Ch. 15 Financial Management

Question 1

The management of cash transactions
- Includes the receiving, storage, counting, recording, withdrawing and deposit of cash
- When cash is used in a facility, safeguards must be in place to secure it
- Procedures are in place to protect both the managers and the employees who handle cash

Answer 1

Cash Handling

Question 2

The amount of money in a cash register drawer at the beginning of a shift

Answer 2

Bank or Till

Question 3

The amount of money at the end of the shift minus the amount of the bank/till

Answer 3

Cash receipts

Question 4

A banking institution that handles the everyday financial transactions of businesses
- Periodically, the cash receipts must be transferred here

Answer 4

Commercial Bank

Question 5

Computers that display, record, and print receipts for transactions & serve as a storage unit for cash
- May have bar code scanners and credit/debit card readers
- Must be reconciled periodically with cash receipts

Answer 5

Cash registers

Question 6

Capable of tracking individual items sold and deducting them from inventory, giving a real-time dimension to the system
- Uses cash registers which are networked with point-of-sale systems

Answer 6

perpetual inventory control

Question 7

A record of cash transactions made and stored by the cash register
- Paper receipts for customer
- Printed reports
- Older registers store tapes, newer store electronically
- Compared with cash receipts

Answer 7

Cash register tapes

Question 8

1. Each cashier verifies his or her bank
2. Each cashier determines cash receipts at the end of shift
3. Supervisor or manager verifies the cash receipts and prepares deposit to commercial bank
4. Bank staff verify the deposit (and any withdrawals, too)

Answer 8

procedures for reconciling cash

Question 9

• A limited number of people, sometimes bonded, should have access to cash
• When not being handled, cash should be secured
• Counting money should be done in a secure area by 2 people
• If cash is to be stored on the premises, it should be held in a safe
• Safe combination should be changed each time an employee leaves an organization – voluntarily or involuntarily
• Large amounts of cash should be transported in an armored carrier

Answer 9

Cash handling security

Question 10

To bind by an agreement to pay a certain amount of money upon failure to complete a job properly; insuring an organization against financial loss

Answer 10

Bonded

Question 11

Money kept on hand for emergency purchases of minor expenditures that cannot be made through regular vendors in a timely manner
- Enough should be kept on hand for a month’s worth of transactions
- When running low, receipts are exchanged to reimburse the fund
- Some organizations use credit cards instead

Answer 11

Petty Cash

Question 12

Material Management
Workflow
Workforce
Facilities Maintenance
Management of Utilities

Answer 12

Major Aspects of Cost Control

Question 13

• Negotiating good prices (not always the cheapest)
• Specifications (does pdt meet standards?)
• Using a prime vendor
• Group purchases
• Just-in-time delivery (don’t keep much inventory on hand)
• Keeping up-to-date records of inventory
  - Use of POS system
• Secure receiving, storage, and work areas

Answer 13

Material Management cost control

Question 14

Smooth forward workflow (efficiency)
Economies of scale
Quality control (reduces errors)

Answer 14

Workflow cost control

Question 15

Measuring and improving productivity
Monitoring work hours and avoiding overtime
Scheduling employees for appropriate tasks

Answer 15

Workforce cost control

Question 16

Keeping equipment in good working order
- Regularly scheduled cleaning
- Preventative maintenance

Answer 16

Facilities Maintenance cost control

Question 17

Idle equipment when not in use
Oven & refrigerator gaskets
Well insulated thermal equipment/windows
Energy efficient lighting
Water-conserving fixtures/equipment
Recycling & composting

Answer 17

Management of Utilities cost control

Question 18

Type of management concerned with minimizing the liability of an organization in areas such as work-related illness, job-induced injury or stress, and products whose performance fails to meet standards
- In healthcare facilities, ensuring patient’s nutritional status does not deteriorate during hospitalization; preventing workplace injury

Answer 18

Risk Management

Question 19

Operating Statement
Variance Analysis
Break-even Analysis
Profit and Loss Statement (P&L)
Comparative P&L Statement
Balance Sheet
Comparative balance sheet

Answer 19

Types of Financial Reports

Question 20

A document prepared by the accounting department of an organization at the end of an accounting period that compares actual fiscal performance to the budget
- Should be generated promptly so that results can be used to adjust

Answer 20

Operating Statement

Question 21

A report prepared by managers to account for budget variances
- Some managers must submit formal reports routinely
- All managers should identify variances on the operating statement, and investigate the causes
- Managers are responsible for determining the cause of variances and intervening, if necessary

Answer 21

Variance Analysis

Question 22

Any deviation from the budget

Answer 22

budget variances

Question 23

A study conducted by a manager to determine the number of sales needed (break even point) to prevent an operation from losing money
Should include:
1. Fixed costs: regular expenses that do not vary on a monthly basis (e.g. rent)
2. Variable costs: costs that vary in proportion to the amount of goods produced (e.g. materials)
3. Revenues: income from sales

Answer 23

Break-even Analysis

Equation:
1. Variable costs/revenue = variable cost rate (%)
2. 1- % variable sales = % adjusted non-variable
3. Fixed costs/% adjusted non-variable = break even point

(sample problem on p. 483, or slide 15-16)

Question 24

A document generated by the accounting department, lists all the actual data accumulated for the accounting period, including both controllable & uncontrollable revenues and expenses. It shows the net profits or losses.
Includes:
- Revenues: Sales less sales tax
- Expenses
- Operating Profit
- Income tax
- Net Profit
Produced for entire organization, not departments. Does not compare to budget – only evaluates ability to earn a profit

Answer 24

Profit and Loss Statement (P&L)

Question 25

Direct material costs
Labor costs (including indirect labor costs which may not appear in the operating budget)
Operating costs (including overhead which may not appear in the operating budget)
Depreciation: spreads the cost of capital equipment or buildings over their life spans (It is calculated by dividing the purchase price of an item by its expected lifetime)
Taxes
- Income taxes, not sales taxes
- Taxes on employee wages are reported as indirect labor costs

Answer 25

Expenses on P&L statements

Question 26

A report that merges all data from P&L statements from multiple years into one report - used to identify trends over time

Answer 26

Comparative P&L Statement

Question 27

A financial report that summarizes an organization’s assets, liabilities, and owners’ equity
It provides the user with a snapshot of the organization’s financial status at a specific point in time

Answer 27

Balance Sheet

Question 28

Items of value owned by a person or business (e.g. checking/savings account, real estate, inventories, equipment)

Answer 28

Assets

Question 29

Cash and all assets that are readily available and can be converted to cash within a short period of time (usually one year)
- Cash on hand, money in checking/savings accounts
- Inventory
- Accounts receivable
- Prepaid expenses

Answer 29

Current Assets

Question 30

Money that is owed to a business for products that have been delivered and invoiced

Answer 30

Accounts receivable

Question 31

Expenses that are paid for in advance, such as insurance

Answer 31

Prepaid expenses

Question 32

Non-liquid, tangible goods that have been capitalized and are being depreciated over time
- Land, buildings, equipment, etc.

Answer 32

Fixed assets

Question 33

Items, like inventory, that can easily be converted to cash (opposite of fixed assets)
- Current assets

Answer 33

Liquid assets

Question 34

Any other item of value held by an organization: bonds, securities, surplus real estate, funds invested in ongoing product development, intangible assets (name, reputation)

Answer 34

Other assets

Question 35

Debts or other financial obligations of a business (e.g. payroll, rent, invoices owed, loan payments)

Answer 35

Liabilities

Question 36

Short-term debt that is due to be paid soon
- Accounts payable
- Payroll liability
- Accrued liability
- Unearned revenue

Answer 36

Current liabilities

Question 37

Money that is owed by a business to a creditor for the purchase of products, rent, mortgage payments, and other outstanding loans

Answer 37

Accounts payable

Question 38

Salaries and wages that are owed to employees on the day that the balance sheet is prepared

Answer 38

Payroll liability

Question 39

Expenses for which payment will be made in a future period, such as paid time off and income taxes

Answer 39

Accrued liability

Question 40

Liability incurred from the advanced payments for products that have not yet been delivered

Answer 40

Unearned revenue

Question 41

Owner’s net investment in a business after providing for full payment of all creditors; the difference between assets and liabilities
- Owner’s equity
- Stockholders’ equity

Answer 41

Ownership equity

Question 42

When assets are in excess of liabilities by a considerable amount

Answer 42

equity is high

Question 43

Assets and liabilities are not significantly different

Answer 43

equity is low

Question 44

The term used to describe the ownership equity of a business with only one owner

Answer 44

Owner’s equity

Question 45

The term used to describe the ownership equity of a corporation for which there is more than one owner

Answer 45

Stockholders’ equity

Question 46

A report that consolidates all the data from the balance sheets of an organization from multiple years into one statement
It is used to document financial conditions over time for internal and external reporting purposes

Answer 46

Comparative Balance Sheet