BEC Custom Flashcards
What is Inventory Turnover?
Inventory turnover measures how fast a company is selling inventory and is generally compared against industry averages. A low turnover implies weak sales and, therefore, excess inventory. A high ratio implies either strong sales and/or large discounts.
Inventory turnover is cost of goods sold divided by average inventory.
Explain the accelerator theory
The accelerator theory states that changes in investment are related to changes in national income. As national income increases, investment must increase to increase capacity to produce consumer goods. The increase in investment will be a multiple of the increase in sales. The accelerator theory is a macroeconomic concept.
What is an internal rate of return?
internal rate of return (IRR) is a method of calculating rate of return. The IRR is the rate of return that makes the net present value of all cash flows (both positive and negative) from a particular investment equal to zero. It can also be defined as the discount rate at which the present value of all future cash flow is equal to the initial investment or, in other words, the rate at which an investment breaks even.
What is the accounting rate of return?
Accounting rate of return is calculated as follows:
Accountingrate of return = Increase in accounting income/Cash invested in project
Since depreciation is used in computing accounting income, it must be included.
What is COBIT?
COBIT (Control Objectives for Information and Related Technologies) is a good-practice framework created by international professional association ISACA. he framework defines a set of generic processes for the management of IT. COBIT also provides a set of recommended best practices for governance and control process of information systems and technology with the essence of aligning IT with business.
What the current ratio?
Current Ratio = Current assets/Current liabilities
The higher the ratio, the more likely that current obligations can be met (safety issue). A current ratio below the industry average suggests to potential lenders that the firm might have difficulty meeting its current obligations and, if the problems were severe enough, a low current ratio could limit access to additional external funds.
What is the definition of fair value?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Give the formula for GDP
GDP = C + I + G + (X-M)
C=consumption
I= private investments
G= government spending
(X-M)= net exports.
How do you calculate NPV when the cost of capital is 0?
When the cost of capital is zero, the NPV is simply the sum of a project’s un-discounted cash flows.
Example:
NPV = Cash inflows - Initial outlay
NPV for A = $ 40,000 + $ 40,000 - $ 30,000 = $50,000
NPV for B = $700,000 + $500,000 - $1,000,000 = $200,000
Explain Accounts Receivable Turnover Ratio
Accounts Receivable Turnover = Net credit sales/Average AR
This ratio measures both the quality and liquidity of AR. It is assumed that the longer that receivables are outstanding, the more likely it is that they will not be collected. The turnover is an indicator of the age of the receivables. It indicates how many times, on average, receivables are generated and collected during the year.
In regards to the Federal Reserve, what is the discount rate?
The rate the Fed charges when it makes loans to member institutions.
How long must an accountant maintain workpapers on an audit performed?
Sarbanes-Oxley Act requires an auditor of an issuer of securities to maintain all audit or review workpapers for at least seven years from the end of the fiscal period in which the audit or review was completed.
What is contribution margin?
Contribution margin = sales price per unit - total variable cost per unit.
The contribution margin measures how efficiently a company can produce products and maintain low levels of variable costs. It is considered a managerial ratio because companies rarely report margins to the public. Instead, management uses this calculation to help improve internal procedures in the production process
What are the components of a disaster recovery plan?
A disaster recovery plan is the process, policies, and procedures of restoring operations critical to the resumption of business.
Disaster plans must include all of the following factors:
A backup for programs and data An alternative processing site Off-site storage of backup Identification of critical applications A method for testing the plan
Explain Kanban
The basic principle of just-in-time production is not to produce anything until the next stage in the production process is ready to work on it. The procedure originated in Japan and is based on the “kanban” concept. A kanban is a communication device. When work is completed in one area, the card, sign, or empty bin is returned to the preceding work area to signal that additional materials/products are demanded. This demand triggers production at the previous station, hence the name “demand-pull.”
What is a data control group?
It looks over the quality of the inputs and results.
The data control group makes sure that:
- a log is kept of all inputs, data processing operations, stored data, and system output,
- source data have been properly approved,
- transactions are processed correctly,
- input and output are reconciled,
- records of input errors are maintained so they can be corrected and resubmitted,
- data-related errors are sent to the users who originated the transaction for correction,
- systems output is distributed to the intended and proper user, and
- there is adequate rotation of operator duties.
Explain what GDP is
Gross domestic product is a measure of the market value of all final goods and services produced in an economy during a year using either domestic- or foreign-supplied resources. It is a monetary measure to value the nation’s output.
What is meant by “control environment”?
The control environment sets the tone of an organization (“tone at the top”), influencing the control consciousness of its people. It is the foundation for all other components of internal control, providing discipline and structure.
How do you calculate COGS when accounting for beginning and ending finished goods inventory?
Beginning finished goods inventory \+ Cost of goods manufactured = Cost of goods available for sale - Ending finished goods inventory = Cost of goods sold
What is a financing lease?
Financial leases are financing-type leases. They typically are noncancelable and extend over the life of the leased asset with title transferring to lessee at the end of the lease term. Lease payments “pay for” the asset while providing the lessor with interest income.
What is meant by “logical access”?
Logical access describes how security software works to restrict access to a computer’s data. This type of restricted access is called “logical access” because the computer’s software interprets information, such as user ID and password, to determine who can have access to the computer’s records.
What is activity based accounting?
Activity-based costing (ABC) is an approach that attaches costs to products or services based on the consumption of those resources caused by the activities. A basic assumption of ABC is that manufacturing overhead is assigned to products and services by identifying the resources needed to produce the output or provide the service.
What is an integrated test facility?
An integrated test facility (ITF) creates a fictitious entity in a database to process test transactions simultaneously with live input. It can be used to incorporate test transactions into a normal production run of a system.
What is a profitability index?
The profitability index is also known as the excess present value index. It is calculated by dividing the project’s initial (or average) cost into the present value of the cash flows. If the profitability index is greater than one, then a project’s net present value (NPV) is positive. This index allows comparisons between two projects.
Ratio of NPV of cash inflow/Cash outflow
How is a callable bond priced relative to a non-callable bond?
A noncallable bond is less risky for a bondholder, so it should sell at a lower yield (call risk).
What does the audit committee of the board of directors oversees?
The audit committee of the board of directors oversees the following:
Financial reporting
Financial disclosure
Compliance with standards
What is the Delphi method?
The Delphi method is a collaborative process whereby managers or members of a group are independently surveyed to reach a consensus on something that will happen in the future. With no empirical evidence, this method relies mostly on judgment.
Aggregate demand is defined as
Aggregate demand is the amount of goods and services—the amount of real national income—that will be purchased at each possible price level.
Profit margin on sales x Asset turnover will give you:
Return on assets
