Use

d X Performance indicators for ACT

2 Analyze business systems and procedures Does the company have a Code of Conduct that explains the company’s expectations

with respect to ethical situations? There is a Code of Conduct for accountants from the professional organization According to the Code, is the employee required to report stock purchases based on

company information (eg. Legal insider trading) Has there been training ethics in the company? Example—a workshop in dealing

with ethical dilemmas Is there whistleblower protection? Has the company culture set a moral tone and expectations? Does the leadership in the company act ethically? Participants should outline the role and necessary action of the operations/loss

prevention team within the business system. Ideas might include:o Recommending and enforcing a safe warehouse layouto Assessing the current employee training program as well as recommending

training changes to the HR department for them to enforceo Evaluate current security systems and make recommendations for further

action to reduce theft Participants should make the connection between the impact of the operations/loss

prevention team on the procedures of other departments and the success of the business as a whole

Analyze cash flow. Analyze daily transactions.

2 Analyze operating results in relation to budget/industry.2 Analyze operating results of the budget in relation to a budget/industry

Analyze the daily transactions Using First In, First Out

o Monday - bought 500 units at $1.00; total value = $500o Tuesday – bought 300 units at $1.25; total value = $375o Total 800 units $875o Using the periodic inventory system, the timing of the sales are ignored and

an allocation is made at the end of the periodo Sold 650 units; therefore 150 units remain in inventory x $1.25 = $187.50

Using Last In, First Outo Sold 650 units, therefore 150 units remain in inventory x $1.00 = $150.00

2 Apply the accounting equation to business transactions.Assess risk-return tradeoffs.

10 Calculate financial ratiosFinancial ratios are the most widely used tool of financial analysis. It can be expressed as a percent, rate, or proportion. The most common ratios used by lenders

include:Ratio Calculated What it means

Debt to equity The total funds provided by creditors vs. owners

Times interest earned

The extent to which a company can pay its interest costs

Current ratioThe extent to which a company can meet its short term obligations

Profit marginA measure of how much profit a company can generate with the amount of sales

Return on assetsA measure of how well the company can use its assets to generate profits

Return on equity

A measure of how much profit a company can generate with the amount of equity invested

Participants should demonstrate one or two ratios and describe a positive versus negative trend

Working Capital = current assets/current liabilities- Indicates if a firm has enough short-term assets to cover its immediate liabilities- If the ratio is less than one then they have negative working capital- A high working capital ratio isn't always a good thing, it could indicate that they have

too much inventory or they are not investing their excess cash

Liquidity Ratio – this is also known as the “Acid Test” or “Quick” RatioLiquidity = Cash + Accounts Receivable + any short term investments/current

liabilities

- A stringent test that indicates whether a firm has enough short-term assets to cover its immediate liabilities without selling inventory. The acid-test ratio is far more strenuous than the working capital ratio, primarily because the working capital ratio allows for the inclusion of inventory assets

- A ratio between 1.5 and 2 is generally considered to be desirable- *Tangible net worth = total assets – liabilities – intangible assets(copyrights, patents and

intellectual property) - tangible net worth represents the amount of physical assets a company has net of its

liabilities. Thus, it represents the supposed liquidation proceeds a company would fetch if its operations were to cease immediately and the firm was sold off

- Rarely should your business's total liabilities exceed its tangible net worth (therefore a ratio not much greater than 1 is acceptable). If it does, creditors assume more risk than stockholders. A business handicapped with heavy interest charges will likely lose out to its better financed competitors

Net Income to Net Sales (also called “Profit Margin”)Net Income/Net Sales

- This is an indication of what percentage of sales are actually kept after all expenses are paid

- The higher the profit margin, the better for the business. This is a good way to tell if disposable income is growing or shrinking from year to year

2 Calculate payroll earnings and deductions. 5 Conduct a break even analysis

The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC)

Break even analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business

In using break even analysis, it is important to remember the problem associated with sensitivity analysis:

Variables are often interdependent, which makes examining them each individually unrealistic

Often the assumptions upon which the analysis is based are made by using past experience / data which may not hold in the future

Variables have been adjusted one by one; however it is unlikely that in the life of the project only one variable will change until reaching the break even point

Management decisions made by observing the behavior of only one variable are most likely to be invalid

Break even analysis is a pessimistic approach by essence The figures shall be used only as a line of defense in the project analysis

In this example, the Break-even point is 24 packagesUnit Sales x N = (VC x N) + FC$127 x N = 50 x N + 1800N = 24

2 Conduct a staff meetingConduct break-even analysis

2 Defend ideas objectively Support ideas with facts Leave opinion and emotion out Be conscious of tone of voice The company must answer complaints quickly and to the customer’s satisfaction

The participant may indicate defending ideas objectively: Supporting their ideas and answers with facts and business terminology Answer questions effectively and in detail.

3 Demonstrate the effects of transactions on the accounting equationThe basic accounting equation is:Assets = Liabilities + EquityIn the first set of transactions:Increase the asset – supplies inventory– with a debitIncrease the liabilities – accounts payable – with a credit

Decrease the liability – accounts payable – with a debit

Decrease the asset – cash – with a credit

The net effect of the two transactions – increase supplies inventory and decrease cash (both are assets), so the accounting equation always stays in balance

In the second set of transactions:Increase the asset – accounts receivable – with a debitIncrease equity – revenues – with a credit

Increase the asset – cash – with a debitDecrease the asset – accounts receivable – with a credit

The net effect of the two transactions – increase cash and increase equity, so the accounting equation always stays in balance

2 Demonstrate the wise use of creditCredit is a way to receive cash or goods now and pay later, most commonly by a credit card or a loan. The participant should demonstrate knowledge of the importance of using credit responsibly by discussing the following: Can the buyer afford the item in the first place Would it be better to use savings instead of credit? Should the purchase be put off until a later date? Do the benefits of purchasing now on credit outweigh the costs, including fees and

interest charges?Using credit wisely can build a better credit history allowing you better interest rates as well as a better image with lenders. It is important to avoid the temptation to buy more than you can afford, especially when purchasing a new vehicle where most often they are bought on credit. Failing to repay a loan can ruin your credit history and could lead to losing income, property or the car itself in the process.

2 Describe current business trendsThere are many correct answers to this question. Examples could include:

Economic recession Credit crisis Companies focusing on being more environmentally friendly Double income families or single parent families that need and are willing to pay for

services because of their busy lives Big box stores Increase in discounts to encourage sales Lower profits, maintenance of sales Competitive market React / respond to economies of scale

2 Describe economies of scale.4 Describe the concept of economies of scale. 5 Describe the concept of price

Price is the amount the consumer must pay for a product Influenced by costs, competition, demand, and supply Cost—all costs are calculated and then a mark-up is applied to achieve the price

Competition—set the price in relation to competitors Demand—apply the concepts of supply and demand, the greater the demand for the

product, the higher the price charged Supply—a product in short supply will have a greater demand

If the product is a luxury product, a pricing strategy of skimming or prestige should be used. People will be able and willing to pay a higher price because it is located in an affluent neighbourhood

2 Describe the economic impact of inflation Inflation is a period of constantly rising prices Inflation causes businesses to frequently have to adjust their prices upwards or make

their products smallerWhen prices go up, consumers need more money to have the same purchasing power, therefore, they ask for higher wages. The companies then must increase wages. They can afford to do this by raising the prices of their products. It is a cycleDescribe the nature of a profit and loss statement

2 Describe the nature of balance sheets Describes a company’s financial position at a given point in time A snapshot of the company’s financial structure Shows assets (what a company owns), Liabilities (what a company borrowed, its

obligations) and equity (contributions from owners – common stock, plus contributions from profit (retained earnings)

The Balance Sheet must balance! Loans. Shows cash received from sale of stock any cash paid out for dividends

2 Describe the nature of business recordsParticipants should make the connection between business records and business decisions based on those records. Records of business transactions are essential to maintaining control of a business. Business records need to be accurate, timely, and verifiable to be of any value. Accurate information is necessary for making good decisions. Making good decisions is what management is all about.Points to address this may include:

Inaccurate records could lead to an under or over projection of the business’s financial position in its financial statements

Since these statements are used to make business decisions by management and investors, it can lead to misinformed business decisions as well as billing and delivery errors

Business records are also used as reference points if and when the company is audited, thus these records must be accurate and maintain for future use

4 Describe the nature of cash flow statements Where does the cash come from? Where does it go? Shows what used/provided cash for the organization over a specific period of time. It focuses on change from one accounting period to the next It is broken down into 3 sections:

Cash Flows from Operating Activities – from the day-to-day business of the organization.

Cash Flows from Investing Activities – shows the cash outlay for capital expenditures and acquisitions.

Cash Flows from Financing Activities – cash received from borrowing and cash used to repay l

2 Describe the nature of income statementsA financial statement measures a company's financial performance over a specific accounting period. Financial performance is assessed by a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting periodStudents should have a variation of the following:

RevenueGross sales $10,000Less Cost of Goods Sold ($1.00 + $1.50 @ 1,000 pairs sold) $ 2,500Gross Margin $ 7,500

ExpensesAny expence required to make money come in $ 1,200Net Profit $ 6,300

(If student includes start-up costs of $1,000) $ 5,300Describe the nature of income statements.

2 Describe the nature of managerial control (control process, type of control, what to control)Participants should demonstrate an understanding of the importance of managerial control measures to ensure the integrity of the business. Having more than one person reviewing financial records avoids any abuse of positional power by employees to influence records or overlook errors. Control:

the process of measuring performance and taking action to ensure desired results Make sure that plans are achieved Make certain that actual performance meets or exceeds specific performance

Control process: Establish objectives and standards Measure actual performance Compare results with objectives and standards Take corrective action—fix if below standard, and learn how to repeat if above

standard Managers are responsible for planning, organizing, leading and controlling Control refers to measuring how well the organization/their area of responsibility is

performing with respect to organizational goals and then taking action to ensure goals are met

In this case, managerial control would require the supervisor/manager to monitor hours worked, ensure that employees are working the required number of hours, ensure that employees are properly added to benefits for which they qualify and taking corrective action if requirements are not met

It would appear that managerial control was lacking in this case and now the manager must take corrective action

2 Describe the nature of operating budgets 2 Describe the nature of profit-and-loss statements.

Describe the role of a financial institution The use of a bank contributes significantly to good internal control over cash Cash is safeguarded when banks are used as a depository and as a clearing house for

cheques received and written The use of a bank minimizes the amount of cash that must be kept on hand at the

worksite The use of banks creates a double record of all bank transactions – one by the business

and one by the bank Banks will provide the depositor with a book of serially numbered cheques and deposit

slipsDetermine cost of goods sold

2 Determine factors affecting business risk Business risk is the potential for business loss or failure 3 kinds of business risk: economic, natural and human

Economic- occur from changes in overall business conditions (competition, changing consumer lifestyles, population changes, limited usefulness or stylishness of some products, product obsolescence, government regulation, inflation or recession)

Natural- result from natural causes (weather conditions-floods, fires, hurricanes, etc.) Human-caused by human mistakes and the unpredictability of employees or

customers (dishonesty, carelessness, incompetence, accidents, illness, non-payment of accounts)

o In this case, the business risk would be economic as a result of the declining sales

There are many types of risks businesses face—political, financial, social, economic, legal, theft, safety, etc

There are many types of risks faced in the restaurant industry—alcohol, underage drinking, fire, burns, food poisoning, spills, broken glass, etc

It is important that businesses anticipate possible risks and create plans to deal with these risks

If possible, businesses should find ways to make certain that the risks are prevented before they occur

2 Determine financial strengths/weaknesses of a business Financial strengths my include positive profit and income numbers Minimal promotion expenses as related to sales, meaning word of mouth and repeat

customers are the main source of promotion The fact that the business is able to travel and take advantage of prosperous

communities Carnivals seem to be a low cost alternative to high priced entertainment in

economically deprived communities Weaknesses may include high payroll expenses The business may suffer if economic downturn continues as customers cut back on

spending Students should summarize the 4 ratios that they were asked to calculate and any others

they may have calculated Students could provide examples of scenarios in which the business in question could

be exposed to financial risk and examples of under which conditions the business could thrive

2 Determine profit margin requirement The profit margin is mostly used for internal comparison A low profit margin indicates a low margin of safety: higher risk that a decline in

sales will erase profits and result in a net loss Profit margin is an indicator of a company's pricing policies and its ability to control

costs It is a cost accounting method that allows a company to determine the profitability of

individual products Contribution margin refers to a per unit measure of a product's gross operating

margin; it is calculated simply as the product's price minus its total variable costsDetermine relationships among total revenue, marginal revenue, output and profit. Determine the book value of a plant asset. Determine the cost of goods sold

Using FIFO; 650 units soldo 500 units sold x $1.00 = $500o 150 units sold x $1.25 = $187.50o therefore Cost of Goods Sold = $687.50

Using LIFO; 650 units soldo 300 units sold x $1.25 = $375o 350 units sold x $1.00 = $350o therefore Cost of Goods Sold = $725

Determine the cost of inventoryDetermine the reconciled bank balance In reconciling the bank account, it is customary to reconcile the balance per books and

balance per bank to their adjusted balances Outstanding deposits and cheques are identified; errors and unrecorded memoranda re

reconciled2 Determine the relationship among total revenue, marginal revenue, output and profit.2 Determine the relationship between government and business.4 Develop expense control plans3 Discuss the nature of annual reports

Annual reports communicate financial information to interested users There are typically four different financial statements that organizations use to

communicate this information. They are: o the income statement; o the statement of retained earnings; o the balance sheet; and o the statement of cash flows

5 Discuss the nature of the accounting cycleThe term accounting cycle refers to the steps in preparing financial statements. It is called a cycle because the steps are repeated each reporting period

There are nine steps in the cycle:1) Analyze transactions; 2) Journalize the transactions in the general journal; 3) Post the transactions to the general ledger; 4) prepare an unadjusted trial balance; 5) Adjust the accounts; 6) Prepare an adjusted trial balance; 7) Prepare financial statements; 8) close the accounts; and 9) Prepare a post-closing trial balance

3 Discuss the use of financial ratios in accounting Ratios are the most widely used tools for analyzing financial statements They provide clues to and symptoms of underlying conditions Ratios refer to an economically important relation between two variables from the

financial statements that are expressed as a mathematical relationship They are used by Wall Street to detect intra-company trends (trends from one

period to the next), compare one company to a competitor, and to compare one company to industry benchmarks

2 Discuss the use of Generally Accepted Accounting Principles (GAAP) GAAP should lead to external users having the most useful financial information

possible when making their business decisions GAAP encompass broad principles and conventions of general application as well as

rules and procedures that determine accepted accounting practices at a particular time “Generally Accepted” means that these principles have authoritative support through the

Canadian and provincial business corporations acts and securities legislation Must comply with GAAP is a company has publically traded shares or debt (follow the

CICA Handbook) Most other companies also follow GAAP as these principles result in the most useful

information for decision making The petty cash fund is a current asset By accounting for the petty cash fund this allows the financial statements to provide

information on the economic resources (assets) of the company Replenishment of the petty cash fund allows for recognition of the effect of the fund on

the financial statements2 Evaluate a business’s liabilities

Can conduct a debt/equity ratio analysis: 30,000/126,000 = 23.8% which is quite low meaning company is financed mainly by contributions from the owner

There are accounts payables meaning credit has been extended to the business, a good thing because it keeps cash longer within the business

2 Evaluate projected income statements5 Explain cash control procedures

Cash is easily concealed and transported, lacks owner identification and is highly desirable. To safeguard cash and ensure accuracy of accounting records, effective internal control over cash is important. Companies may not want to write cheques or use EFT to pay for small amounts because this is impractical and a nuisance. As a result, the company will set up a petty cash fund for small cash disbursements The petty cash fund is usually operated on an

“imprest” system – an advance of a specific amount of money for a specific purpose. Every transaction should be recorded to keep track of exactly where there money is being spent and the balance is always updatedAlways keep cash on hand so that the company remains liquid Cash controls over petty cash can include the following:

Appoint a petty cash custodian to be responsible for the petty cash fund (“the fund”) Determine the size of the fund (i.e. $100) The custodian has authority to make payments from the fund in accordance with

management policies Each payment from the fund should be documented on a pre-numbered petty cash

receipt signed by both the custodian and the person who receives the payment If other supporting documentation is available (i.e. freight bill or invoice), this

should also be attached to the receipt A supervisor can make surprise counts of the fund to check whether paid receipts

and the fund cash equal the imprest amount To replenish the fund, a request is made by the petty cash custodian and sent to the

controller’s office The request should include a schedule (summary) of the payments that have

been made along with the petty cash receipts and supporting documentation The controller’s office will verify that that proper payments from the funds

were made and approve the request and prepare a cheque to replenish the fund The supporting documentation is stamped “paid” so it cannot be submitted

again for payment The petty cash fund should be replenished at the end of each accounting period

2 Explain ethical considerations in providing information Information ethics has been defined as "the branch of ethics that focuses on the

relationship between the creation, organization, dissemination, and use of information, and the ethical standards and moral codes governing human conduct in society". It provides a critical framework for considering moral issues concerning informational privacy, moral agency, new environmental issues problems arising from the life-cycle (creation, collection, recording, distribution, processing, etc.) of information (especially ownership and copyright, digital divide, and digital rights). Dilemmas regarding the life of information are becoming increasingly important in a society that is defined as "the information society". Information transmission and literacy are essential concerns in establishing an ethical foundation that promotes fair, equitable, and responsible practices. Information ethics broadly examines issues related to ownership, access, privacy, security, and community

In this case, there is a certain amount of privacy on the part of the evaluators, but because of the public nature of their comments, the companies they are evaluating are demanding more information on the evaluations and evaluators

The accountant had an ethical and moral obligation not to insider trade If a person has access to information as a part of their job, they are morally bound not to

use it for their own gain. They are also ethically bound not to share the information In this case, the accountant used the information to defraud shareholders of the

manufacturing firm2 Explain the benefits of electronic funds transfer (ETF)

ETF systems transfer funds between parties without use of paper (e.g. deposits, cheques etc.)

Debit and bank credit cards, on-line banking payments and pre-authorized monthly payments are examples of ETFs

ETFs normally result in better internal control because no cash or cheques are handled by company employees

The benefits include: o Reduction in cost of making payments by cheque, such as postage and envelope

costso Also reduces the risk of lost, stolen or forged cheques

11 Explain the concept of accountingAccounting is an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organization’s business activities to interested users. Accrual basis accounting recognizes revenues when they are earned and expenses when incurred. Generally Accepted Accounting Principles (GAAP) requires that businesses use accrual basis accounting because it presents a better picture of a business’s economic activity during a specific timeframe

It is the measuring, communicating, and interpreting of financial activity It is used by decision makers (e.g. managers, owners, etc.) to decide optimally (e.g.

on whether to expand, to take on new debt, to offer credit to customers, etc.) It is the “language” of business

Participants should be able to identify and explain accounting fundamentals as they apply to this situation. The participant’s address may include: Accounting involves the careful and accurate recording of the transactions of a business These records are used to formulate financial statements that represent the financial

position of the business Accounts payable handles invoices charged to the company on orders made, in this case,

for materials to make spirit items2 Explain the concept of competition

The rivalry between two or more businesses to gain as much of the total market sales or customer acceptance as possible Helps to maintain reasonable prices, provides consumers with new and improved products, and results in a wide selection of products from which to choose. Forces businesses to operate efficiently. In this case there is a competition between the companies being evaluated, and the evaluations can have a great effect on competition

Competition Did the student discuss the pros and cons of competition? Did the student address issues related to competitive advantage?Competitors Who are the direct/indirect competitors?

What target market are they competing for?.2 Explain the concept of organized labor and business.2 Explain the effect of inventory systems on cost of goods sold

First In, First Out (FIFO) gives the lowest cost of goods sold and the higher value of ending inventory

Last in, First Out (LIFO) gives the highest cost of goods sold and the lower ending inventory valuation

Explain the importance of maintaining financial recordsWith regards to bank reconciliations, the maintenance of financial records allows the user to check for accuracy of cash receipts and payment cheques against bank records; allows journal entries to be made to update the cash account; allows for discrepancies to be identified and corrected; and produces regular monthly reports

3 Explain the nature of accounts payable Accounts payable are short-term obligations arising from the purchase of goods and

services in the ordinary course of the business Accounts payable exist when you have not yet paid for the assets or services you have

received3 Explain the nature of accounts receivable

Accounts receivable are amounts owed by customers on account resulting from the sale of goods and services in the ordinary course of business

Accounts receivables are generally expected to be collected in 30 days or so and are classified as current assets

6 Explain the nature of balance sheetsA balance sheet describes a company’s position (types and amounts of assets, liabilities, and equity) at a point in time. Participants should use examples of assets, liabilities, etc. that specifically relate to the bakery industry Summary of all assets, liabilities, and owner’s equity for a company at a certain day,

usually fiscal year end Can be described as a “snapshot” of the business on that particular day They show details of the Assets and Liabilities (things it owns and owes) and the Net

Worth or Owner’s Equity. From them, other aspects of the business can be interpreted – liquidity, turnover, etc. Managers, Owners and investors use balance sheets to analyse and evaluate the current

operations of a business and suggest changes/improvements2 Explain the nature of business plan2 Explain the nature of costing procedures

A business uses costing procedures to track and account for all the costs associated with manufacturing or merchandising. Costs can include both direct costs (such as raw materials) and indirect costs (overhead items like utilities and salaries) associated with production or operation. Costing procedures ensure that a business knows its average per item costs. First In, First Out (FIFO) assumes that the earliest goods purchased are the first to be

sold FIFO matches the physical flow of inventory, because it is generally good practice to

sell the oldest goods first Last In, First Out (LIFO) assumes that the goods purchased last are the first to be sold Does not match the physical flow of inventory in a small merchandising business More suitable for bulk foods or commodities such as sand or gas

2 Explain the nature of overhead/operating costs Fixed costs that are “sunk costs”, i.e. already spent and not material in decision

making

Arbitrarily assigned on a per unit basis for accounting reasons Will decrease on a per unit basis as unit produced increases; this will have no real

impact on business Explain the difference between fixed and variable costs Fixed costs do not fluctuate due to the number of items sold Variable costs fluctuate depending on the total number of items soldOverhead costs and operating costs deal with different types of company expensesOverhead costs generally relate to expenses necessary for the functioning of the business but which do not help to directly generate profits. Typical of these would be rent, gas/electricity, indirect wages). Examples of rising overhead costs would be for the installation of security cameras or more expensive cash registers that would reduce employee errorsOperating costs are the recurring expenses which are related to the production and sales of a business, and therefore directly related to profits. These include direct wages, advertising, and food preparation, such as our food preparers using too much of the inventory to make our menu items. If too much food is put on a plate, or too much food is wasted in making the food, our operating costs will rise compared to sales. Since all costs will eventually reduce the amount of profit a business has, any expenses the business has related to inventory control systems and shrinkage are importantIdeally, the money spent to install and implement these systems would more than make up for the amount of shrinkage a company faces, but it still has an impact on the efficiency of a business when one includes the additional time necessary to monitor and administer these procedures. Overhead and Operating costs combine to add up to the costs of operating the

business These costs can either be fixed (overhead) or variable (operating) Overhead costs (fixed) must be paid regardless of the level of production or sales

o costs that remain the same for a period of time (insurance, rent, hydro, water, heat, wages, taxes)

Operating costs (variable) are dependent on the business’ level of production or saleso can change monthly depending on the needs of the business (advertising,

office supplies, utilities, packaging, labour salaries)3 Explain the nature of special journals

A special journal is used to record similar types of transactions, such as all cash receipts or all cash payments (cash receipts or cash payments journal)

Other special journals include: periodic inventory system, purchases journal and a sales journal

Special journals are useful as they are designed as a simple way to record a single type of frequently occurring transactions

o It reduces the time needed to record and post transactionso Only totals, rather than individual entries are posted to the general ledger

As a comparison, in the typical two-column manual accounting system, transactions are entered as debits to one (or more) account and balancing credits to one (or more) account

o If you consider some recurring transactions (such as sales) that will hopefully occur many times during an accounting cycle, all this double entry can add up

to a lot of work. That's where special journals are useful Special journals also permit greater division of labour because different employees can

record entries in different journalso The division of responsibilities ensures one person does not have control over

all aspects of a transactiono This may reduce the opportunity for intentional or unintentional error and is

one aspect of a good internal control system2 Explain the nature of wage and benefit programs. 2 Explain the principles of supply and demand

Supply and demand determine the prices and quantities of goods and services produced. Supply is the amount of goods and services producers are willing to make and sellDemand is the willingness and ability of consumers to buy goods and services. The law of supply states that price and quantity supplied move in the same direction (a

direct relationship) As price increases, the amount of goods and services supplied increases. The law of

demand states that as price increases, the amount desired by consumers will decrease (an inverse relationship)

When the amount of a product/service being supplied equals the amount being demanded, equilibrium exists in the marketplace at that price.

A surplus exists when there is more supply than demand, leading to lower prices A shortage exists when there is more demand than supply, leading to higher prices

2 Explain the structure of the budgeting process.2 Explain the types of business ownership. 4 Forecast sales. 2 Foster Positive Relationships

Answers will vary and should include methods of creating good working relationships among all employees of an organization

Answers may also include benefits to the organization of positive working relationships.

Ensure that employees keep personal problems with other co-workers out of work time so that job performance and customer service is the main focus

Ensure that employees are happy and courteous to fellow employees even if they did not have a good day. A negative attitude sets everyone off in a bad way

Make work fun – arrange social events for employees to establish a more personal relationship, not just working relationship (i.e. team sports, get togethers, drinks after work, etc.)- create a bond between workerso Establish team member roles and responsibilitieso Determine a common goal and strategies to achieve ito Lay out employee expectationso Weekly meetingso Strategically match workers by skill, experience, education, interests, etco Open communication – allow employees to approach leader about any issues

they are experiencingo Have fun – plan a social so members can bond on a more personal level and

not just business (i.e. drinks after work, lunch with the team, etc)

The company needs to celebrate the success of the new schedule Organize a company picnic or other social event for all of the families that recognizes

that the entire family, not just the employees, has had to make adjustments because of the changes

Perhaps 5% of the 23% cost savings could be passed on to the employeesThere are several characteristics that make up good, healthy working relationships:

Trust – This is the foundation of every good relationship. When you trust your team and colleagues, you form a powerful bond that helps you work and communicate more effectively. If you trust the people you work with, you can be open and honest in your thoughts and actions, and you don't have to waste time and energy "watching your back."

Mutual Respect – When you respect the people that you work with, you value their input and ideas, and they value yours. Working together, you can develop solutions based on your collective insight, wisdom and creativity

Mindfulness – This means taking responsibility for your words and actions. Those who are mindful are careful and attend to what they say, and they don't let their own negative emotions impact the people around them

Welcoming Diversity – People with good relationships not only accept diverse people and opinions, but they welcome them. For instance, when your friends and colleagues offer different opinions from yours, you take the time to consider what they have to say, and factor their insights into your decision-making

Open Communication – We communicate all day, whether we're sending emails and IMs, or meeting face-to-face. The better and more effectively you communicate with those around you, the richer your relationships will be. All good relationships depend on open, honest communication

7 Identify factors affecting a business’s profitProfit is the monetary return a business` owner receives for taking the risk of investing in the business. Profit equals income less expenses. There are two types of profit: gross – the money left over after the cost of goods is subtracted from sales, and net – the money left over after the operating expenses are subtracted from the gross profitFactors that affect profit include: the demand for the good/service, expenses, prices, the economy, and chance. To increase profit, a business can increase worker efficiency, increase sales or decrease expenses Revenues: number sold * sales price per ruler Expenses: Fixed costs + (variable costs * number produced) 4 P’s of marketing – Product; Price; Place; Promotion 4 C’s of marketing – Consumer wants/needs; Cost to satisfy; convenience to buy;

Communication The amount of sales The cost of the merchandise Price merchandise is being sold for Amount of overhead Cost of sales Competition Success of an advertising campaign Merchandise that is being sold

Ability of the sales staff Ability of staff to close sales and to add on sales once an initial sale has been closed Revenues: rentals Expenses: advertising, salary, rent, utilities expenses

2 Interpret business policies to customers/clients Employees should be well trained on the policy. Provide many examples of how the

policy can be interpreted After this situation has been handled, it should be used as an example for employees

for future reference Phone and explain clearly that the restaurant is sorry that COMPUTER CORP’s visit

was unsatisfactory Explain the new changes Book a new reservation

Interpreting business policies typically involves explaining company procedures, often written in bureaucratic language, to customers who are already irritated and upset. By acknowledging their frustration and using plain and ordinary language to describe what's required from the customer to proceed, customer service representatives can diffuse a tense situation, maximize the opportunity to conduct a successful transaction and provide pointers to other information, such as brochures, website links and other phone numbers for help and supportBack up the business policy by describing how it helps streamline business transactions that actually help customers in the long run. Provide details about why changes to previous policies make the current policy more advantageous in terms of long-term gains. Cite any laws, studies conducted, customer feedback obtained or conventional business practices that reinforce the implementation of the business practiceInvolve customers in the interpretation of any business policy. Ask for candid feedback about how the rules impact their business. For example, record input with online surveys using free software applications such as Qualtrics, Zoomerang or SurveyMonkey. Publish your findings so that customers can see that you have taken their feedback seriously and intend to act on their suggestionsPropose an implementation date that allows the customer time to adjust to your new policy and enforcement of a current policy. Ensuring customer satisfaction involves validating that new mechanisms meet the needs of existing customers and future customers alike.

3 Interpret Financial StatementsAnswers will vary for this section. Students sold be evaluated on the concepts and principles involved in financial statement analysis Fundamental analysis that should be given are questions pertaining to profitability and

repayment of debt Basically, the income statement shows how much money the company generated

(revenue), how much it spent (expenses) and the difference between the two (profit) over a certain time period

The income statement lets investors know how well the company’s business is performing - or, basically, whether or not the company is making money

Cost of goods sold is the expense most directly involved in creating revenue. It represents the costs of producing or purchasing the goods or services sold by the company

Companies with high gross margins will have a lot of money left over to spend on other business operations, such as R&D or marketing. So be on the lookout for downward trends in the gross margin rate over time. This is a telltale sign of future problems facing the bottom line. When cost of goods sold rises rapidly, they are likely to lower gross profit margins - unless, of course, the company can pass these costs onto customers in the form of higher prices

High operating margins can mean the company has effective control of costs, or that sales are increasing faster than operating costs. Operating profit also gives investors an opportunity to do profit-margin comparisons between companies that do not issue a separate disclosure of their cost of goods sold figures (which are needed to do gross margin analysis)

Operating profit measures how much cash the business throws off, and some consider it a more reliable measure of profitability since it is harder to manipulate with accounting tricks than net earnings

When a company has a high profit margin, it usually means that it also has one or more advantages over its competition. Companies with high net profit margins have a bigger cushion to protect themselves during the hard times. Companies with low profit margins can get wiped out in a downturn. And companies with profit margins reflecting a competitive advantage are able to improve their market share during the hard times - leaving them even better positioned when things improve again

A common profitability ratio is:    Net Income   Profit Margin = -----------------    Sales

2 Journalize/ post entries to establish and replenish the petty cash fund

a) Entry to establish petty cash fundDr. Petty Cash $100

Cr. Cash $100(No change in cash flows as we increase Assets by $100 and decrease Assets by

$100)

b) Entry to replenish petty cash (if there is no cash shortage or cash overage)Dr. Postage expense $45Dr. Inventory 30Dr. Miscellaneous exp. 10

Cr. Cash $85(Cash flows decrease by $85 and petty cash is not affected)

c) Entry to replenish petty cash (if there is a cash shortage)Dr. Postage expense $45Dr. Inventory 30Dr. Miscellaneous exp. 10Dr. Cash short 1

Cr. Cash $86(Cash short amount is reported in the income statement as a miscellaneous expense.

If there was a cash overage, it would be recorded as miscellaneous income in the income statement)

d) Entry to replenish cash fund and increase it to $125Dr. Petty Cash $25Dr. Postage expense 45Dr. Inventory 30Dr. Miscellaneous exp. 10Dr. Cash short 1

Cr. Cash $111(Cash flows decrease by $111)

Journalize/post entries related to banking activities2 Lead change

Maintain a customer file for accounts receivableMaintain a vendor file

3 Maintain daily financial transactions How to track daily cash transactions and record them T-chart, debits and credits

2 Maintain financial recordsParticipants should emphasize the importance of maintaining accurate financial records and should explain to the Accounts Payable Manager what to look for before coming for final approval from the participant, the manager, by use of the correct invoice created by him/her.

2 Maintain petty cash records4 Make capital expenditure decisions

Ultimately, students are making a recommendation about which investment option fits the best needs of Northern Landscaping. Students need to demonstrate a clear understanding of the strengths and weaknesses of each possibility. A strong response would include both qualitative and quantitative reasoning to justify the suggestions. Students are welcome to make reasonable assumptions to support their decision-making process. Make financial recommendations to meet client needs

5 Make oral presentations Is the student speaking professionally and communicating clearly Are the indicators flowing into each other smoothly Is the student speaking directly or are they reading from their notes

Measure financial return2 Persuade others2 Prepare an accounts payable schedule

Schedule of Accounts PayableKitty Litters 1,245Lions, Tigers, and Bears Oh My 630Office Super Store 2,120 Total Accounts Payable 3,995

2 Prepare and accounts receivable schedule

2 Prepare cash flow statements Calculate the amount of cash in, cash out and balance based on the transactions

provided Values listed in the judge’s instructions

2 Prepare customer statementsPrepare depreciation schedules

2 Process inventory adjustmentsProcess invoice of inventoryProcess notes payable and receivable

2 Process results of inventory2 Record inventory usage

Record the disposition of assets4 Record transactions in a general journal

Dr. Supplies Inventory 1,000Cr. Accounts Payable 1,000

Dr. Accounts Payable 1,000Cr. Cash 1,000

Dr. Accounts Receivable 10,000Cr. Revenue 10,000

Dr. Cash 10,000Cr. Accounts Receivable 10,000

2 Record transactions in special journals The petty cash account is a sub-account of the cash account The following steps are required to account for the petty cash fund:

o To establish the fund, set up a separate general ledger accounto Determine how much cash is required to replenish the fund by subtracting the cash

remaining from the petty cash fund balanceo Total the petty cash receipts. Determine any cash over or short (the difference

between the cash needed to replenish the fund and the total of cash receipts)o Record the expenses incurred according to the petty cash receipts when

Schedule of Accounts ReceivableFreddie Perkins 710Furry Friends 85Paul Ryan 95Pets R Us 1,350Sally Sue 250 Total Accounts Receivable 2,490

replenishing the fund3 Set financial goals2 Use budgets to control operations4 Use ratio analysis to evaluate company performance

Return on sales (net margin) is 43.39% which is quite high, could be due to low operating costs or high revenues

This figure should be compared with historical data or with industry standards as it is relative

If it is increasing it shows more profitability, if it is decreasing then the reason why should be examined

2 Use T accounts2 Validate credit history

Customer has never been past 10 days past due on any debts Consistently paying a Visa and MasterCard bill, therefore building a credit history

2 Value long-term debt