CMA Part 1 Flashcards
1
Q
Responsibility Center
A
Department within an organization
2
Q
Cost Center
A
A department that has no hope of making a profit
Example - maintenance, HR, or accounting
Can still have an indirect effect on profit
3
Q
Profit Center
A
The department of an organization that is responsible for making money
Ex - Sales
4
Q
Limitations of financial report (5)
A
- Based on periods
- Based on historical data - not a crystal ball
- Valuations can differ (historical cost for FFE, Estimates for allowances, Fair Value for investments and securities
- Varying Accounting methods - LIFO, FIFO, Specific ID
- Omissions - some things like employee workforce cannot be given a value
5
Q
What is included in Other Comprehensive Income?
A
AFS Securities
Cash flow hedges
Foreign currency translations to US$
Defined benefit plans
6
Q
Prospectus
A
Document that outlines the price per share of stock
7
Q
Authorized shares
A
The number of shares of stock a corporation is allowed to issue
8
Q
Outstanding shares
A
The shares of stock already held externally
9
Q
How are deferred tax assets and liabilities classified on the balance sheet?
A
Long term Assets or Long term Liabilities
10
Q
Dividend in Kind
A
A product or physical gift given as dividend in lieu of cash
11
Q
Cum-Dividend Date
A
The last date a stock purchaser is entitled to a dividend
12
Q
Ex-Dividend Date
A
The day after the final date that stock can be purchased to receive a dividend
13
Q
Financial statements footnotes are required for (10)
A
- Significant accounting practices
- Significant estimates.
- Major classes of inventory (Raw Materials, WIP, Finished Goods)
- Major classes of fixed assets with depreciation
- Deferred tax assets and liabilities
- Debt due in the next 5 years
- Bonds issued
- Par Values and related contract obligations
- Employee stock provisions
- Significant commitments that are unrecorded
14
Q
Where does the gain or loss on a sold asset go on the Cash Flow Statement?
A
Operating - only the asset itself goes into investing
15
Q
The Indirect Method of the Income Statement requires what footnotes?
A
Any Cash related to interest or taxes
16
Q
What is the main purpose of Integrated Reporting?
A
To show how the organization creates value over time
17
Q
IIRC
A
International Integrated Reporting Council
18
Q
8 Content Elements of Integrated Reporting
A
GROOMS POP
Governance - leadership, management, structure
Risks and Opportunities - risk assessment, internal and external
Organizational Overview and External Environment - what does the organization do
M - Business Model - key inputs, activities, outputs, outcomes
Strategy and Resource Allocation - where are we going, how do we get there, how to measure achievement
Performance - What happened in the past, qualitative and quantitative
Outlook - challenges and uncertainties - KPI (key performance indicators
Preparation and Presentation - how is this report developed, whats included, WHO worked on it
19
Q
Accounting for Bad Debts - balance sheet approach
A
Based on a percentage of how long the item is on the aging
20
Q
Accounting for Bad Debt - Income statement approach
A
A set percentage of all revenues is recorded periodically (usually monthly)
21
Q
Periodic Inventory System is broken down:
A
- Transportation costs
- Purchases (actual items)
- Purchase returns and allowances
- Purchase discounts
22
Q
Trading Security
A
Meant to be quickly traded or turned to cash
23
Q
Held to Maturity Investment
A
Must have the ability and the intent of holding this until full maturity
24
Q
Voting ownership Equity securities
A
0-20% - No significant influence
20-50% - Significant influence
50-100% - Control
25
When must the Equity Method be used to record an investment?
When there is Significant Influence
26
Sum of Year's Digits Depreciation method
Numerator is remaining life in years
Denominator is sum of year's digits
Ex - 7 years = 7/28, next year 6/28, next year 5/28
27
Double declining balance depreciation method
Book value x (2/n) where n= number of years
Ex - $25,000 over 5 years = 25,000 x (2/5) = $10,000
Book value year 2 = $15,000 x (2/5) = $6000
Book value year 3 = $9000 x (2/5) = $3600
28
Capital or Finance Lease
Asset recorded at the beginning of lease and amortized as if it were owned
29
Operating Lease Criteria (5)
1. Title transfers at the end of the lease term
2. Purchase option at the end of the lease (usually a really good deal
3. Lease term is over 75% of asset's life
4. Present value of payments is more than 90% of fair value
5. Specialized nature of the asset - no one else could use it
30
Revenue Recognition Steps (5)
1. Identify the contract - does not need to be in writing
2. Identify separate performance obligations - is setup or training included?
3. Determine transaction price - include variable considerations
4. Allocate transaction price - By percentage, Residual approach, or Expected cost plus margin
5. Recognize Revenue - when CONTROL of good is transferred
31
When should revenue to recognized?
Recorded when realized or earned, not necessarily when received
32
When is revenue Realized?
When products or services have been exchanged for cash
33
When is revenue recognizable?
When the payment is not yet received, but is expected (A/R)
34
Output Method of revenue recognition
Revenue is estimated over time - like a percentage done toward completion
35
Input Method of revenue recognition
Uses costs and/or hours and compares them like a percentage to entire obligation
36
GAAP focuses on _____
IFRS focuses on ______
GAAP focuses on Rules
IFRS focuses on Principles
37
Types of Income Measurement (4)
1. Transaction or Operation approach - most common - done through course of operation right away
2. Activities approach - when certain activities are completed
3. Balance sheet approach - compares assets to previous period - Lose point in time detail
4. Value added approach - Compare income to the value added to the company - Outputs vs inputs
38
Procedure
Step by step process of carrying out tasks - Assessing, Ordering, Inventory
39
Role
Specific and explicit guidelines of behavior - what you should or should not do
40
Policy
General guidelines to understand routine responsibilities - Hiring, training, Performance
41
Types of Planning
Strategic - long term - 3 to 10 years
Tactical - Mid level developed, shorter time, narrower in scope
Operation - made by front line workers, routine tasks, high detail
42
Vision
Who we are, who do we want to be.
| Based on core values
43
Mission
What do we do, or why are we in business?
| What are we trying to accomplish, and how do we track progress
44
Market Myopia
When a company focuses too much on products and services rather the the customer benefits
Ex - Cola vs beverage - very limited
45
Unique Selling Proposition
What your company is really good at, but competitors are not
| Ex - Disney, employee training
46
Competitive Advantage
Either Lower Cost, or Differentiation
47
Competitive Scope
Big picture, or narrower (niche)
48
Porter's Generic Strategy (4)
1. Cost Leadership strategy - have lower costs competing with entire industry (Walmart)
2. Differentiation strategy - Product or service has unique value or extra benefit to customers (Apple)
3. Focus strategy - Narrow (Niche) - Lower cost, but meets specific need geographically or demographically (Southwest)
4. Focus strategy - Differentiation - Unique value, but meets specific need geographically or demographically (Whole Foods)
49
Steps for successful Strategic Planning (7)
1. Clear Vision and Mission statements
2. Based on reality
3. Includes everyone in the organization - buy-in from line worker to management
4. Serves as reference in decision making - does this meet with our mission statement?
5. Align everyone's plan - Goals are lined up with mission statement
6. Improve communication and coordination
7. Establish performance evaluations and incentives
50
IPO
Initial Public Offering
51
What type of account is Allowance for Bad Debt?
Contra-asset account
52
Factoring Receivables - With and Without Recourse
With Recourse, the Factor can come back to the company for unpaid accounts or add fees for late payments.
Without Recourse, the Factor cannot, but fees are usually higher
53
Equity Method (with significant influence)
Pro-rata share of investment income recorded as income. When dividends are received, it reduces the investment
54
Ordinary annuity
Payments are made at the END of the period
55
Annuity Due
Payments are made at the BEGINNING of the period
56
Differences between Book and Tax accounting that never reverse (6)
1. Municipal bond revenue
2. Life insurance proceeds
3. Certain dividends are excluded for tax purposes
4. Expenses that generate nontaxable revenue
5. Fines and penalties
6. 50% of meals and entertainment
57
Deferred tax assets and liabiltites only occur on temporary/permanent tax difference
Temporary
58
What is included in Environmental scanning (external)?
Economy, relationships, trends, legal mandates, demographics, customers, partners, social, technological, political
59
What is included in Organizational scanning (internal)?
Assets, finances, human capital, intellectual capital, patents, people, research
60
BCG Growth Share Matrix (4 sections)
Bost Consulting Group, includes Stars, Cash Cows, Question Marks, and Dogs
61
PESTLE
P = Politics, legal, tax, regulations, stability
E - Economy - inflation, unemploymnet, quality of workforce
S - Social - Demographics, culture, education, attitudes
T - Tech - medical, computers, manufacturing, transportation
L - Legal - safety standards, warranties, intellectural property
E - Environment - pollution, scarcity of materials, geography, weather conditions
62
Porter's 5 Forces
1. Power of Suppliers
2. Power of Customers
3. Threat of new entrants or Competition
4. Threat of substitute products
5. Nature of Competition (intensity)
63
Decision Making process (3)
Planning, Controlling, Evaluating
64
Ideal Standards
Assumes lowest cost possible if done perfectly - Theoretical only
Form of top-down budgeting
65
Attainable Standards
Practical, based on what is seen in the past
| Based on bottom up budgeting
66
Standard Costing (4)
1. Raw Materials - includes scrap and allowance
2. Price standard - cost of item (if retail), shipping, handling, discount for early payment
3. Labor - includes downtime, taxes and benefits
4. Overhead - variable and fixed - often broken down by unit
67
Logistical management
Move resources to where they are most needed to reach organizational objectives
Includes any outsourcing
68
Regression Analysis formula
```
y = mx+b
m = slope, b = intercept
```
69
Indicator Method of forecasting
Uses economic indicators
70
Time Series method of forecasting
Goes back to a time period with similar conditions
71
Expected Value Computation
```
EV = Sigma(rp)
Sigma = sum
r = result of outcome
p = probability of outcome
```
72
Leaning curve analysis (Crawford's Method)
```
Y = aX{b} (to the b power)
x = cumulative # of units
b = log(LR)/log2
LR = learning rate
```
73
EVPI
Expected value of Perfect Information
74
Discretionary Income
Income after fixed costs
75
Pro Forma
Matter of Form
76
Master Budget - includes (3)
1. Operating budget - Sales DONE FIRST!, selling, admin, rent, utilities
2. Capital expenditures budget - including sales of equipment
3. Financial budgets - cash budget, budgeted financial statements
77
Contribution Margin
Sales Revenues less variable costs
78
Continuous Rolling Budget
Establishes weekly budget for next few months, then Monthly, Quarterly and Annually going forward
Pros - more up to date, not as overwhelming, smaller pieces
Cons - uses valuable resources, won't fix core issues
79
Contribution Marging Budgeting
```
Also known as Flexible budgeting
Keeps variable and fixed costs separate
TC = VC(activity) + FC
Pro - good for "what if" scenarios
Con - not acceptable for financial reporting
```
80
Traditional Based Budgeting
Focuses on department, usually assigned as unit based
81
Activities Based Budgeting (ABC)
Activities Based Costing - ALL costs assigned to core activities
82
Zero Based Budgeting
Start over with blank page - all accounts at zero
| Evaluates all current projects and priorities
83
Analogous Estimating
Based off of similar projects, modified for differences
84
Parametric Estimating
Determines the cost per unit and scales result based on needed units
85
Top Down Estimating
Begins with the final product, works backwards to break activities down into small activities
86
Bottom Up Estimating
Starts with smallest component parts and details, works up
87
Participative Budgeting
Bottom UP budgeting
88
Ceteris Paribus
All other things being equal
89
3 factors that affect Capital Budgeting
1. Cash flow
2. Financial Implications (opportunity costs)
3. Investment criteria
90
Opportunity Costs
The loss of potential cash from another investment that you could have made
91
Net Present Value
NVP = Sigma n, t=1
| Rt / (1+i) to t power less the initial investment
92
IRR
Internal Rate of Return - discount rate at which NPV = 0
93
Management by Exception
Management only intervenes if there is a deviation from planned results
94
In what order should the financial statements be created?
1. Income Statement
2. Statement of changes to equity
3. Balance sheet
4. Cash flow sheet
95
Securitization
The conversion of an asset, especially a loan, into a marketable security for the purpose of raising cash - usually done by selling them to investors
96
Special Investment Vehicle
Also known as Structured Investment Vehicle - borrows for a short term to invest in a long-term asset
97
Conservatism Principle
Inventory should be valued at the lower of cost or market
98
Interperiod Tax Allocation
Temporary difference between the effects of a tax policy and its normal accounting procedure
99
What must be included with a single step income statement?
Earnings per share
100
NRV - Net Realizable Value
The amount a company can sell an item for, less the selling expenses
101
3 types of debt securities
Trading
Held to Maturity
Available for Sale
102
Wherewithall to pay concept
If you've received the cash, whether you have earned it or not, you pay the taxes on it.
