Management and Accounting Info Chapter 15

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Questions and Answers

What impact does relevant information have on decision-making in businesses?

It leads to better intelligence and consequently better decisions. (correct)

It complicates the decision-making process.

It helps to reduce the need for market research.

It has no significant effect on the outcomes of decisions.

What is the relationship between the amount of information and the risk of decision-making?

A high amount of information decreases the likelihood of poor decisions. (correct)

Information quantity does not affect decision outcomes.

A low amount of information guarantees successful decisions.

More information always results in lower risks.

How is data defined in the context of management and accounting information?

Data consists of measurements that can be used for analysis. (correct)

Data is irrelevant numerical or verbal descriptions.

Data is information presented for a specific purpose.

Data only includes financial figures.

Why is better intelligence particularly important for businesses?

It provides a competitive edge and improves profits. Signup and view all the answers

What is a characteristic of information in the context of managerial decision-making?

Information should be organized in a way that makes it useful for specific purposes. Signup and view all the answers

What is the cost of goods sold for Comer, INC. if it had $200,000 in goods available for sale and an ending inventory of $40,000?

$160,000 Signup and view all the answers

In which section of the statement of cash flows would the cash received from sales of Coke and juices appear?

Operating Signup and view all the answers

Which of the following is NOT considered a section of the income statement of a business?

Liabilities Signup and view all the answers

What is the primary purpose of zero-base budgeting as inferred from Larry Patterson's situation?

To justify all expenses from scratch Signup and view all the answers

What type of capital is represented by the contributions made by Drew and Tammy to start their cake-decorating business?

Equity capital Signup and view all the answers

What does a high current ratio signify for a firm?

The firm can pay its current liabilities Signup and view all the answers

Which method is the quickest way to improve inventory turnover?

Order merchandise in smaller quantities Signup and view all the answers

What is the formula used to calculate the average value of inventory?

(Beginning inventory + Ending inventory) / 2 Signup and view all the answers

Which financial management activity is necessary to maintain a firm’s credit rating?

Paying bills promptly Signup and view all the answers

Which title is typically associated with finance management?

Financial Planner Signup and view all the answers

What characterizes short-term financing?

Funds used for less than one year Signup and view all the answers

What is 'cash flow' in the context of financial management?

The movement of money into and out of an organization Signup and view all the answers

What does the inventory turnover ratio indicate?

How quickly a firm sells its inventory Signup and view all the answers

Which of the following is a reason why businesses might file for bankruptcy?

The economy and other external factors Signup and view all the answers

Which of these actions can help improve a firm's current ratio?

Repaying current liabilities Signup and view all the answers

Which type of short-term financing typically carries no finance charge?

Trade credit Signup and view all the answers

What is a common reason lenders prefer finished goods over raw materials as collateral?

Finished goods are easier to sell. Signup and view all the answers

Which statement accurately compares a loan secured by receivables and factoring?

Factoring typically offers higher costs than loans secured by receivables. Signup and view all the answers

What advantage does a commercial paper have compared to a secured loan?

Typically a higher credit rating is required for issuance. Signup and view all the answers

In the context of initial public offerings (IPO), what does the primary market refer to?

A market where new securities are sold directly from the issuer. Signup and view all the answers

What distinguishes a secured loan from other types of financing options?

Collateral is necessary, typically in the form of inventory or receivables. Signup and view all the answers

What is the primary source of profit for a factoring firm?

The difference between the face value and the purchase price. Signup and view all the answers

Which of the following businesses is likely to utilize commercial paper for financing?

A large corporation with a high credit rating. Signup and view all the answers

What is the process of apportioning the cost of a fixed asset over its useful period called?

Depreciation Signup and view all the answers

Which of the following is NOT considered a current liability?

Long-term loans Signup and view all the answers

Which term refers to assets that do not have a physical presence but hold value?

Intangible assets Signup and view all the answers

What is calculated as revenues minus costs of goods sold and operating expenses?

Net income Signup and view all the answers

Which of the following best describes retained earnings?

Profits not distributed to stockholders Signup and view all the answers

What is the equation for calculating net sales?

Net sales = Gross sales - Sales deductions Signup and view all the answers

Which section of the statement of cash flows includes the purchase and sale of equipment?

Cash flows from investing activities Signup and view all the answers

What does the current ratio measure?

The liquidity of a firm Signup and view all the answers

What does gross profit represent?

Revenues minus cost of goods sold Signup and view all the answers

Which type of expenses are related to a firm’s marketing activities?

Selling expenses Signup and view all the answers

What reflects the relationship between two elements of a firm's financial statements?

Financial ratio Signup and view all the answers

What is a common indicator that revenues exceed expenses?

Net income Signup and view all the answers

What determines a firm’s ability to pay dividends?

Statement of cash flows Signup and view all the answers

What is the primary purpose of the Sarbanes-Oxley Act?

To ensure accuracy of corporate financial information Signup and view all the answers

Which of the following is NOT a key component of the Sarbanes-Oxley Act?

Mandatory audits of all private companies Signup and view all the answers

Which type of accounting focuses on providing financial statements for external use?

Financial accounting Signup and view all the answers

What does the accounting equation Assets = Liabilities + Owners' Equity represent?

The financial position of a business Signup and view all the answers

In which order are current assets listed on the balance sheet?

From most liquid to least liquid Signup and view all the answers

What is the maximum imprisonment duration for accountants who intentionally destroy financial documents under the Sarbanes-Oxley Act?

20 years Signup and view all the answers

Which asset type is categorized as a fixed asset?

Equipment Signup and view all the answers

What is the main role of managerial accounting?

To assist management in decision-making Signup and view all the answers

What must a balance sheet demonstrate?

Assets must equal liabilities plus owners' equity Signup and view all the answers

Which of the following describes private accountants?

They are employed by a specific organization Signup and view all the answers

What do auditors need to do under the Sarbanes-Oxley Act regarding financial documents?

Maintain financial documents for seven years Signup and view all the answers

What is a significant risk faced by employees when a company files for bankruptcy due to fraudulent accounting?

Loss of their jobs and investments Signup and view all the answers

Which accounting type helps not-for-profit organizations track donations?

Not-for-profit accounting Signup and view all the answers

What does liquidity refer to in accounting?

The ease of converting assets into cash Signup and view all the answers

What is the primary purpose of sales revenues for a business after goods are shipped?

To repay short-term financing Signup and view all the answers

Which of the following is considered long-term financing?

Debt capital with repayment period over years Signup and view all the answers

What does the risk-return ratio indicate?

Higher risks should yield higher returns Signup and view all the answers

What is the first step in financial planning?

Establish organizational goals and objectives Signup and view all the answers

In zero-base budgeting, what is required for every expense?

Every expense must be justified Signup and view all the answers

Which document serves as a guarantee for paying a seller a specified amount?

Letter of credit Signup and view all the answers

What is the defining feature of a line of credit?

Approved in advance of need Signup and view all the answers

What does a cash budget primarily estimate?

Cash receipts and expenditures Signup and view all the answers

Which type of short-term financing is most commonly used by sellers?

Trade credit Signup and view all the answers

What is required for obtaining an unsecured banking loan?

Solid working relationship with the lender Signup and view all the answers

What does the term 'prime interest rates' refer to?

The lowest rate charged by banks to borrowers with excellent credit Signup and view all the answers

What defines commercial paper?

A short-term promissory note issued by a corporation Signup and view all the answers

What is the role of automated clearinghouses (ACHs)?

To reduce paper checks by processing various transactions electronically Signup and view all the answers

What is a primary characteristic of a promissory note?

It is legally binding and enforceable Signup and view all the answers

What is the main advantage of selling stock for a corporation?

The obligation to repay investors is minimal Signup and view all the answers

Which of the following correctly describes common stock?

Owners have voting rights and lower claims on assets Signup and view all the answers

Which of the following is a characteristic of preferred stock?

Owners have the first right to dividends Signup and view all the answers

What is venture capital primarily used for?

Funding small firms with potential for growth Signup and view all the answers

What differentiates an angel investor from a venture capitalist?

Angel investors prioritize helping startups over profits Signup and view all the answers

What best describes financial leverage?

Employing borrowed funds to enhance returns Signup and view all the answers

What is a corporate bond?

A pledge by a corporation to repay borrowed money with interest Signup and view all the answers

Which of the following statements about debenture bonds is true?

They rely solely on the issuing corporation's reputation Signup and view all the answers

How does a sinking fund function?

It accumulates funds to repay bonds at maturity Signup and view all the answers

What is the primary distinguishing feature of a convertible bond?

It can be exchanged for stock Signup and view all the answers

What financial attribute typically influences the interest rate of a corporate bond?

The corporation's ability to pay interest Signup and view all the answers

What is the typical repayment period for long-term loans?

5-10 years Signup and view all the answers

In which market do secondary market transactions typically occur?

Primarily through securities exchanges and OTC Signup and view all the answers

Which factor affects the interest rate of a corporate bond?

The financial stability of the company Signup and view all the answers

What is the primary purpose of a decision-support system (DSS)?

To provide relevant data for decision-making Signup and view all the answers

Which software application is primarily used for creating professional reports and publications combining text and graphics?

Desktop publishing Signup and view all the answers

What does the management information system (MIS) primarily do?

Distributes timely and useful information Signup and view all the answers

Which of the following is NOT one of the functions performed by a management information system (MIS)?

Conducts audits Signup and view all the answers

Which area of management requires information about employees and their respective attributes?

Human resources Signup and view all the answers

What is a primary role of accounting in a business?

To systematically collect and report financial information Signup and view all the answers

What do generally accepted accounting principles (GAAP) provide?

Standards for financial reporting and accounting Signup and view all the answers

Which of the following describes an expert system?

A system that uses rules to provide recommendations Signup and view all the answers

What is the significance of conducting an audit?

To assess the fairness of financial statements Signup and view all the answers

Which function does NOT belong to the five functions of a management information system?

Audits financial practices Signup and view all the answers

What aspect of business does marketing require detailed information about?

Products and services offered by competitors Signup and view all the answers

What is the overall goal of knowledge management (KM) within an organization?

To facilitate data sharing and use Signup and view all the answers

Which type of software helps in recording routine financial transactions?

Accounting software Signup and view all the answers

What is the purpose of the information collected by the finance department?

To measure the company's financial health Signup and view all the answers

Study Notes

Chapter 15: Using Management and Accounting Information

Information and Risk: Relevant information leads to better decisions, improving a firm's competitiveness and profitability. A high amount of information allows for better decisions, while a low amount increases the risk of poor decisions.
Data vs. Information: Data are numerical or verbal descriptions from measurements (e.g., wage levels, prices). Information presents data in a useful form (e.g., wage gap graphs). Databases store data and information for organizational decision-making. Knowledge management (KM) manages data and information generation, use, and sharing.
Making Smart Decisions: Decision support systems (DSS) use software to provide data and information for better decisions. Expert systems use AI to mimic human thinking, applying rules to user-provided information to suggest actions.
Business Application Software: Various software enhances employee decision-making and productivity. Examples include word processing, desktop publishing, accounting, database management, graphics, and spreadsheets.
Management Information System (MIS): An MIS provides timely and useful information to managers and employees from internal and external sources, directly accessible by employees and managers in the organization. The MIS is a system integrated with databases to organize, summarize, and calculate data.
Firm's Information Requirements: A firm's management is organized into five areas (finance, operations, marketing, human resources, administration), each requiring specific information to effectively manage its area. MISs need to cater to these specific needs.
MIS Functions: An MIS collects, stores, updates, processes, and presents information.
Accounting: Accounting collects, analyzes, and reports financial information, used for past analysis and future decisions. Public accounting firms conduct audits to improve accounting accuracy.
Audit and GAAP: Audits examine financial statements and accounting practices. Generally Accepted Accounting Principles (GAAP) provide guidelines for financial reporting. When an accountant believes financial statements are fair and meet GAAP, a specific statement is issued.
Accounting Fraud and Reform: Corporate accounting problems have raised concerns about fraudulent and unethical practices. The Sarbanes-Oxley Act aims to improve accuracy and prevent future accounting scandals.
Sarbanes-Oxley Act: Key components include a public company accounting oversight board, certification requirements for financial officers, limitations on non-audit services for accounting firms, document retention, enhanced penalties for violations, and lead auditing firm changes.
Types of Accounting: Managerial accounting provides information for internal decision-making. Financial accounting generates financial statements for external parties. Cost accounting determines product costs. Tax accounting plans tax strategies. Government accounting supports governmental agencies. Not-for-profit accounting serves not-for-profit organizations.
Accountants: Private accountants work for specific organizations, while public accountants work on a fee basis for clients. Certified Public Accountants (CPAs) have met state requirements and passed an examination.
Accounting Equation: Assets = Liabilities + Owners' Equity. Assets are resources, liabilities are debts, and owners' equity is the difference. Double-entry bookkeeping maintains this balance.
Financial Statements: Financial transactions are summarized into financial statements, reported in an annual report to stakeholders.

Chapter 16: Mastering Financial Management

Business Bankruptcies: Nation's economic conditions and other factors affect business bankruptcies.
Financial Management: Financial management involves obtaining and effectively using funds. This includes having adequate funds when needed, keeping costs low, using funds efficiently, and managing expenses effectively.
Job Titles in Finance: Finance jobs include CFO, VPs of finance, bank officers, credit officers, financial analysts, financial planners, loan officers, insurance analysts, and investment account executives.
Finance Skills: Honest financial professionals need strong financial backgrounds, computer skills, and excellent communication skills.
Short-Term Financing: Covers cash flow problems, inventory needs, promotions, speculative production, monthly expenses, and emergencies.
Long-Term Financing: Covers business start-up costs, new product development, equipment replacement, mergers, acquisitions, and expansion.
Risk-Return Ratio: High-risk decisions should yield higher returns.
Financial Planning: Financial plans outline how to obtain and use money to meet organizational goals. Steps are: setting goals, budgeting, and identifying funding sources.
Developing a Financial Plan: Establishing goals, objectives, and budgets are steps in creating a financial plan.
Budgeting: Budgets estimate income, expenditures, or both over future periods with departmental breakdowns, focusing on cash budgets. Budget approaches include traditional (based on prior year data) and zero-base (every expense justified). Capital budgets cover major asset expenditures.
Funding Sources: Key funding sources are sales revenue, equity capital (from owners or shares), debt capital (loans), and proceeds from asset sales.
Traditional Banking Services: Savings accounts and checkings are used for businesses. Certificates of deposit (CDs) can improve interest return on excess cash.
Business Loans: Short-term loans are repaid within a year and may use revolving credit agreements. Long-term loans are repaid over years using collateral in some instances.
Credit and Debit Cards: Credit card transactions can convert sales to cash through bank processing. Debit cards deduct transaction costs directly from bank accounts.
Electronic Banking: EFT, ATMs, Automated Clearing Houses (ACHs), and point-of-sale (POS) terminals increase electronic transaction speed and efficiency.
International Banking: Letters of credit and banker's acceptances allow for international transaction payments.
Sources of Unsecured Short-Term Financing: Trade credit (with sellers extending credit) and promissory notes are common and often have less cost and risk.
Unsecured Bank Loans: Prime interest rates for loans are determined by credit rating. Compensating balances may be required. Commercial paper is a short-term promissory note for large corporations.
Sources of Secured Short-Term Financing: Loans backed by inventory (finished goods, raw materials, or work-in-process) or receivables (accounts receivable) are two examples. Factoring is when a firm sells its accounts receivable.
Selling Stock: IPOs (Initial Public Offerings) are used to raise funds by selling shares to the public through a primary market through investment banking firms. Stocks can be held or traded between investors in secondary markets (securities exchanges or over-the-counters).
Stock Advantages: No repayment obligation, no dividend requirements.
Retained Earnings: Undistributed profits from corporations, are a form of equity financing.
Venture Capital, Angel Investors, and Private Placements: Venture capital funds invest in small, potentially successful firms with equity ownership. Angel investors focus on small business success. Private placements occur when securities are sold to specific investors.
Financial Leverage and Debt Financing: Using borrowed funds to boost returns (financial leverage). Small businesses rely on loans; larger companies also issue corporate bonds. Term loan agreements have specific repayment schedules and may involve collateral and minimum working capital requirements.
Corporate Bonds: Bonds are corporations' written promises to repay a defined amount with interest over a time. Different types include debenture bonds (backed only by firm reputation), mortgage bonds (backed by assets), and convertible bonds.
Bond Indenture and Trustee: A bond indenture details bond issue terms. Trustees act as bondholders' representatives. Serial bonds mature on different dates. A sinking fund pays down bonds periodically.
Comparison of Long-Term Financing Methods (Equity/Debt): Common and preferred stock (equity) versus long-term loans and corporate bonds (debt).

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Description

Explore the critical role of management and accounting information in decision-making as highlighted in Chapter 15. Understand the difference between data and information, learn about decision support systems, and discover how software tools enhance organizational productivity. This chapter emphasizes the importance of relevant information for reducing risks and improving competitiveness.