Basic Rules Flashcards
Disposable Income
Personal Income - Taxes
Discretionary Income
= Disposable Income - Financial Obligations
Examples of Financial Obligations
Insurance, Rent/Mortgage, Car payments, Retirement Savings, Child’s education… etc
Features & Examples of Macro Environment
- Beyond control of Any Company
- government policy (fiscal policy, regulatory policy)
- competition, technology, weather, religion, economy, culture, political situation, war
Micro Environment
- company has total or some control
4 P’s of Marketing
- Product - name, color, message
- Price - the strategy (skimming pricing, ex iPhone vs penetrating pricing)
- Place - mass distribution vs select stores
- Promotion - advertising, publicity, sponsorship
Circular Flow
Continuous flow of money within a society
One purchase/payment (transaction) leads to another transation
Total National Debt
$30 trillion
Population of Labor Force
158 million
US’s Debt/GDP ratio
130%
Current unemployment rate
3.6%
Types of Accounting
- Managerial Accounting
- Financial Accounting
- Intermediate Accounting
- Auditing
- Taxation (I & II)
- International Accounting
- Advanced Accounting
Properties of Financial Accounting
MACRO LEVEL
provides high level financial information to:
- insiders (top management, employees, shareholders)
- outsiders (IRS, SEC, competitors, potential investors)
Properties of Managerial Accounting
MICRO LEVEL
- manufacturing costs
Types of Manufacturing costs (3 categories)
- Materials
- Labor
- Manufacturing Overhead
Manufacturing Cost - Materials breakdown into…
Direct & Indirect Materials
Though IM is mainly MOH
Labor Costs - breakdown into…
Direct and Indirect Labor
Though IL is mainly MOH
Manufacturing Overhead (MOH) examples
- Indirect Material
- Indirect Labor
- Factory Rent
- Factory Insurance
- Factory Depreciation
- Factory Supplies
Indirect Labor (Examples)
- supervision
- overtime
- idle time
- legal advising
- QC staff
- administrative
- materials handling
- procurement
Indirect materials - definition
Goods that are part of the overall manufacturing process, but are not integrated into the final product. They cannot be linked to a specific product or job.
Example - Indirect Materials
- PPE
- cleaning supplies
- disposable tools
- fittings and fasteners
- adhesives
Example Direct Labor
- technicians on production line
- welders, painters, machinists
Note: they get factored into the direct cost of production of the product
GAAP
Generally Accepted Accounting Principles
Is GAAP limited to the US or international?
International (though not all countries)
Cycle of Money
Movement of money from lender to borrower and back again
[loans are investments from the perspective of the lender who is buying a future cash flow from the borrower who is selling the future cash flow.]
3 Legal forms of Business
- Sole Proprietorship
- Partnership (General or Limited)
- Corporations
Pros of Sole Proprietorship
- don’t need permission to take action
- easy to set up, do not need a charter
- pay taxes on individual rate, so no double taxation like a corporation
Cons of Sole Proprietorship
- unlimited liability
- if owner dies, the business dies
- owner has difficulty to expand the business > limited opportunities to raise capital due to limited collateral
Properties of General Partnership
- jointly owned by 2+ individuals, spelled out the % each owns
- partners have unlimited liability - both financially and legally
- partners can take strategic decision
- all partners pay taxes on an individual basis (part of personal income tax)
Difference between Limited and General Partners
in limited, their liabilities are limited to the amount of money they invested in the partnership
Properties of Corporations
- legal entity separate from the owners (shareholders)
- separates owners and the managers
- advantageous to owners because shareholders have limited liability
3 Values of common stock
- Par Value
- Market Value
- Book Value
Definition: Par Value of Common Stock
A value which is written on the stock/share
Very low value (few cents, may be a few $ in certain industries)
Definition: Market Value of common stock
Value of the stock which is being traded in stock exchanges
Definition: Book Value of Common Stock
Value of the company stock from an accounting point of view
Book Value of a Stock =
= (Total Stockholder’s Value - anything that belongs to preferred stock)/Total # of outstanding shares
Definition Call Premium
= Callable Price - Par Value
Default Value of Par Value of Preferred Stock
$100
Value of FICA Tax (Social Security Portion)
6.2%
Value of FICA Tax (Medicare portion)
1.45%
Finance relies on strong
Accounting
4 filing statuses on the W_4 form
Single
Married filing jointly
Married filing separately
Head of household
The US has what time of income tax rate
Graduated
You will pay zero federal income tax withholding if
you are in the zero tax bracket
$12550, single is the limit for which tax bracket
zero income bracket
STIW means
State income tax withholding
what is the state income tax of Massachusetts
5.05%
FICA stands for
Federal Insurance Contributions Act
SSA was established in ____ by ___
1936, FDR
The banking industry is charging consumers $____ per year in service charges and fees
$15 billion
What percentage of Americans do not have anything saved for retirement
48%
How many Americans are living below the poverty line
35 million
what is the federal poverty line
$24k/year
Marty Walsh was appointed
US Secretary of Labor
Grounding of 737 Max airplane is an example of
Macro environment - government policy intervenes in company’s decision
Weather impact is an example of
Macro environment
Things to control in a product
Name (chevy Nova)
Color
Message
Skimming Pricing is
Setting initial price very high, and then reduce it
Ex. iPhone
Penetrating pricing is…
Setting initial price very low, then after you capture the market you increase the price
Ex. Japanese cars in the USA
