilizing supplies.

  • Accounting as the Language of Business:

    • Essential for reporting financial information across both for-profit and non-profit organizations.

  • Importance of Accounting Procedures:

    • Determines the survival or failure of businesses based on the handling of financial procedures and financial management.

  • Stakeholders in Accounting:

    • Definition: Users of accounting information including:

    • Owners

    • Employees

    • Creditors

    • Suppliers

    • Unions

    • Community activists

    • Investors

    • Government (for tax purposes)

    • Refer to Chapter 1 for more context.

  • Grouping in Accounting:

    • Concerns creating groups of transactions, such as sales or purchases.

  • Types of Reports and Users of Accounting Information:

    • Users include government entities, managers, creditors, investors.

    • Types of reports include tax returns, financial statements, and management reports.

  • Accounting Cycle:

    • Definition: A six-step procedure resulting in preparation and analysis of major financial statements.

    • Actors: Both bookkeepers and accountants are involved.

  • Role of Bookkeepers:

    • Bookkeeping Definition: The recording of business transactions, foundational to financial reporting.

    • Responsibilities include categorizing transactions and maintaining journals.

  • Accounting Software:

    • Use of technology in bookkeeping such as Intuit’s QuickBooks enhances processes.

  • Double-entry Bookkeeping:

    • Each transaction is recorded in two places for accuracy verification.

  • Trial Balance:

    • A summary ensuring that the debits and credits from ledgers match.

  • Accountants' Responsibilities:

    • Classify, summarize, interpret financial data and report to management.

  • Major Financial Statements:

    • 1. Balance Sheet

    • 2. Income Statement

    • 3. Statement of Cash Flows

  • Financial Year Definitions:

    • Calendar Year: January - December.

    • Fiscal Year: Any designated time frame set by a business.

  • Fundamental Accounting Equation:

    • Assets = Liabilities + Owners’ Equity

    • Example: If a company has $100,000 in assets, a $20,000 loan represents liabilities, leading to $80,000 as Owners' Equity.

  • Understanding Key Financial Statements:

    • Balance Sheet: Reflects financial condition at a specific time regarding assets, liabilities, and owners' equity.

    • Income Statement: Summarizes revenue versus costs, illustrating profit or loss over a period.

    • Statement of Cash Flows: Tracks cash inflows and outflows across operational, investment, and financing activities.

  • Assets Classification:

    • Current Assets: Converted into cash within a year.

    • Fixed Assets: Long-term items like property and equipment.

    • Intangible Assets: Non-physical items like trademarks.

  • Liabilities Classification:

    • Current Liabilities: Due within a year.

    • Long-term Liabilities: More than one-year commitments.

  • Equity Definition:

    • Reflects net worth to owners after liabilities are accounted.

  • Example of Balance Sheet Structure:

    • Assets = Liabilities + Owners' Equity

  • Income Statement Explained:

    • Shows revenue and expenses, ultimately detailing net income or loss.

  • Operational Expenses and Gross Profit:

    • Revenue minus Cost of Goods Sold = Gross Profit.

  • Cost of Goods Sold (COGS):

    • Expenses related to inventory production/purchase.

  • Depreciation:

    • Systematic write-off practice reflecting asset value decrease.

  • Cash Flow Analysis Needs:

    • Distinction between positive and negative cash flow.

  • Ratio Analysis Overview:

    • Assessment of financial condition through ratio metrics.

    • Ratios include liquidity, leverage, profitability, and activity measurements.

Chapter 18: Financial Management

  • Finance Definition: Function engaged in acquiring and managing funds for operational needs.

  • Key Activities of Financial Management:

    • Budget preparation.

    • Cash flow analysis.

    • Expenditure planning.

  • Financial Management Roles:

    • Manage resources towards achieving specific business goals.

  • Signs of Needing a CFO:

    • Lack of financial information/control/analysis.

  • CFO Responsibilities Overview:

    • Controls budgeting process, ensures resource allocation, maintains investor communication, and oversees financial performance.

  • Market Worries for Financial Managers:

    • Market unpredictability, interest rates, cyber threats, and economic conditions.

  • Financial Planning Process Stages:

    • Forecasting.

    • Budgeting.

    • Control establishment.

  • Types of Budgets:

    • Capital budget for asset purchases.

    • Cash budget for cash flow estimation.

    • Operating (master) budget summarizing overall financial operations.

  • Operational Funds Needs:

    • Day-to-day management, credit control, and capital expenditures.

  • Alternative Sources of Funds:

    • Debt financing (secured and unsecured).

    • Equity financing.

  • Venture Capital Synopsis:

    • Funding for high-potential startups and the evaluation criteria used by investors.

Chapter 19: Financial Management (Part 2)

  • Securities Definition:

    • Tangible or intangible assets recognized as financial instruments for ownership or rights to claims.

  • Securities Markets Functions:

    • Facilitate long-term funding acquisition for firms and provide platforms for investors to trade stocks and bonds.

  • Investment Bankers' Role:

    • Assist in issuing and selling new securities and aiding corporations with SEC compliance.

  • Stock Exchange Overview:

    • Guidelines and operations of trading platforms for securities including NYSE and NASDAQ.

  • Stocks Explained:

    • Ownership shares that confer rights to dividends and voting while describing implications for corporate control.

    • Common vs. Preferred Stock: Definitions and differences in rights and dividends.

  • Advantages and Disadvantages of Issuing Stock:

    • Benefits include lack of repayment obligations; disadvantages encompass potential dilution of ownership and expectations from stockholders.

Conclusion: The materials capture essential information on accounting, financial management, and securities. Understanding these foundational concepts is critical for navigating the contemporary business landscape.