All Final Term Past Papers Solved Subjective by

BIYA Ahmad
1. Data was given and we have to find diluted EPS? (5)
Diluted EPS is a performance metric used to gauge the quality of a company'searnings per
share (EPS) if all convertible securities were exercised. Convertible securities are all
outstanding convertible preferred shares, convertible debentures, stock options (primarily
employee-based) and warrants

2. One question was about to write the section that is applied in share issued at premium, at
discount, at capital? (3)
3. Issued shares is a term of law and finance for the number of shares of a corporation which have
been allocated (allotted) and are subsequently held by shareholders. The act of creating
new issued shares is called issuance, allocation or allotment
4. the amount by which the amount received by a company for a stock issue exceeds its face value
5. At a discount specifically refers to stock that is sold for less than its nominal or par value. At
a discountalso refers to stocks or other securities that are sold below the present market value,
similar to a sale on goods at a retail establishment
6. the part of the capital of a company that comes from the issue of share
7.
8. What provision reduce asset? (3)
IAS37
9. One question was about to write disclosure requirement of revenues, IAS 18?

What is revenue 3 marks

Revenue is the amount of money that a company actually receives during a specific period,
including discounts and deductions for returned merchandise

Find value premium 3 marks

In investing, value premium refers to the greater risk-adjusted return of value stocks over
growth stocks

Selling cost 3 example 3 marks

Selling expense (or sales expense) includes any costs incurred by the sales department.
These costs typically include the following: Salesperson salaries and wages. Sales administrative
staff salaries and wage

Share capital 5 marks

the part of the capital of a company that comes from the issue of shares

Contingent liabilities 5 marks

A contingent liability is a potential liability that may occur, depending on the outcome of an
uncertain future event. A contingent liability is recorded in the accounting records if the
contingency is probable and the amount of the liability can be reasonably estimated

Future value find 3 marks

Future value is the value of an asset at a specific date. It measures the nominalfuture sum of
money that a given sum of money is "worth" at a specified time in thefuture assuming a certain
interest rate, or more generally, rate of return; it is the present value multiplied by the
accumulation function

Difference financing and investing activities 3 marks

A category in a company's cash flow statement that accounts for external activitiesthat allow a
firm to raise capital and repay investors, such as issuing cash dividends, adding or changing
loans or issuing more stock. Cash flow from financing activitiesshows investors the
company's financial strength

cash flow from investing activities is an item on the cash flow statement that reports the
aggregate change in a company's cash position resulting from any gains (or losses)
from investments in the financial markets and operating subsidiaries and changes resulting from
amounts spent on investments in capital assets

Questions
Find Eps

Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share
of common stock. Earnings per share serves as an indicator of a company's profitability.
calculated as = net income-dividend preffered stock/average outstanding shares
Find compound value

Is ways to calculate Future Value (FV)

1) For an asset with simple annual interest: = Original Investment x (1+(interest

rate*number of years))

2) For an asset with interest compounded annually: = Original Investment x ((1+interest

rate)^number of years)

Operating activity
2) These are the company's core business activities, such as manufacturing, distributing,
marketing and selling a product or service. Operating activities should generally provide
the majority of a company's cash flow and largely determine whether a company is
profitable

Operating lease
Operating lease is a contract wherein the owner, called the Lessor, permits the user,
called the Lesse, to use of an asset for a particular period which is shorter than the
economic life of the asset without any transfer of ownership rights

Accounting policy
Accounting policies are the specific principles, rules and procedures implemented by a
company's management team and are used to prepare its financial statements. These
include any methods, measurement systems and procedures for presenting disclosures

Contents of prospectus
(i) It is a document issued as a prospectus; (ii) It is an invitation to the member of the
public; (iii) The public is invited to subscribe to the shares or debentures of thecompany;
... (v) It is a document by which the companyprocures its share capital needed to carry on
its activities

Interst revenue and borrowing cost

 The other way of earning interest revenue is when a company deposits or invests money
with a bank - the bank pays the company interest on the deposit or the investment. Either
way interest revenue is earned, it's reported on the company's income statement

Borrowing costs are 'interest and other costs that an entity incurs in connection with
the borrowing of funds'. A qualifying asset is defined as 'an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale

Define development cost (3)

Development costs are the costs a business incurs from researching, growing and introducing a
new product or service. Development costs are commonly referred to as research
and development costs. These costs can include a host of expenses, such as marketing analysis,
developmental engineering and customer surveying
Define Admin cost (3)
The salaries of senior executives and costs of general services (such as accounting, contracting,
and industrial relations) fall under this heading.Administrative costs are related to the
organization as a whole as opposed to expenses related to individual departments. Also
called administrative expense
Retrospective Application (3)
A retrospective application is the application of a new accounting principle as if that principle
had always been applied. The concept is used when the financial statements for multiple periods
are being presented.

What u know about the Cost of goods sold (3)

Cost of goods sold (COGS) are the direct costs attributable to the production of the goods
sold by a company. This amount includes the cost of the materials used in creating the good
along with the direct labor costs used to produce the good. ... Also referred to as "cost of sales

Classification of operating, financing and investing activity (5)

A category in a company's cash flow statement that accounts for external activitiesthat allow a
firm to raise capital and repay investors, such as issuing cash dividends, adding or changing
loans or issuing more stock. Cash flow from financing activitiesshows investors the
company's financial strength

cash flow from investing activities is an item on the cash flow statement that reports the
aggregate change in a company's cash position resulting from any gains (or losses)
 from investments in the financial markets and operating subsidiaries and changes resulting from
amounts spent on investments in capital assets

Which type of matters are discussed in special resolution (5)

A special resolution is a resolution of the company's shareholders which requires at least 75%
of the votes cast by shareholders in favour of it in order to pass. Where no special resolution is
required, an ordinary resolution may be passed by shareholders with a simple majority – more
than 50% – of the votes cast
What u know about income statement (5)
An income statement or profit and loss account (also referred to as a profit and
loss statement (P&L),statement of profit or loss, revenue statement,statement of financial
performance, earningsstatement, operating statement, or statement of operations) is one of the
financial statements of a company and shows the

Prepare profit and loss appropriate account (5)

steps of formation of company 3

1. Promotion of a Company
2. Registration of a Company
3. Certificate of Incorporation; and
4. Commencement of the Business

what accountant face prior errors define according to IAS 08 3

Prior Period Errors are omissions from, and misstatements in, prior period financial
statements resulting from the failure to use, or the misuse of, reliable information that
was available, or could be reasonably expected to have been obtained, at the time of
preparation of those financial statements. (Adapted from IAS 8)

Examples of accounting errors included the following:

 Misapplication of accounting policies: e.g. not recognizing sale upon transfer of goods to
a customer
 Fraud: e.g. overstating sales revenue by issuing fake invoices before the reporting date
 Misunderstanding of, or failure to notice, information at the time of preparation of
financial statements:
e.g. not writing off a receivable who had been announced as insolvent before the
authorization of financial statements
  Arithmetical Errors
 Omission of transactions and events from the financial statements

shares chapter 3

In financial markets, a share is a unit of account for various investments. It often means the stock
of a corporation, but is also used for collective investments such as mutual funds, limited
partnerships, and real estate investment trusts. Corporations issue shares which are offered for
sale to raise share capita

which book value of account most suitable according to companies ordinance act 1984 section
236/ 5

The directors of a holding company required to prepare consolidated financial statements under
section 237 shall make out and attach to consolidated financial statements, a report with respect
to the state of group’s affairs and all provisions of sub-sections (2), (3) and (4) shall apply to
such report as if for the word “company” appearing in these sub-sections the word “holding
company” were substituted.

the book value of asset 8796 has dertroyed due to fire after balance sheet date,define which event
is this? and what accounting treatment will be for this asset? 5

IAS 10
IAS 10 and FRS 21, events after the balance sheet date

by Neil Stein
15 Mar 2007

Events after the balance sheet date and before financial statements are issued can have
important effects on the financial statements. For example, the bankruptcy of a major customer
would normally be evidence that the trade receivable should be written off or an allowance
made as at the balance sheet date.

There is another type of event after the balance sheet date - one that does not affect the position
at the balance sheet date, but which still needs disclosure in some way to prevent users being
misled. An example of such an event might be a material fall in the market value of
investments.

General provisions

Events after the balance sheet date are divided into two types, corresponding to the two
examples just given. The definition in IAS 10 is:

Events after the balance sheet date are those events, both favourable and unfavourable, that
occur between the balance sheet date and the date when the financial statements are authorised
for issue.

Two types of events can be identified:

(a) those that provide evidence of conditions that existed at the balance sheet date (adjusting
events after the balance sheet date); and

(b) those that are indicative of conditions that arose after the balance sheet date (nonadjusting
events after the balance sheet date).

Material adjusting events require changes to the financial statements.

Examples of such events given in IAS 10 and FRS 21 are:

(a) the resolution of a court case, as the result of which a provision has to be recognised instead
of the disclosure by note of a contingent liability;

(b) evidence of impairment of assets:

(i) bankruptcy of a major customer;

(ii) sale of inventories at prices

suggesting the need to reduce the balance sheet figure to the net value actually realised.

Nonadjusting events do not, by definition, require an adjustment to the financial statements, but
if they are of such importance that non-disclosure would affect the ability of users of the
financial statements to make proper evaluations and decisions, the enterprise should disclose by
note:

- the nature of the event;

- an estimate of its financial effect, or a statement that such an estimate cannot be made.

Examples of such events given in IAS 10 and FRS 21 are:

(a) decline in market value of investments;

(b) announcement of a plan to discontinue part of the enterprise;

(c) major purchases and sales of assets;

(d) expropriation of assets by government;

(e) destruction of a major asset by fire etc;

(f) a major business combination after the balance sheet date;

(g) sale of a major subsidiary;

(h) major dealings in the company's ordinary shares;

(i) abnormally large changes in asset prices or foreign exchange rates;

(j) changes in tax rates with a significant effect on current and deferred tax assets;

(k) entering into significant commitments or contingent liabilities;

(l) commencing major litigation arising solely out of events after the balance sheet date.

Further provisions of IAS 10 and FRS 21

(a) Authorisation for issue of financial statements

An enterprise should disclose the date when the financial statements were authorised for issue
and who gave that authorisation. If the owners or others have the power to amend the financial
statements after issue, that fact should be disclosed.

(b) Going concern

If the management decides after the balance sheet date that it is necessary to liquidate the
enterprise, the financial statements should not be prepared on a going concern basis.

(c) Dividends

Proposed dividends may no longer be recognised as liabilities if, as will normally be the case,
they are proposed or declared after the balance sheet date.

The disclosure of proposed dividends may be given in one of two ways:

(a) by note

(b) on the face of the balance sheet as a separate component of equity.

if opening accout receivable are 150000

account receivable end of year 152000
credit sales are 25000 5

find out total cash received

find out future value of your investment according to given data

one long question was from lease chapter

calculate lease amortization 5

...................
1. provision for warranty?? 3

Provisions for warranty claims are recorded at the time products are sold and are reviewed and
adjusted by management periodically to reflect actual and anticipated experience. An analysis of
changes in the liability for product warranty claims is as follows: For the Years Ended.

2. 1 application to record errors?? 3

3. methods to prepare cash flow statement?? 3

When you use the indirect method of preparing the statement ofcash flows, the operating
section starts with net income from the income statement. You then adjust net income for any
noncash items hitting the income statement. One typical adjustment is for depreciation, which is
a noncash transaction

4. ledger entries?? 5

In bookkeeping and accounting, a ledger is a book (or record) for collecting chronological
transaction data from a journal, and organizing entries by account.

6. calculate shareholder's equity??/ 5

Shareholders' equity is equal to a firm's total assets minus its total liabilities and is one of the
most common financial metrics employed by analysts to determine the financial health of a
company

7. present value?? 5

the value in the present of a sum of money, in contrast to some future value it will have when it
has been invested at compound interes
 Common Components of Memorandum (5 marks)

A good memo organizes the information to be conveyed both for the

reader’s convenienceand ease of understanding and to achieve the writer’s purpose in the
most effective way.
Jump to:
Heading
Opening
Summary
Discussion paragraph(s)
Your closing
Attachments

Q2:What do you know about distribution Cost?

Distribution costs (also known as “Distribution Expenses”) are usually defined as

the costs incurred to deliver the product from the production unit to the end user. It is a broad
terminology and it includes several costs

(5 marks) ( 5 activites was given,, this question is related to cash flow statement )

The three categories of cash flows are operating activities, investing activities, and
financing activities. Operating activitiesinclude cash activities related to net income.
Investing activitiesinclude cash activities related to noncurrent assets

Q4:Format of income statement on the basis of functions of expense

(5 marks)
An income statement by function is the one in which expenses are disclosed according to
their functions such are cost of goods sold, selling expenses, administrative expenses,
other expenses/losses etc.

Company A
Income Statement
For the Year Ended June 31, 2011
Sales $789,160
Cost of Goods Sold −445,940
Gross Profit $343,220
Operating Expenses:
Selling Expenses $109,310
Administrative Expenses 127,270
Total Operating Expenses −236,580
Operating Income $106,640
Other Incomes/Expenses:
Gain on Sale of Equipment $3,570
Interest Expense −1,150
Net Other Incomes/Expenses: 2,420
Net Income $104,220

Q5: Format of Profit and Loss Appropriation Account for a limited company (3 marks)
However for a Limited Company, a typical Profit And Loss Appropriation Account will
look like below:
Profit And Loss Appropriation Account for XYZ Limited Co.

Note $

1 Net profit for the year

Less:

2 Corporation Tax

Net Profit After Tax

Add:

Profit & loss account balance brought

forward

Less:
 3 Transfer to General reserve

4 Dividends: Preference

Ordinary

5 Profit And loss account balance carried

forward

Q6:How expenses are aggregated according to functions. (3 marks)

The Aggregate Operating Expenses action rolls up operating expenses that occur as part
of maintenance work orders, service desk actions, or expensed project actions, and
creates a set of Scheduled Cost (cost_tran_sched) records for these charges. The action
aggregates these records on a per-building (or per-property if the Building Code is null),
per month basis, so these costs can be included in examinations of monthly operating
expenses

limitations of retrospective,IAS 08.5 mrks.

IAS international accounting standards basically controls the accounting and auditing standards
according to worldwide standards

recognition Measurement, Presentation and Disclosure of Long Term Investments is governed by

following
Standards
Separate Financial Statements

IAS 23 deals with borrowing cost

IAS 01IAS affect(s) the recognition, presentation and

Discourse of
fixed assets in financial statements

IAS 16 deals with Revaluation of Assets?

IAS is related to the Consolidated and Separate
F inancial Statements IAS 27

IAS 32 and 39 mainly cover Financial Instruments. Investments that are not covered by IAS 27,
28 and 31 are covered under IAS 32 and 39 as Financial Instruments

IAS 40=investment property

IAS 8= retrospactive
IAS 16= property plant and equipment
IAS 10= events after the balance sheet
IAS11= constrauction contracts
IAS32=financial instruments
IAS 31=interest on joint venture
IAS33=earning per share
IAS 37=contingent liabilities
IAS 23= borrowing
IAS 17= lease
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MGT401
Final Term Examination – Spring 2006
Time Allowed: 150 Minutes

Q uestion No. 1 Marks : 1

Finance cost includes ___________ paid on loan, lease and other costs paid to obtain
financial services.

Q uestion No. 2 Marks : 3

The issue of the shares at discount must be authorized by resolution passed in

_______________of the company and must be sanctioned by the Commission.

1. General Meeting
2. Extra Ordinary Mee ting
3. Statutory Meeting
4. None of the given options

Q uestion No. 3 Marks : 3

Property, plant and equipment are carried in the books of accounts in accordance with
the requirements of :

1. IAS 2
2. IAS 4
3. IAS 16
4. IAS 28
Q uestion No. 4 Marks : 1

______________is not required to issue a prospectus as it is prohibited by its article from

i nviting general public to subscribe for its shares.

1. A private company
 2. A public company
3. A listed company
4. A non listed company
Q uestion No. 5 Marks : 1

Interest and other co sts incurred by an enterprise in connection with the borrowing of
fu nds is known as:

1. Borrowing cost
2. Historical cost
3. Conventional cost
4. Current cost
Q uestion No. 6 Marks : 1

T he amount in excess of the face value of the share is called:

1. Premium
2. Discoun t
3. Rebate
4. Interest
Q uestion No. 7 Marks : 1

Cash flow statement is d ivided into four components: Operating, Financing, Investing,
and Leasing Activities.
1. True
2. False

Q uestion No. 8 Marks : 1

E xample of Non-Current Liabilities under 4th schedule is:

1. Debentures
2. Liabilities against asse ts subject to finance lease
3. Long term Murabaha
4. All of the given options

Q uestion No. 9 Marks : 1

B asic EPS should be calculated by:

1. = Net profit or loss for the period /Weighted average number of ordinary shares
2. = Net profit or loss for the period x Weighted average number of ordinary shares
3. = Weighted average number of ordinary shares / Net profit or loss for the period
4. = Earnings – Profit attributable to Preference Shareholders /Net profit or loss for
the period

Q uestion No. 10 Marks : 3

What is the importance of Prospectus under section 2 (1) 29 in an organizatio n? Explain
it s content as per lay down under section 53 of Companies Ordinance 1984.

Q uestion No. 11 Marks : 3

A legal obligation is an obligation that derives from:

1. A Contract
2. A Legislation
3. The Operation of law
4. All of the given options
Q uestion No. 12 Marks : 10

In lease agreement, minimum lease payments include:

1. Initial payment o r down payment

2. All lease rentals
3. Any amount that is guar anteed to be paid during or at the end of the lease term
4. All of the given options

Q uestion No. 13 Marks : 1

The aggregate amount or the value of the premium on shares shall be transferred to an
account, called ________________

Question No. 14 Marks : 1

Following are the examples of the cash flows. Write the names of components of cash
fl ow to which they are directly related:

븀 Cash receipt from sale of Property, Plant and Equipme nt

븀 Cash payments to Owners i.e. dividend, drawings etc
븀 Cash receipt from sale of goods and rendering of services

Q uestion No. 15 Marks : 1

Royalties shall be recogni zed on an accrual basis in accordance with the substance of
the relevant agreement.
1. True
2. False
Q uestion No. 16 Marks : 1
A Furnace has a lining that needs to be replaced every 5 years due to technical reasons.
At the balance sheet date, the lining has been in use for 3 years.
Comments the above example in accordance to IAS 37, should there any legislative
requirement or provision be recognized or not?

Question No. 17 Marks : 1

If the closing balance is lower than the difference of the opening balance and
depreciation for the Year, it shows:

1. An addition of fixed assets has been taken place

2. A disposal of fixed assets
3. Fixed assets are installed under finance lease
4. None of the given options

Question No. 18 Marks : 10

In case of tangible non-current assets, if a policy of revaluation is adopted for the first
time, then this is treated as:

1. No change in Accounting Policy under IAS 8

2. A change in Accounting Policy
3. A revaluation under IAS 16 Property, Plant and Equipment
4. None of the given options

Question No. 19 Marks : 1

An asset has been leased on July 01, 2005 at a cost of Rs. 871,000. The security deposit
Rs. 300,000 and lease rentals include 4 annual installments of Rs. 200,000 each, starting
from June 30, 2006. The implicit rate of return (IRR) is 15% p.a. Depreciation is to be
charged at 20% on written down method and Residual value is Rs. 200,000.

Draw the entries for the following:

1. Recording of asset at the inception of lease
2. Recording of current maturity at the inception of lease
3. Payment of security deposit
4. Payment of first rental installment as on June 30, 2006
5. Recording of current maturity as on June 30, 2006

Question No. 20 Marks : 1

Recording and disclosure on gains / losses arising from foreign currency transactions is
included in IAS 21 titled as ________________________ .
Question No. 21 Marks : 1

Right shares are issued when accumulated profit is being capitalized by the issuance of
shares.

1. True
2. False
Question No. 22 Marks : 1

__________________ is the estimated selling price in the ordinary course of business less
the estimated cost of completion and the estimated cost necessary to make the sale.

Question No. 23 Marks : 1

Liquidity is defined as:

1. Excess of income over expenditures

2. Income generating capability of the business
3. Ability of a business to pay its debts in time
4. Excess of expenditures over income

Question No. 24 Marks : 1

If an entity declares dividends to the holders of equity instruments after the balance
sheet date, the entity shall not recognize those dividends as a :

1. Equity
2. Deferred Liability
3. Liability
4. Asset

Question No. 25 Marks : 3

The information as to profitability is provided by the balance sheet of the entity.

1. True
2. False

Question No. 26 Marks : 1

Differentiate between Profit Oriented and Non-Profit Oriented entities.

Question No. 27 Marks : 1

How many ways are there to reduce the share capital of a company? Write down their
names with sections.

Question No. 28 Marks : 1

Under IAS 33 ______________________is widely used by investors as a measure of a

company’s performance.

Question No. 29 Marks : 1

Which of the following asset is specifically excluded from Financial Assets:

1. Investments
2. Prepaid Expenses
3. Physical Assets
4. Both Prepaid Expenses & Physical Assets

Question No. 30 Marks : 1

Lease accounting is regulated by __________which was introduced because of abuses in

the use of lease accounting by companies.

1. IAS 17
2. IAS 12
3. IAS 39
4. IAS 32

Question No. 31 Marks :1

Differentiate between Finance Lease and Operating Lease.

Question No. 32 Marks : 1

A contractual arrangement whereby, two or more parties undertake, an economic
activity which is subject to join control, is called Subsidiary Companies.

1. True
2. False
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Types of Planning?
Informal Planning
1. Nothing is written down
2.Little or no sharing of goals
3.General and lacking in continuity
Formal Planning
1.Written and defined specific goals
2.Specific action programs exist to achieve goals
Approaches to Planning
Inclusive Approach
Employees at each level develop plans suited to their needs
Employees acquire greater sense of the importance of planning when they participate in the process

The planning process ‘Setting goals and developing plans that leads to goal attainment and ultimately, to
organisational efficiency and effectiveness.’
How Do Managers Plan?
Steps in Goal Setting
1 - Review the organization’s mission
2 - Evaluate available resources
3 - Determine the goals individually or with input from others
4.Should be congruent with the organizational mission and goals in other organizational areas
5- Write down the goals and communicate them to all who need to know them
6- Review results and whether goals are being met
The planning process
Mission
The organisation’s purpose or fundamental reason for existence.
Goal
Future target or end result an organisation wishes to achieve.
Plan
Means devised for attempting to reach a goal.
Organisational Mission
Mission statement may:
Be unwritten.
Address customers,
products/services, location,
technology, concern for survival,
concern for public image,
concern for employees.
Organisational Goals

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Benefits of Goals
Increases Performance
Clarifies Expectations
Facilitates Control
Increases Motivation
Levels of goals
Top Managers Organisational Perspective
Middle Managers Departmental Perspective
1st level Managers Unit/individual Perspective
Goals and Performance
Key Aspects:
1.Goal Content
2.Goal Commitment
3.Work Behaviour
4.Other Process Components
5.Possible Problems
Goal Content
Content should be:
Challenging
Specific
Measurable
Attainable
Relevant
Time limited
Goal Commitment
Influenced by:
Supervisory Authority
Peer & Group Pressure
Public Display
Expectations of Success
Incentives & Rewards
Participation
Goals & Work Behaviour
Goals & Commitment affect
Work Behaviour:
Direction
Effort
Persistence
Planning
Goals & other Process Components
Job process components
affect performance:
Job Knowledge & Ability
Task Complexity
Situational Constraints
Goals & Possible Problems
Possible Problems with Goals:
Excessive risk taking
Increased stress
Undermined self-confidence

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Ignored non-goal area
Excessive short-run thinking
Dishonesty & cheating

Levels of Goals and Plans:

Operational
Tactical
Strategic
Linking Goals & Plans
Time span of Goals and Plans:
Short (Operational)
Intermediate (Tactical)
Long range (Strategic)
How to Make a Plan That Works Developing Effective Action Plans Starting at the Top
A Corporation’s Mission Bending in the Middle Finishing at the Bottom Linking Goals & Plans
Recurring use:
Single use
Standing Plans-
Policies,
Procedures,
Rules
Kinds of Operational Plans
Special-Purpose Plans
Management by Objectives (MBO)
‘Process through which specific goals are set collaboratively for the organisation as a whole and every unit
within it;
The goals are then used as a basis for planning, managing organisational activities, and assessing and
rewarding contributions.’
Steps in the MBO process:
1.Develop organisational goals
2.Establish specific goals for departments
3.Formulate action plans
4.Implement & maintain ‘self-control’
5.Review progress periodically
6.Appraise performance

Strengths:
1.Helps link goals & plans
2.Clarifies priorities, and
expectations
3.Fosters organisational
communication
4.Builds member motivation

Weaknesses:
1.Needs strong, enduring commitment
2.Requires training of managers
3.May be misused (i.e. for punishment)
4.Risk of dominance of quantitative goals
Strategic Management

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Large scale action plan for interacting with the environment to achieve long term goals.

Concepts of Strategic Management

1.Strategic management process
2.Importance of strategic management
3.Levels of strategy
Strategic Management
Strategic Management Process:
‘Process through which managers Formulate and Implement strategies geared to optimising strategic goal
achievement, given available external and internal environmental conditions.’
Strategy Formulation
1.Identify Mission & Goals
2. Competitive Situation Analysis (external & internal)
3.Develop / Formulate strategies to achieve identified goals
Strategic Management
Strategy Implementation
1.Implement Plans
2.Control / Monitor execution of Plans
Importance of Strategic Management
Important because:
1.Helps organisations to develop a competitive advantage (significant edge over competition in dealing with
competitive forces).
2.Provides a sense of long-term direction for organisation members.
3.Highlights need for innovation.
4.Process involves members and fosters understanding of goals/strategy.

What Would You Do?

You are Head of a Furniture Company…
The furniture industry is highly fragmented and You like to turn
this into opportunities!
What Would You Do?
You like to formulate strategies that include low prices and convenient packaging.

Will the strategies work on a global basis?

How can You identify opportunities and threats, and select a competitive advantage strategy?

A way of approaching business opportunities and challenges.

A comprehensive and ongoing management process aimed at formulating and implementing effective strategies
which align the organization with its environment to achieve major organizational goals.

Importance of Strategic Management

1.Direction for Organization
2.Competitive Advantage
3.Builds Managers Commitment
4.Supports Innovation
The Basic Strategic Planning Process
The Components of Strategy
1. Distinctive Competence something the organization does exceptionally well!
2. Scope Range of markets in which the organization will compete
3. Resource Deployment. How an organization distributes its resources across areas in which it competes

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Competitive analysis in strategy formulation
SWOT analysis:
Method of analysing an organisation’s competitive situation involving assessing organisational strengths (S),
weaknesses (W), environmental opportunities (O) and threats (T).
Environmental Assessment:
Five Competitive Forces Model (Porter)

Competitive Analysis in Strategy Formulation

1. Rivalry among Existing Firms
2. Bargaining power of Customers
3. Bargaining power of Suppliers
4. Threat of New Entrants
5. Threat of Substitute products/services within the Industry.

Levels of strategy
Corporate Level Strategy:
‘Type of strategy addressing what businesses the organisation will operate, how strategies of those businesses
will be co-ordinated to strengthen the organisation’s competitive position, and how resources will be
allocated among businesses.’
Business Level Strategy:
‘Type of strategy concentrating on the best means of competing within a particular business while also
supporting corporate level strategy.’
Functional Level Strategy:
‘Type of strategy focussing on action plans for managing a particular functional area within a business in a
way that supports business level strategy.’

Competitive Analysis in Strategy Formulation

Before managers devise an effective strategy for getting a competitive edge, they must analyse the
organisation’s competitive situation.
This is done through:
Environmental analysis (external)
Organisational assessment (internal)
Formulating Corporate Level Strategy
Corporate level strategy is the overall strategy an organisation follows.
Its development involves selecting a Grand Strategy and using Portfolio-Strategy approaches to
determine the various businesses making up the organisation:
Portfolio Strategies:
Method of analysing an organisation’s mix of businesses in terms of both individual and collective
contributions to strategic goals.
1.BCG Growth–Share Matrix
Compares businesses in an organisation’s portfolio on the basis of relative market market share and market
growth rate.
2.Product–Market Evaluation Matrix
Compares businesses’ strength against product/market life-cycle.

Formulating Corporate Level Strategy

Grand Strategies
1.Growth
Concentration

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Vertical integration
Diversification
2.Stability
Harvest
Turnaround
3.Defensive
Divestiture
Bankruptcy
Liquidation
Formulating Business Level Strategy
1.Business level strategy is concerned with how a particular business competes.
2.The best known approach for strategy development is based on Porter’s research.

Generic Business Strategies:

Porter outlined three generic business level strategies to gain competitive advantage over other firms
operating in the same industry.
Generic Business Strategies (Porter)
1.Cost Leadership Strategy
Emphasises operational efficiency i.e. overall costs are lower than competitors.
2.Differentiation Strategy
Attempts to develop products/services viewed as unique in the industry.
3.Focus strategy
Concentration on a segment, portion of a market.
Functional level strategies spell out specific ways that functional areas can bolster business level strategy.
For example:
Under a product differentiation strategy, the R & D dept. may accelerate the innovation process to provide
new products in advance of competitors.
Strategy Implementation
Strategy implementation involves management activities needed to put the strategy in motion, institute
strategic controls for monitoring progress, and ultimately achieve organisation goals.

The Nature of Entrepreneurship

Entrepreneurship:The process of planning, organizing, operating, and assuming the risk of a business venture.

Entrepreneur:Someone who engages in entrepreneurship.

Small Business:
A business that is privately owned by one individual or a small group of individuals; it has sales and assets
that are not large enough to influence its environment.

Three Basic Strategic Challenges:

1.Choosing an Industry in which to compete.
2. Emphasizing, Distinctive, Competencies.
3. Writing a Business Plan.
Writing a Business Plan
A Business Plan is a document that summarizes the business strategy and structure.
It should include:
1. Business Goals and Objectives.
2. Strategies used to achieve these goals and objectives.
3. A plan of HOW the entrepreneur will implement these strategies.

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Financing the New Business
1. Personal Resources
Using your own money and money borrowed from friends and relatives to finance the business.
2. Strategic Alliances
Partnering with established firms such as suppliers in a mutually beneficial relationship.
3. Lenders
Obtaining funding from traditional lenders (e.g., banks, independent investors, and government loans).
4. Venture Capital Companies
Groups of small investors who provide capital funds to small high-growth potential start-up firms in
exchange for an equity position (stock) in the firms.

The Role of Entrepreneurship in Society

Job Creation
1. Small business creates many new jobs in Pakistan.
2. Industry sectors dominated by small business have added the most jobs.
Innovation
Historically, major innovations are as likely to come from small businesses as from large firms.
Promoting Innovation
Intrepreneurship:
Encourage the take-up of entrepreneurship roles by organisation members e.g:
Idea generator
Idea champion
Idea sponsor
Promoting Innovation
Innovation is critical to various differentiation strategies.
Forces for Change & Innovation:
Promoting Innovation
Structure’s ability to support strategy can be enhanced by using structural means to encourage innovation.
Key Concepts
Organizing
Deciding how to best group organizational activities and resources!
Responsibility
Obligation to carry out duties and achieve goals related to a position.
Authority
Right to make decisions, carry out actions, and direct others in matters related to the duties and goals of a
position.
Accountability
Requirement to provide satisfactory reasons for significant deviations from duties or expected results.
Delegation
Assignment of part of a manager’s work to others, along with both responsibility and authority necessary to
achieve expected results.
Autonomy
Amount of discretion allowed in determining schedules and work methods for achieving required output.
Feedback
Degree to which the job provides for clear and timely information about performance results.
Organization Chart
Line diagram depicting broad outlines of an organization’s structure!
Nature of Organisational Chart/Structure
Principles of Chart Design:
1. As few hierarchical levels as possible.

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2. Charts should show who has authority over who.
3. Charts should show official lines of responsibility & communication.
Organization Structure
Set of building blocks that can be used to configure an organization!
Nature of Organisational Structure
Formal pattern of interactions and co-ordination designed by management to link the tasks of individuals
and groups in achieving organisational goals.
Four elements:
1.Assignment of tasks and responsibilities to individuals and units.
2.Clustering these (units and people) to form a hierarchy.
3.Mechanisms for vertical co-ordination.
4.Mechanisms for horizontal co-ordination.

1. Designing Jobs (Job Specialization)

2. Grouping Jobs (Departmentalization)
3. Establishing Reporting Relationships
4. Distributing Authority
5. Coordinating Activities
6. Differentiating Between Positions
1. Job Design
The determination of an individual’s work-related responsibilities.
Specification of task activities associated with a particular job
Job Specialization
Degree to which the overall task of the organization is broken down into smaller components.
Benefits
1. Workers can become proficient at a task
2. Transfer time between tasks decrease
3. Specialized equipment can be developed
4. Employee replacement becomes easier
Limitations
1. Employee boredom and dissatisfaction
2. Anticipated benefits do not always occur
2. Grouping Jobs: Departmentalization
The process of grouping jobs according to some logical arrangement.
Rationale for Departmentalization
Organizational growth exceeds the owner-manager’s capacity to personally supervise all of the organization.

Additional managers are employed and assigned specific employees to supervise.

Departmentalization
4 Basic Types:
1. Functional
2. Product
3. Customer
4. Location
Functional Departmentalization
Functional Structure
Structure in which positions are grouped according to their main functional (or specialised) area.
Advantages
1. Department can be staffed by experts
2. Supervision is facilitated

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3. Coordination within department is easier
Disadvantages
1. Decision making becomes slow and bureaucratic
2. Lose sight of organizational goals/issues
3. Accountability and performance are difficult to monitor

1.Managers specialize,
but have broader experiences
2.Easier to assess work-unit performance
3.Decision-making is faster.
Customer Departmentalization
Focuses on customer needs
Products and services tailored to customer needs

Geographic Departmentalization
Responsive to the demands of different market areas.
Unique resources located close to the customer
Matrix Departmentalization
Efficiently manage large, complex tasks
Effectively carry out large, complex tasks

3. Establishing Reporting Relationships

Chain of Command
The vertical line of authority in an organization. Clarifies who reports to whom.
Unity of Command
Each person within an organization must have a clear reporting relationship to one and only one boss.
Span of Management
(Span of Control)
The number of people who report to a particular manager.
Narrow versus Wide Operative Span - Upto 30 Subordinates Executive Span - 3 to 9 Subordinates
Tall versus Flat Organizations
Tall Organizations
1. More expensive .
2. Communication can be difficult because of the number of channels through which it must pass.
Flat Organizations
1. Leeds to higher levels of employee morale and productivity.
2.More administrative responsibility for managers.
3.Tall Versus Flat Organizations
4. Distributing Authority
Delegation
The process by which managers assign a portion of their total workload to others.
Reasons for Delegation
1. To enable the manager to get more work done by utilizing the skills and talents of subordinates.
2. To foster the development of subordinates by having them participate in decision making and problem
solving that allows them to learn about overall operations and improve their managerial skills.

Centralization of Authority
Primary authority is held by upper management
Decentralization
Significant authority is found in lower levels of the organization

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5. Coordinating Activities
The process of linking the activities of the various departments of the organization.
6. Differentiating Between Line & Staff Positions
Line Positions
Positions in the direct chain of command that are responsible for the achievement of an organization’s
goals/profits.
Staff Positions
Positions intended to provide expertise, advice, and support to line positions.
Staff Authority
The right to advise but not command others. An activity that supports profit generation.
Job Rotation
Enlargement, and Enrichment Job Rotation Periodically moving workers from one specialized job to
another.
Job Enlargement
Increasing the number of tasks performed by a worker.
Job Enrichment
Adding more tasks and authority to an employee’s job.
Organization Design (OD)
OD Concepts
Organizations are not designed and then left intact. Organizations are in a continuous state of change.
Organization’s design for larger organizations is extremely complex and has many variations.
OD is a means to implement strategies and plans to achieve organizational goals.
Influences on Organization Design
Core Technology
1. Technology is the conversion processes used to transform inputs into outputs.
2. A core technology is an organization’s most important technology.
3. As the complexity of technology increases, so do the number of levels of management.
Unit or Small-Batch Technology
Produce custom-made products for customer .
Large Batch/Mass Production
Uses assembly-line production methods to manufacture large quantities of products.
Continuous Process
Use continuous-flow processes to convert raw materials by processes and/or machines into finished products.

Influences on Organization Design

Environment
1. Stable environments that remain constant over time.
2. Unstable environments subject to uncertainty and rapid change.
Mechanistic organizations that are bureaucratic and found most frequently in stable environments.
Organic organizations that are flexible and more informal and usually found in unstable and unpredictable
environments.
Mechanistic Structure
Organic Structure
Emerging Issues in Organization Design
The Team Organization
An approach to organizational design that relies almost exclusively on project-type teams, with little or no
underlying functional hierarchy.
Emerging Issues in Organization Design
The Virtual Organization
An organizational that has little or no formal structure with few permanent employees, and may conduct its

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business entirely on-line .
Emerging Issues in Organization Design
The Learning Organization
An organization that works to facilitate the lifelong learning and development of its employees while
transforming itself to respond to changing demands and needs.

Leading Motivating and Leadership

Leadership is a process of influencing others to achieve organisational goals.
Nature of Motivation
Motivation is the force energising, giving direction to, and / or leading Human Behaviour.
Motivation is a complex interaction of behaviours, needs, rewards/reinforcement and cognitive activities.
3 Major Types of Motivation Theories
1. Content Theories of Motivation
WHAT motivates us?
2.Process Theories of Motivation
WHY and HOW motivation occurs!
3. Reinforcement Theory
HOW outcomes influence behaviors!
What is Motivation?
The processes that account for an individual’s intensity, direction, and persistence of effort toward attaining
a goal
Intensity: how hard a person tries
Direction: where effort is channeled
Persistence: how long effort is maintained
Unsatisfied Needs develop a tension and creates a drive to fulfill those needs.
When those needs are satisfied, it reduces the tension and a state of relaxation is achieved.
Types of Motivators
1. Intrinsic
2. Extrinsic
Intrinsic
A person’s internal desire to do something, due to such things as interest, challenge, and personal satisfaction.

Extrinsic
Motivation that comes from outside the person, such as pay, bonuses, and other tangible rewards.

1. Hierarchy of Needs Theory (Maslow)

2. Two-Factor Theory (Herzberg)
3. ERG Theory (Aldefer)
4. Acquired Needs Theory (McClelland)
Maslow’s Hierarchy of Needs
Physiological
It includes hunger, thirst, shelter, sex and other bodily needs.
Maslow’s Hierarchy of Needs
Safety
It includes security and protection from physical and emotional harm.
Maslow’s Hierarchy of Needs
Social
It includes affection, belongingness, acceptance, and friendship.
Maslow’s Hierarchy of Needs
Esteem

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It includes internal esteem factors such as self-respect, autonomy, achievement; and external esteem factors
such as status, recognition, and attention.
Maslow’s Hierarchy of Needs
Self-Actualization
The drive to become what one is capable of becoming; includes growth, and achieving one’s potential.
Weakness of Theory
1.Five levels of need are not always present
2.Order is not always the same
3.Cultural differences

Need’s Hierarchy in China…an example:

Belongingness
Physiological
Safety
Self actualizing in service to society
Hygiene Factors
Extrinsic factors when these are adequate, people will not be dissatisfied. Company policy and
administration, supervision, working conditions, and salary.
Motivating Factors
Intrinsic factors, such as achievement, recognition, the work itself, responsibility, advancement and growth.

People will be either satisfied or not satisfied.

ERG Theory
1. Existence Needs
2. Related Needs
3. Growth Needs
McClelland’s Theory of Needs
Need for Achievement
The drive to excel, to achieve in relation to a set of standards, to strive to succeed.
McClelland’s Theory of Needs
Need for Power
The need to make others behave in a way that they would not have behaved otherwise.
McClelland’s Theory of Needs
Need for Affiliation
The desire for friendly and close interpersonal relationships.
Acquired Needs Theory (McClelland)
Theory stating that our needs are acquired or learned on the basis of our life experiences.
Needs Classification
Cognitive or Process Perspective Theories
1. Equity Theory
2. Expectancy Theory
3. Goal-setting Theory
Process Perspectives
Why people choose certain behavioral options to satisfy their needs and how they evaluate their satisfaction
after they have attained their goals.
Equity Theory
Theory arguing that we prefer situations of Balance or, Equity.
Inputs
Employee contributions to the organization
Outcomes

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Rewards employees receive from the organization
Outcome / input (O / I) Ratio
A comparison between self and others Output/Input Ratio Inequity
When Your O / I ratio differ from other’s
Underreward
If other’s O / I ratio is greater than yours, You experience anger or frustration !
Overreward
If other’s O / I ratio is less than yours, You may experience guilt !
Reaction to Perceived Inequity
1. Reduce inputs
2. Increase outcomes
3. Rationalize inputs or outcomes
4. Change the referent
5. Leave
Equity Theory
Implications for Managers:
Communication is essential to assess Equity / Inequity perceptions in employees.
Expectancy Theory

Theory arguing that we consider three main issues; (Effort-Performance, Performance-Outcome, and Valence)
before we expend effort necessary to perform at a given level.
Effort-Performance Expectancy
Our assessment of our efforts that will lead to the required level of performance.
Performance-Outcome Expectancy
Our assessment of our performance that will lead to desired outcomes.
Instrumentality
Perceived relationship between Performance and Rewards / Outcomes.
Valence
Our assessment of anticipated value of various outcomes or rewards.
Expectancy Model of Motivation
Expectancy Theory
M=ExIxV
For motivated behavior to occur:
1. Effort-to-performance must be greater than 0
2. Performance-to-outcome must be greater than 0
3. Sum of valences must be greater than 0
Motivating with Expectancy Theory
1.Systematically gather information to find out what employees want from their jobs
2.Clearly link rewards to individual performance
3.Empower employees to make decisions which enhance expectancy perceptions
Goal-setting Theory
It works by focussing attention on action, mobilising effort, increasing persistence, & encouraging the
development of strategy to achieve goals.
Goal Difficulty
Extent to which a goal is challenging and requires effort.
Goal Specificity
Clarity and precision of the goal.
Goal Acceptance
Extent to which persons accept a goal as their own.
Goal Commitment

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Extent to which an individual is personally interested in reaching a goal.
Performance Feedback
Information on goal progress
Motivating with Goal-Setting Theory
1. Assign specific, challenging goals
2. Make sure workers truly accept organizational goals
3. Provide frequent, specific performance-related feedback
Integrated Model
Reinforcement THEORY
It explains the role of rewards as they cause behavior to change or remain the same over time.
Reinforcement Process
Positive Reinforcement
It strengthens behavior by providing a desirable consequence.
Punishment
It weakens behavior by providing an undesirable consequence.
Reinforcement THEORY
Extinction
It weakens behavior by not providing a desirable consequence.
Current Issues In Motivation
Open-Book Management
1. Involve employees in workplace decisions by opening up the financial statements.
2. Workers treated as business partners.
3. Get workers to think like an owner.
4. May also provide bonuses based on profit improvements.
Current Issues In Motivation
Motivating Professionals
1. They are more loyal to their profession than their employer ?
2. They value challenging jobs and need the support for their work.
Current Issues In Motivation
Motivating Professionals
Professionals tend to derive intrinsic satisfaction from their work and receive higher pay.
Social Learning Theory
Theory arguing that learning occurs through continuous reciprocal interaction of our behaviours, various
personal factors and environmental forces.
Other Motivational Strategies
1. Empowerment
2. Participation
3. Variable Work Schedules
Compressed work schedule
4. Flexible Work Schedules
Flextime
Job Sharing
Telecommuting
Designing Effective Systems
Reward system must meet an individual’s needs.
Rewards should compare favorably with other organizations.
Distribution of rewards must be perceived to be equitable.
Designing Effective Systems
Reward system must recognize different needs.
Merit system.

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Incentive system.

Leadership
Leader
Someone who can influence others and who has managerial authority.
All managers should ideally be leaders
Not all leaders have the ability to be an effective manager.
Leadership is a process of influencing others toward the achievement of goals.
A heavily researched topic
Nature of Leadership
Leadership is an ability to influence and motivate others toward organizational goals.
What leaders actually do!
Process behaviors include:
1. Influencing organizational goals;
2. Motivating behavior toward goals;
3. Helping define organizational culture.
Leadership Property!
Set of characteristics attributed to individuals perceived to be leaders.
How Leaders influence others?
Sources of Leadership Power:
1. Legitimate power
Power stemming from a position’s placement in the managerial hierarchy.
2. Reward power
Power based on the capacity to provide valued rewards to others.
3. Coercive power
Power based on the ability to punish others.
4.Expert power
Power based on the possession of expertise valued by others.
5. Information power
Power based on access and control over the distribution of information.
6.Referent power
Power resulting from being liked, admired or identified with.

Effective use of Power

Likely reaction to use of power! = Resistance
= Compliance
= Commitment
Leadership Schools
1. Trait Model
2. Behavioral Models
--Michigan Studies
--Ohio State Studies
--Leadership Grid
3. Situational (Contingency) Models
Leadership Continuum
Least Preferred Coworker Theory (Fiedler)
Path Goal Model
Vroom Model
The Leader-Member Exchange Approach
Search for Leadership Traits

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Approach assumes that some basic traits (individual qualities) differentiated leaders from non-leaders.
Search for Leadership Traits
Approach eventually determined to be impractical- the list of suggested traits grew too long to be useful.
Search for Leadership Traits
Despite weaknesses, leaders today are often chosen on various traits.
Traits
1.Intelligence
2. Supervisory Ability
3. Initiative
4. Drive
5. Individuality
Traits
6. Self Confident
7. Risk Taker
8. Motivated
9. Hard Working
10. Self Assurance
Leadership Behaviour
Michigan Studies
Employee centred leaders superior to Job centred leaders.

Leadership Behaviour
Ohio State Studies
Suggested that the ideal was for leaders to combine job-centred-ness with an ability to build mutual trust
with subordinates.
Leadership grid
Behavioral Theories
Knowing the ways how effective leaders behave
would provide basis for training other leaders !
Leadership Schools
2. Behavioral Models
--Iowa Studies
--Michigan Studies
--Ohio State Studies
--Leadership Grid
Leadership Behaviour
Iowa Studies
( By Kurt Lewin)
Explored three leadership styles related to performance!

Leadership Styles
1. Autocratic
Leader dictated the work methods.
2. Democratic
Involved staff in decision making.
3. Laissez-Faire
Gave the group complete freedom.
Leadership Behaviour
Michigan Studies
Employee centred leaders superior to Job or Production centred leaders?

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Ohio State Studies
Suggested that the ideal was for leaders to combine
job-centred-ness (Initiating Structure) with an ability to build mutual trust with subordinates (Consideration).

Leadership grid
Contingency Theories Of Leadership
Basic Assumptions
1. Leader’s effectiveness depends on the situation.
2. Must isolate situational conditions or contingencies.
Leadership Schools
3. Situational (Contingency) Models
1. Fiedler’s Model
2. Path Goal Model
3. Hersey and Blanchard Leadership approach
4. Leaders Member Exchange Model
Situational Theory
Theories of leadership taking into consideration important situational factors and related leadership styles.
Fiedler’s Contingency Theory
Putting Leaders in the Right Situation:
Leadership Style:
Least Preferred Coworker
Leadership style is the way a leader generally behaves toward followers.
Style is measured by the LPC Scale!
Relationship-oriented Style
Task-oriented Style
Situational Favorableness
How a particular situation affects a leader’s ability to lead
Three factors
1. Leader-member relations
2. Task structure
3.Position power
Situational Favorableness
Matching Leadership Styles to Situations
Path-Goal Theory
Leadership Styles
1. Directive
Clarifying expectations and guidelines
2. Supportive
Being friendly and approachable
3. Participative
Allowing input on decisions
4. Achievement-Oriented
Setting challenging goals

Four leadership styles defined by the two dimensions i.e.

1. Task Behavior and
2. Relationship Behavior!

Tests of the theory have yielded disappointing results

LMX Leadership Model

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Leader Member Exchange approach stresses the importance of variable relationships between supervisors
and each of their subordinates.
Leaders form unique independent relationships with each subordinate in which the subordinate becomes a
member of the leader’s out-group or in-group.

Cutting-Edge Approaches To Leadership or Strategic Leadership

Transactional Leadership
Transactional Leaders guide or motivate their followers in the direction of established goals by clarifying role
and task requirements!
Transformational Leaders inspire followers to transcend their own self-interests for the good of the
organization!
1. Capable of having profound effect on followers.
2. Pay attention to concerns of followers.
3. Change follower’s awareness of issues.
4. Excite and inspire followers to put forth extra effort.
5. Built on top of Transactional leadership
6. good evidence of superiority of this type of leadership!

Goes beyond Charismatic leadership.

Different than Transactional leadership!
Components of Transformational Leadership
Charismatic leadership or idealized influence.
Inspirational motivation.
Intellectual stimulation.
Individualized consideration.
Charismatic Leadership
Charismatic leaders are enthusiastic, and self-confident leader whose personality and actions influence
people.
Charismatic leaders creates an exceptionally strong relationship between leader and followers.

Kinds of Charismatic Leaders

Ethical Charismatics
1. Provide developmental opportunities.
2. Open to positive and negative feedback.
3. Recognize others’ contributions.
4. Share information.
5. Concerned with the interests of the group.
Unethical Charismatics
1. Control and manipulate followers.
2. Only want positive feedback.
3. Motivated by self-interest.
Visionary Leadership
Visionary leader has the ability to:
1. Explain the vision to others.
2. Express the vision verbally and behaviorally.
3.Apply the vision to different leadership contexts.

Team Leadership
It requires skills such as:
1. Patience to share information.

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2. Ability to trust others and give up authority.
3. Understanding when to intervene.
Gender and Leadership
When rated by peers, employees, and bosses, women executives score better than male counterparts
Explanations of difference in effectiveness include:
1. Flexibility, teamwork, trust, and information sharing are replacing rigid structures, competitive
individualism, control, and secrecy
2. Women managers listen, motivate, and provide support
better than men
There is still no “one best” leadership style
Can’t assume that women’s style is always better

Leadership Styles in Different Countries

Effectiveness of leadership style influenced by national culture
Most leadership theories developed in the U.S.
1.Emphasize follower responsibilities rather than rights.
2. Stress rationality rather than spirituality.
What Would You Do?
You are the CEO of Unique Food Co…
1. Your success is based on your reputation and your staff.
2. But, business is down and employee benefits expenses are increasing.
3. You have three options: eliminate health benefits, find a cheaper plan, or pass the cost to the employee!
How can you best make the tough decision?
How involved should your employees be in making it?
Understanding Group
Behavior
Why People Join Groups ?
1. Interpersonal Attraction
People are attracted to one another.
2. Group Activities
Activities of the group appeal to them.
3. Group Goals
Group’s goals motivate them.
4. Need Satisfaction
Satisfies an individual’s need for affiliation.

Foundations of Work Groups

Two or more interdependent individuals interacting and influencing each other in collective pursuit of
a common goal.
What is a Group?
Two or more interacting and interdependent individuals who come together to achieve particular goals!
Types of Groups?
Formal Groups
Informal Groups

Formal Groups
Group officially created by an organisation for a specific purpose.
1. Command/Functional
2. Task Groups:
Permanent.

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Temporary.

Task Group
A group created by the organization to accomplish a relatively narrow range of purposes within a stated time
horizon.

Informal Groups:
Group established by employees (not the organisation) to serve members’ interests or social needs.
Interest groups
Friendship groups
Groups and Teamsin Organizations
Basic Group Concepts
1. Group Size
Effect on behavior of group depends upon the type of outcome and number of persons in group.
1. Large groups - good for getting diverse input
2. Small groups - good at making use of information
3. Dispersion of responsibility in large groups leads to free rider tendency !
2. Group Role.
Set of expected behavior patterns attributed to someone who occupies a given position in a social unit or
group.
1. Group members have particular roles oriented towards task accomplishment or maintaining group member
satisfaction.
2. Individuals play multiple roles.
3. Group Norms
Acceptable standards or expectations that are shared by the group’s members.
1. its own unique set of norms.
2. Common norms related to levels of effort and performance.
3. Exert powerful influence on performance.
4. Group Cohesiveness
Degree to which members are attracted to a group and share the group’s goals.
The group effectiveness depends upon the alignment of group and organizational goals.
Effectiveness and Efficiency of Group Decisions
1. Size of group affects effectiveness.
2. The groups of 5-7 are the most effective.
3. Odd number of members helps avoid deadlocks.

Steps must be taken to avoid Group Think.

Conformity marked by withholding different or unpopular views in order to give the appearance of agreement.
Stages of Group Development
1. Forming
People join the group either because of a work assignment or for some other benefit.
Define the group’s purpose, structure, and leadership.
2. Storming
Acceptance of the group’s existence.
Conflict over who will control the group !
3. Norming
Relationships and a sense of group identity develops.
Group assimilates a common set of expectations and defines correct member behavior.
4. Performing
Group structure is functional and accepted!

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Group energy has moved to task performance!
5. Adjourning
Group prepares to disband!
Attention devoted to wrapping up activities.
Group Development
Turning Groups into Effective Teams
Teams versus Groups
Work Group
A group that interacts primarily to share information and to make decisions to help each other perform
within his or her area of responsibility.
Work Team
A group whose individual efforts result in a performance that is greater than the sum of those individual
inputs.
What Is a Team?
Work Team is a formal group made up of interdependent individuals who are responsible for the attainment
of a goal
work teams are popular in organizations
Why Have Teams
Become So Popular?
1. Performance on complex tasks
2. Utilization of employee
talents
3. Flexibility and responsiveness
4. Motivational properties

Developing And Managing Effective Teams

Characteristics of Effective Teams
1.Clear Goals - members understand and support the goals to be achieved.
2.Relevant Skills - members have the necessary technical and interpersonal skills.
3. Mutual Trust - members are confident in each others’ ability, character, and integrity.
4. Unified Commitment - loyalty and dedication to the team.
5. Good Communication - messages are readily understood.

Types of Teams
1. Problem Solving Team
Comprises knowledge workers who gather to solve a specific problem, then disband.
2. Management Team
Consists mainly of managers from various functions, who coordinate work among other teams.
3. Work Team
Responsible for the daily work of the organization and, when empowered, are self-managed teams.
4. Quality Circle
Consists of workers and supervisors, who meet to discuss workplace problems.

Special Kinds of Teams

Cross-Functional Team
Employees from different functional areas.
Attack problems from multiple perspectives.
Generate more ideas and alternative solutions.
Project Teams
Created to complete specific, one-time projects within a limited time.

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Often used to develop new products, improve existing products, roll out new information systems, or build
new factories/offices.

Understanding Managerial Communication

What is Communication?
Everything that a manager does … involves communication!
Ineffective communication is the basis for many managerial problems.
Communication
The process of transmitting information from one person to another.
Effective Communication
The process of sending a message so that the message received is as close in meaning as possible to the
message intended.
Interpersonal Communication
It occurs between people.
Organizational Communication
All the patterns, networks, and systems of communication in an organization.
Communication in Management

Communication Process
Information Richness of Channels
Managerial Communication
Verbal
Written or oral use of words to communicate.
Non-Verbal
Communication by means of elements and behaviours that are not coded into words.
Communication Channels
Patterns of communication flow through which managers and other organisation members can send and
receive information.
1. Vertical communication
2. Horizontal communication
3. Informal communication
Vertical Communication
1. Downward Communication
Managers overuse downward communication.
Filtering
(deliberate or accidental).
2. Upward Communication
Can be distorted by ‘only’ favourable messages going up.
Managers don’t encourage upward flow.
Horizontal Communication
Lateral or diagonal message exchange within work-unit boundaries, involving peers reporting to the same
supervisor, or across work-unit boundaries, involving individuals who report to different supervisors.
Informal Communication
Communication which takes place without regard to hierarchical or task requirements.
Problems Can carry gossip/distorted information.
Benefits Valuable tool for continuation/propagation of culture.

Communication Networks
Patterns through which members of a group or team communicate.
Grapevine

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An informal network that is active in almost every organization.
1. Important source of information.
2. Identifies issues that employees consider important and anxiety producing.
3. Can use the grapevine to disseminate important information.
4. Grapevine cannot be abolished.
Rumors can never be eliminated entirely.
Barriers to Communication
Individual Barriers
Conflicting or inconsistent cues.
Credibility about the subject.
Reluctance to communicate.
Poor listening skills.
Predispositions about the subject.
Organizational Barriers
Status or power differences.
Different perceptions.
Noise.
Overload.
Improving Communication Effectiveness
Individual Skills
1. Encourage two-way communication.
2. Be aware of language and meaning.
3. Be sensitive to sender’s and receiver’s perspective.
4. Develop good listening skills.
Organizational Skills
1. Follow up.
2. Regulate information flow
3. Understand the richness of media.

How Technology Affects Managerial Communication!

Communication Channels
Information Technology has changed organizational communication.
1. Disseminates more complete information
2. Provides more opportunities for collaboration
3. Employees are fully accessible
Effects of IT
1. Networked Computer Systems
Linking computers through compatible hardware and software.
1.e-mail - instantaneous transmission of written messages
7. Intranet - Internet technology that links organizational employees
8. Extranet - Internet technology that links an organization with customers and suppliers
9. Internet-based voice communication - allows users to talk with each other
2.Wireless Capabilities
Depends on signals sent through space without any physical connection.
Based on microwave signals, satellites, radio waves, or infrared light rays.
Control as a Management Function
Process of regulating organisational activities so that actual performance conforms to expected
organisational standards and goals.
Planning-Controlling Link
What Is Control?

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Control is the process of monitoring activities to ensure that they are being accomplished as planned and of
correcting significant deviations.
Control systems are judged in terms of how well they facilitate goal achievement
Control as a Management Function
Role of Controls:
1. Coping with uncertainty
2. Detecting irregularities
3. Identifying opportunities
4. Handling complex situations
Control as a Management Function
Levels of Plan Levels of Control
The Control Process
The Control Process
Steps in the control process:

Five Eras of Management Control

Primary Types of Organizational Control
Managerial Approaches
Bureaucratic control
Organic/Clan control
Market control
Quality & Innovation
Managerial Approaches
Bureaucratic Control
Managerial approach relying on regulation through rules, policies, supervision, budgets, schedules, reward
systems and other administrative mechanisms aimed at ensuring employees exhibit appropriate behaviours
and meet performance standards.
Market Control
Managerial approach relying on market mechanisms to regulate prices for certain clearly specified goods
and services needed by an organisation.
It emphasizes the use of external market mechanisms to establish standards of performance.
1. Useful where products and services are distinct
2. Useful where marketplace competition is considerable
3. Divisions turned into profit centers and judged by the percentage of total corporate profits each contributes

Organic/Clan Control
Managerial approach relying on values, beliefs, traditions, corporate culture, shared norms and informal
relationships to regulate employee behaviours and facilitate reaching of organisational goals.
Quality & Innovation:
Levers for strategic control/innovation:
1. Belief Systems
Mission, core values
2. Performance Management Systems
Critical goals, evaluation & feedback
3. Interactive Monitoring System
Networking, continuous search & learning based system
Traditional Financial Controls
The budgets provide quantitative standards against which to measure and compare resources consumption.

Other

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Financial Controls
Other Financial Control Measures increasing in popularity;
1. Economic Value Added (EVA)
Economic value created with the firm’s assets less any capital investments made by the firm in its assets.
2. Market Value Added (MVA)
Stock market’s estimate of the value of the firm’s past and expected capital investment projects.

Automation Based Controls

Management Information Systems
MIS are used to provide management with needed information on a regular basis.
1.Organizes data in a meaningful way
2. Can access the information in a reasonable amount of time

Quality-Related Characteristics
ISO 9000
1. A series of international standards:
ISO 9000 to ISO 9004
2. Certifies quality processes
3. Customers are increasingly demanding ISO 9000 certification
HRM Process
Job Analysis and HRM
Value Chain Management
Value
Performance characteristics, features, and attributes, and any other aspects of goods and services for which
customers are willing to pay resources.

value Chain is the entire series of work activities that add value at each step of the transformation process.
Value Chain Management is the process of managing an entire sequence of activities along the entire value
chain.
Focuses on both incoming materials and outgoing products and services.

Goal of Value Chain Management

Better the collaboration among chain participants, better the customer solutions!

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 MGT401 Short Notes
By

accounting The procedures for analyzing, recording, classifying, summarizing, and

cycle : reporting the transactions of a business.
account An amount owed to a supplier for good or services purchased on credit;
payable : payment is due within a short time period, usually 30 days or less.
acid-test A measure of a firm's ability to meet current liabilities; more restrictive than
ratio (or the current ratio, it is computed by dividing net quick assets (all current
quick assets, except inventories and prepaid expenses) by current liabilities.
ratio) :
bad debt : An uncollectible account receivable.
Deferred Income Taxes :
dividend The date on which a corporation pays dividends to its shareholders.
payment
date :
double- A system of recording transactions in a way that maintains the equality of
entry the accounting equation.
accounting
:
drawings The account used to reflect periodic withdrawals of earnings by the owner
account : (proprietor) or owners (partners) of a proprietorship or partnership.
effective- A method of systematically writing off a bond premium or discount that
interest takes into consideration the time value of money and results in an equal
amortization rate of amortization for each period.
:
Financial The private organization responsible for establishing the standards for
Accounting financial accounting and reporting in the United States.
Standards
Board
(FASB) :
FOB (free- A business term meaning that the seller of merchandise bears the shipping
on-board) costs and maintains ownership until the merchandise is delivered to the
destination buyer.
:
going The idea that an accounting entity will have a continuing existence for the
concern : foreseeable future.
gross The excess of net sales revenue over the cost of goods sold.

1
margin :
gross A procedure for estimating the amount of ending inventory; the historical
margin relationship of cost of goods sold to sales revenue is used in computing
method : ending inventory.
gross sales Total recorded sales before deducting any sales discounts or sales returns
: and allowances.
gross tax The amount of tax computed by multiplying the tax base (taxable income)
liability : by the appropriate tax rates.
held-to- Debt securities purchased by an investor with the intent of holding the
maturity securities until they mature.
securities :
historical The dollar amount originally exchanged in an arm's-length transaction; an
cost : amount assumed to reflect the fair market value of an item at the transaction
date.
historical The exchange rate that existed on the date of a transaction.
exchange
rate :
horizontal A technique for analyzing the percentage change in individual income
analysis of statement or balance sheet items from one year to the next.
financial
statements
:
imprest A petty cash fund in which all expenditures are documented by vouchers or
petty cash vendors' receipts or invoices, the total of the vouchers and cash in the fund
fund : should equal the established balance.
income The financial statement that summarizes the revenues generated and the
statement expenses incurred by an entity during a period of time.
(statement
of
earnings) :
accrued Expenses that arise through adjusting entries when accounting for
expenses : unrecorded expenses.
adjusted An individual taxpayer's total income minus deductions (adjustments) for
gross individual retirement plan contributions and alimony paid.
income :
adjustments Amounts deducted from the gross income of an individual taxpayer in
to gross arriving at adjusted gross income; includes contributions to individual
income : retirement plans and alimony paid.

2
adverse Audit report indicating the auditor believes the overall financial statements
opinion : are so materially misstated or misleading that the statements do not fairly
represent the financial position or results of the operations and cash flows.
aging The process of categorizing each account receivable by the number of days
accounts it has been outstanding.
receivable
:
Allowance A contra account, deducted from Accounts Receivable, that shows the
for estimated losses from uncollectible accounts.
Uncollectible
Accounts :
annuity : A series of equal amounts to be received or paid at the end of equal time
intervals.
assets : Economic resources that are owned or controlled by an entity.
balance The financial statement that shows the assets, liabilities, and owners' equity
sheet of an entity at a particular date. http://vustudents.ning.com
(statement
of financial
position) :
bank The process of systematically comparing the cash balance as reported by
reconciliation the bank with the cash balance on the company's books and explaining
: any differences.
board of Individuals elected by the stockholders to govern a corporation.
directors :
bond : A contract between a borrower and a lender in which the borrower promises
to pay a specified rate of interest for each period the bond is outstanding
and repay the principal at the maturity date.
bond The difference between the face value and the sales price when bonds are
discount : sold below their face value.
business Expenses that have been paid or incurred in the course of business and that
expenses : are ordinary, necessary, and reasonable in amount
calendar An entity's reporting year, covering 12 months and ending on December 31.
year :
capital The excess of the selling price over the cost basis when assets, such as
gain : securities and other personal and investment assets, are sold.
capital The portion of a corporation's owners' equity contributed by investors
stock : (owners) in exchange for shares of stock.
cash : Coins, currency, money orders, checks, and funds on deposit with financial
institutions; the most liquid of assets.
cash-basis A system of accounting in which transactions are recorded and revenues

3
accounting and expenses are recognized only when cash is received or paid.
:
cash Short-term, highly liquid investments that can be converted easily into cash.
equivalents
:
cash The initial cost and other expected outlays associated with an investment.
outflows :
cash A special journal in which all cash received, from sales, interest, rent, or
receipts other sources, is recorded.
journal :
classified A balance sheet in which assets and liabilities are subdivided into current
balance and noncurrent categories.
sheet :
code of Rules set by the AICPA's Committee on Professional Ethics, which govern
professional the conduct of CPAs.
ethics :
comparative Financial statements in which data for two or more years are shown
financial together.
statements :
consignment An arrangement whereby merchandise owned by one party (the consignor)
: is sold by another party (the consignee), usually on a commission basis.
consignor : The owner of merchandise to be sold by someone else, known as the
consignee.
contributed The portion of owners' equity contributed by investors (the owners) in
capital : exchange for shares of stock.
control A summary account in the General Ledger that is supported by detailed
account : individual accounts in a subsidiary ledger.
convertible Bonds that can be traded for, or converted to, other securities after a
bonds : specified period of time.
cost Method used to account for an investment in the stock of another company
method of when less than 20 percent of the outstanding voting stock is owned.
accounting
for
investments
in stock :
cost of The expense incurred to purchase or manufacture the merchandise sold
goods sold during a period.
:
credit card The part of the multiple-page credit form that is sent by the retailer to the
draft : credit card company for reimbursement of the stated amount.

4
cumulative- The rights of preferred stockholders to receive current dividends plus all
dividend dividends in arrears before common stockholders receive any dividends.
preference current assets: Cash and other assets that may reasonably be expected to
: beconverted to cash within a year or during the normal operating cycle.
current- The right of preferred shareholders to receive current dividends before
dividend common shareholders receive dividends.
preference
date of The date selected by a corporation's board of directors on which the
record : shareholders of record are identified as those who will receive dividends.
debt Acquiring funds by borrowing money from creditors in the form of long-
financing : term notes, mortgages, leases, or bonds.
declaration The date on which a corporation's board of directors formally decides to
date : pay a dividend to shareholders.
depreciation The process of cost allocation that assigns the original cost of plant and
: equipment to the periods benefited.
discounting The process of the payee's selling notes to financial institution for less than
a note the maturity value.
receivable :
diversified Companies operating in more than one line of business.
companies
:
dividends Missed dividends for past years that preferred stockholders have a right to
in arrears : receive under the cumulative-dividend preference if and when dividends are
declared.
EDP A term referring to the use of computers in recording, classifying,
(electronic manipulating, and summarizing data.
data
processing)
:
entity : An organizational unit (a person, partnership, or corporation) for which
accounting records are kept and about which accounting reports are
prepared.
equity Acquiring funds in the form of investments by owners (proprietor, partner,
financing : or stockholder).
exchange The gain or loss incurred when the exchange rates are different on the
gain or loss purchase and payment dates or on the sale and receipt of payment dates.
:
financing Transactions and events whereby resources are obtained from, or repaid to,
activities : owners (equity financing) and creditors (debt financing).
floor : The minimum market amount at which inventory can be carried on the

5
 books; equal to net realizable value minus a normal profit.
Foreign Legislation requiring any company that has publicly-traded stock to
Corrupt maintain records that accurately and fairly represent the company's
Practices transactions; additionally, requires any publicly-traded company to have an
Act adequate system of internal accounting controls.
(FCPA) :
GAAS Auditing standards developed by the AICPA.
(generally
accepted
auditing
standards)
:
generally Auditing standards developed by the AICPA.
accepted
auditing
standards
(GAAS) :
general- The financial reports intended for use by a variety of external groups; they
purpose include the balance sheet, the income statement, and the statement of cash
financial flows.
statements
:
goodwill : An intangible asset that exists when a business is valued at more than the
fair market value of its net assets, usually due to strategic location,
reputation, good customer relations, or similar factors; equal to the excess
of the purchase price over the fair market value of the net assets purchased.
gross The taxable portion of a taxpayer's gross receipts.
income :
account : An accounting record in which the results of transactions are accumulated;
shows increases, decreases, and a balance.
accounting A service activity designed to accumulate, measure, and communicate
: financial information about economic entities for decision-making
purposes.
accounting The basic accounting assumptions, concepts, principles, and procedures that
model : determine the manner of recording, measuring, and reporting an entity's
transactions.
accounting The set of manual and computerized procedures and controls that provide
system : for identifying relevant transactions or events; preparing accurate source
documents, entering data into the accounting records accurately, processing
transactionsaccurately, updating master files properly, and generating
accurate documents and reports.

6
account A measure used to determine a company's average collection period for
receivable receivables; computed by dividing net sales (or net credit sales) by average
turnover : accounts receivable.
accrual- A system of accounting in which revenues and expenses are recorded as
basis they are earned and incurred, not necessarily when cash is received or paid.
accounting
:
adjusting Entries required at the end of each accounting period to recognize, on an
entries : accrual basis, revenues and expenses for the period and to report proper
amounts for asset, liability, and owners' equity accounts.
amortization The process of cost allocation that assigns the original cost of an
: intangible asset to the periods benefited.
annual A document that summarizes the results of operations and financial status
report : of a company for the past year and outlines plans for the future.
arm's- Business dealings between independent and rational parties who are
length looking out for their own interests.
transactions
:
articulation The interrelationships among the financial statements.
:
asset An overall measure of how effectively assets are used during a period;
turnover computed by dividing net sales by average total assets.
ratio :
audit A report issued by an independent CPA that expresses an opinion about
report : whether the financial statements present fairly a company's financial
position, operating results, and cash flows in accordance with generally
accepted accounting principles.
authorized The amount and type of stock that may be issued by a company, as
stock : specified in its articles of incorporation.
available- Debt and equity securities not classified as trading, held-to-maturity, or
for-sale equity method securities http://vustudents.ning.com
securities :
bond The date at which a bond principal or face amount becomes payable.
maturity
date :
bond The difference between the face value and the sales price when bonds are
premium : sold above their face value.
book value The net amount shown in the accounts for an asset, liability, or owners'
: equity item.
book value A measure of net worth; computed by dividing stockholders' equity for each

7
per share : class of stock by the number of shares outstanding for that class.
business : An organization operated with the objective of making a profit from the
sale of goods or services.
callable Bonds for which the issuer reserves the right to pay the obligation before its
bonds : maturity date.
capital An account in which a proprietor's or partner's interest in a firm is recorded;
account : it is increased by owner investments and net income and decreased by
withdrawals and net losses.
cash A special journal in which all cash paid out for supplies, merchandise,
disbursements salaries, and other items is recorded.
journal :
cash over An account used to record overages and shortages in petty cash.
and short :
ceiling : The maximum market amount at which inventory can be carried on the
books; equal to net realizable value.
chart of A systematic listing of all accounts used by a company.
accounts :
charter A document issued by a state that gives legal status to a corporation and
(articles of details its specific rights, including the authority to issue a certain
incorporation) maximum number of shares of stock.
:
closed A transaction that is completed within the accounting period; both the
transaction purchase and payment or sale and receipt of payment occur within the same
: accounting period.
compound A journal entry that involves more than one debit or more than one credit or
journal both.
entry :
conduit The idea that all income earned by an entity must be passed through to the
principle : owners and reported on their individual tax returns; applicable to
proprietorships, partnerships, and S corporations.
consignee : A vendor who sells merchandise owned by another party, known as the
consignor, usually on a commission basis.
consolidated Statements that report the combined operating results, financial position,
financial and cash flows of two or more legally separate but affiliated companies as
statements : if they were one economic entity.
contra An account that is offset or deducted from another account.
account :
corporation A legal entity chartered by a state; ownership is represented by transferable
: shares of stock.

8
coupon Unregistered bonds for which owners receive periodic interest payments by
bonds : clipping a coupon from the bond and sending it to the issuer as evidence of
ownership.
current (or A measure of the liquidity of a business; equal to current assets divided by
working current liabilities.
capital)
ratio :
debentures Bonds for which no collateral has been pledged.
(unsecured
bonds) :
debt Financial instruments issued by a company that carry with them a promise
securities : of interest payments and the repayment of principal.
deduction : Business expenses or losses that are subtracted from gross income in
computing taxable income.
direct A method of reporting net cash flow from operations that shows the major
method : classes of cash receipts and payments for a period of time.
direct The recording of actual losses from uncollectible accounts as expenses
write-off during the period in which accounts receivable are determined to be
method : uncollectible.
disclaimer A disclaimer indicating the auditor was unable to satisfy himself or herself
of opinion that the overall financial statements were fairly present in accordance with
: GAAP.
discount : The amount charged by a financial institution when a note receivable is
discounted; calculated as maturity value times discount rate times discount
period.
discount The time between the date a note is sold to a financial institution and its
period : maturity date.
discount The interest rate charged by a financial institution for buying a note
rate : receivable.
dividends : Distributions to owners (stockholders) of a corporation.
drawings : Distribution to the owner(s) of a proprietorship or partnership; similar to
dividends for a corporation.
effective A tax rate that reflects the percentage of the actual tax liability to the
tax rate : accounting income generated by the company, that is, net tax
liability/financial (book) income before taxes.
effective The actual interest rate earned or paid on a bond investment.
(yield or
market) http://vustudents.ning.com
rate of
interest :

9
electronic A term referring to the use of computers in recording, classifying,
data manipulating, and summarizing data.
processing
(EDP) :
EPS The amount of net income (earnings) related to each share of stock;
(earnings computed by dividing net income by the number of shares of common stock
per share) outstanding during the period.
:
equity Method used to account for an investments in the stock of another
method or company when significant influence can be imposed (presumed to exist
accounting when 20 to 50 percent of the outstanding voting stock is owned).
for
investments http://vustudents.ning.com
in sto :
equity Shares of ownership in a corporation that can change significantly in value
securities : and that provide for a return to investors in the form of dividends.
account A current asset representing money due for services performed or
receivable merchandise sold on credit.
:
accrual Gross income is recognized when earned.
basis :
accrued Liabilities that arise through adjusting entries when accounting for
liabilities : unrecorded liabilities.
accumulated The total depreciation recorded on an asset since its acquisition; a contra
depreciation account deducted from the original cost of an asset on the balance sheet.
:
allowance The recording of estimated losses due to uncollectible accounts as expenses
method : during the period in which the sales occurred.
audit : The result of an independent accountant's review of the statements and
footnotes to ensure compliance with generally accepted accounting
principles and to render an opinion on the fairness of the financial
statements.
audit Members of a client's board of directors who are responsible for dealing
committee with the external and internal auditors.
:
basket The purchase of two or more assets acquired together at a single price.
purchase :
bond The face value of bonds minus the unamortized discount or plus the
carrying unamortized premium.
value :

10
bond A contract between a bond issuer and a bond purchaser that specifies the
indenture : terms of a bond.
business Records of transactions used as the basis for recording accounting entries;
documents includes invoices, check stubs, receipts, and similar business papers.
:
capital : The total amount of money or other resources owned or used to acquire
future income or benefits.
capital An expenditure that is recorded as an asset because it is expected to benefit
expenditure more than the current period. http://vustudents.ning.com
:

capital A leasing transaction that is recorded as a purchase by the lessee.

lease :

cash basis : Gross income is recognized when cash is received.

cash A cash distribution of earnings to shareholders.

dividend :
cash Any current or expected revenues or savings directly associated with an
inflows : investment.

certified A special designation given to an accountant who has passed a national

public uniform examination and has met other certifying requirements; CPA
accountant certificates are issued and monitored by state boards of accountancy or
(CPA) : similar agencies.

closing Entries that reduce all nominal, or temporary, accounts to a zero balance at
entries : the end of each accounting period, transferring their preclosing balances to
a permanent balance sheet account.

common The most frequently issued class of stock; usually it provides a voting right
stock : but is secondary to preferred stock in dividend and liquidation rights.

compounding The period of time for which interest is computed.

period :
contingent A potential obligation, dependent upon the occurrence of future events.
liability :

11
control Policies and procedures used by management to meet its objectives;
activities : generally divided into adequate segregation of duties, proper authorization
of transactions and activities, adequate documents and records, physical
control over assets and records, and independent checks on performance.

control The actions, policies, and procedures that reflect the overall attitudes of
environment top management, the directors, and the owners about control and its
: importance to the entity.

convertible Preferred stock that can be converted to common stock at a specified

preferred conversion rate.
stock :

cost The idea that transactions are recorded at their historical costs or exchange
principle : prices at the transaction date.
credit : An entry on the right side of the account.

debit : An entry on the left side of an account.

debt-equity A measurement of the relative utilization of debt and equity; computed by

management dividing average total assets by average stockholders' equity.
ratio :

declining- An accelerated depreciation method in which an asset's book value is

balance multiplied by a constant depreciation rate (such as double the straight-line
depreciation percentage, in the case of double-declining-balance.)
method :

depletion : The process of cost allocation that assigns the original cost of a natural
resource to the periods benefited.
dividends The account used to reflect periodic distributions of earnings to the owners
account : (stockholders) of a corporation.

earnings The amount of net income (earnings) related to each share of stock;
per share computed by dividing net income by the number of shares of common stock
(EPS) : outstanding during the period.

exchange The value of one currency in terms of another.

rate :

12
exclusions Gross receipts that are not subject to tax and are not included in gross
: income, such as interest on state and local government bonds.

expenses : Costs incurred in the normal course of business to generate revenues.

external Independent CPAs who are retained by organizations to perform audits of
auditors : financial statements.

external Audits conducted by CPAs who are independent of the client company.
audits :

extraordinary Nonoperating gains and losses that are unusual in nature, infrequent in
items : occurrence, and material in amount.

factor : To sell accounts receivable at a discount before they are due.

fair The current value of an asset, e.g., the amount at which an asset could be
market sold or purchased in an arm's-length transaction.
value :
FASB The private organization responsible for establishing the standards for
(Financial financial accounting and reporting in the United States.
Accounting
Standards
Board) :

FCPA Legislation requiring any company that has publicly-traded stock to

(Foreign maintain records that accurately and fairly represent the company's
Corrupt transactions; additionally, requires any publicly-traded company to have an
Practices adequate system of internal accounting controls.
Act) :

FICA Federal Insurance Contributions Act taxes imposed on employee and

(social employer; used mainly to provide retirement benefits.
security)
taxes :

FIFO An inventory cost flow whereby the first goods purchased are assumed to
(first-in, be the first goods sold so that the ending inventory consists of the most
first-out) : recently purchased goods.

13
financial The area of accounting concerned with reporting financial information to
accounting interested external parties.
:
financial Reports such as the balance sheet, income statement, and statement of cash
statements flows, which summarize the financial status and results of operations of a
: business entity.

fiscal year An entity's reporting year, covering a 12 month accounting period.

:

FOB (free- A business term meaning that the buyer of merchandise bears the shipping
on-board) costs and acquires ownership at the point of shipment.
shipping
point :

franchise : An entity that has been licensed to sell the product of a manufacturer or to
offer a particular service in a given area.

freight-in : An account used with the periodic inventory method for recording the costs
of transporting into a firm all purchased merchandise intended for sale;
added to purchases in calculating cost of goods sold.
functional The currency in which a subsidiary conducts most of its business; generally,
currency : but not always, the currency of the country where it does most of its
spending and earning.

GAAP Authoritative guidelines that define accounting practice at a particular time.

(generally
accepted
accounting
principles)
:

generally Authoritative guidelines that define accounting practice at a particular time.

accepted
accounting
principles
(GAAP) :

income The amount expected to be paid to the federal and state governments based

14
taxes on the income before taxes reported on t he income statement.
payable :

independent Procedures for continual internal verification of other controls. indirect

checks : method: A method of reporting net cash flow from operations that involves
converting accrual-basis net income to a cash basis.
inflation : An increase in the general price level of goods and services; alternatively, a
decrease in the purchasing power of the dollar.

intangible Long-lived assets without physical substance that are used in business, such
assets : as licenses, patents, franchises, and goodwill.

intercompany A transaction between a parent company and a subsidiary company.

transaction :

interest : The payment (cost) for the use of money.

interest The cost of using money, expressed as an annual percentage.

rate :
internal An independent group of experts in controls, accounting, and operations,
auditors : who monitor operating results and financial records, evaluate internal
controls, assist with increasing the efficiency and effectiveness of
operations, and detectfraud.

internal Safeguards in the form of policies and procedures established to provide

control management with reasonable assurance that the objectives of an entity will
structure : be achieved.

inventory : Goods held for resale.

inventory The determination of which items should be included in the year-end

cutoff : inventory balance.

inventory A measure of the efficiency with which inventory is managed; computed by

turnover dividing cost of goods sold by average inventory for a period.
ratio :
investing Transactions and events that involve the purchase and sale of securities
activities : (excluding cash equivalents), property, plant, equipment, and other assets

15
 not generally held for resale, and the making and collecting of loans.

issued Authorized stock originally issued to stockholders; it may or may not still
stock : be outstanding.

itemized Amounts paid by an individual taxpayer for personal and quasi-business

deduction : expenses that can be deducted in computing taxable income, such as
medical expenses, property and income taxes, mortgage and investment
interest, charitable contributions, moving expenses, casualty and theft
losses, and certain miscellaneous expenses

JIT (just- An inventory system that allows for the elimination of inventory stockpiles
in-time) and inefficiency and waste; raw materials arrive "just in time" for
inventory : production and finished goods "just in time" for sale.

journal : An accounting record in which transactions are first entered; provides a

chronological record of all business activities.
journal A recording of a transaction where debits equal credits; usually includes a
entry : date and an explanation of the transaction.

junk bonds Bonds issued by companies in weak financial condition with large amounts
: of debt already outstanding; these bonds yield high rates of return because
of the high risk.

just-in- An inventory system that allows for the elimination of inventory stockpiles
time (JIT) and inefficiency and waste; raw materials arrive "just in time" for
inventory : production and finished goods "just in time" for sale

lapping : A procedure used to conceal the theft of cash by crediting the payment from
one customer to another customer's account on a delayed basis.

LCM A basis for valuing certain assets at the lower of original cost or current
(lower cost market value. http://vustudents.ning.com
or market)
:
lease : A contract that specifies the terms under which the owner of an asset (the
lessor) agrees to transfer the right to use the asset to another party (the
lessee).

16
ledger : A book of accounts in which data from transactions recorded in journals are
posted and thereby classified and summarized.

legal The amount of contributed capital not available for dividends; usually equal
capital : to the par or stated value of outstanding capital stock.

lessee : The party that is granted the right to use property under the terms of a lease.

lessor : The owner of property that is rented (leased) to another party.

liabilities : Obligations measurable in monetary terms that represent amounts owed to
creditors, governments, employees, and other parties.

license : The right to perform certain activities, generally granted by a governmental

agency.

LIFO (last- An inventory cost flow whereby the last goods purchased are assumed to be
in, first- the first goods sold so that the ending inventory consists of the first goods
out) : purchased.

limited The legal protection given stockholders whereby they are responsible for
liability : the debts and obligations of a corporation only to the extent of their capital
contributions.

liquidation The process of dissolving a business by selling the assets, paying the debts,
: and distributing the remaining equity to the owners.
liquidity : A company's ability to meet current obligations with cash or other assets
that can be quickly converted to cash.

long-term An expenditure to acquire a non-operating asset that is expected to increase

investment in value or generate income for longer than 1 year.
:

long-term Debts or toher obligations that will not be paid within one year.
liabilities :

losses : Costs that provide no benefit to an organization.

17
loss per The amount of net loss related to each share of stock; computed by dividing
share : net loss by a number of shares of common stock outstanding during the
period.
lower cost A basis for valuing certain assets at the lower of original cost or current
or market market value.
(LCM) :

MACRS IRS regulations that allocate the cost of an asset according to predefined
(modified recovery periods and percentages.
accelerated
cost
recovery
system) :

maker : A person (entity) who signs a note to borrow money and who assumes
responsibility to pay the note at maturity.

management The area of accounting concerned with providing internal financial reports
accounting : to assist management in making decisions.

Market An account used to track the difference between the historical cost and the
Adjustment- market value of a company's portfolio of trading securities.
Trading
Securities
account :
matching The concept that all costs and expenses incurred in generating revenues
principle : must be recognized in the same reporting period as the related revenues.

maturity The date on which a note or other obligation becomes due.

date :

maturity The amount of an obligation to be collected or paid at maturity; equal to

value : principal plus any interest.

merger : The acquisition of one company by another company whereby the

companies combine as one legal entity, with the acquired company going
out of existence.

minority The interest owned in a subsidiary by stockholders other than those of the
interest : parent company; occurs when the acquiring company has less than a 100

18
 percent ownership interest.
modified IRS regulations that allocate the cost of an asset according to predefined
accelerated recovery periods and percentages.
cost
recovery
system
(MACRS)
:

monetary The idea that money, as the common medium of exchange, is the
measurement accounting unit of measurement, and that only economic activities
: measurable in monetary terms are included in the accounting model.

mortgage A schedule that shows the breakdown between interest and principal for
amortization each payment over the life of a mortgage.
schedule :

mortgage A written promise to pay a stated amount of money at one or more specified
payable : future dates; a mortgage is secured by the pledging of certain assets, usually
real estate, as collateral.

moving A perpetual inventory cost flow alternative whereby the cost of goods sold
average : and the cost of ending inventory are determined by using a weighted-
average cost of all merchandise on hand after each purchase.
mutual The right of all partners in a partnership to act as agents for the normal
agency : business operations of the partnership, with the authority to bind it to a
business agreements.

natural Assets that are physically consumed or waste away, such as oil, minerals,
resources : gravel, and timber.

net assets The ownership interest in the assets of an entity; equal total assets minus
(owners' total liabilities.
equity) :

net income A measure of the overall performance of a business entity; equal to

(or net revenues minus expenses for the period.
loss) :

net The difference between maturity value and discount when a note receivable

19
proceeds : is discounted.
net The selling price of an item less reasonable selling costs.
realizable
value :

net The net amount that would be received if all receivables considered
realizable collectible were collected; equal to total accounts receivable less the
value of allowance for uncollectible accounts; also called the book value of accounts
accounts receivable. http://vustudents.ning.com
receivable
:

net sales : Gross sales less sales discounts and sales returns and allowances.

net tax The amount of tax computed by subtracting tax credits from the gross tax
liability : liability.

nominal Accounts that are closed to a zero balance at the end of each accounting
accounts : period; temporary accounts generally appearing on the income statement.
noncash Items included in the determination of net income on an accrual basis that
items : do not affect cash; examples are depreciation and amortization.

noncash Investing and financing activities that do not affect cash; if significant,
transactions they are disclosed below the statement of cash flows or in the notes to the
: financial statements.

nonoperating Investment and other assets not used in a business but held to earn a
assets : return separate from operations.

nonprofit An entity without a profit objective, oriented toward providing services

organization efficiently and effectively.
:

no-par Stock that does not have a par value printed on the face of the stock
stock : certificate.
note A debt owed to a creditor, evidenced by an unconditional written promise
payable : to pay a certain sum of money on or before a specified future date.

20
note A claim against a debtor, evidenced by an unconditional written promise to
receivable pay a certain sum of money on or before a specified future date.
:

notes to Explanatory information considered an integral part of the financial

financial statements.
statements
:

NSF (not A check that is not honored by a bank because of insufficient cash in the
sufficient customer's account.
funds)
check :

number of An alternative measure of how well inventory is being managed; computed

days' of by dividing 365 days by the inventory turnover ratio.
inventory
on hand :
number of A measure of the average number of days it takes to collect a credit sale;
days' sales computed by dividing 365 days by the accounts receivable turnover.
in
receivables
:

number of An alternative measure of the amount of working capital used in generating

days' sales the sales of a period; computed by dividing 365 days by the working capital
invested in turnover.
working
capital :

open A transaction that is not completed at the end of the accounting period; a
transaction purchase that has not yet been paid for or a sale where payment is yet to be
: collected when the accounting period ends.

operating Transactions and events that enter into the determination of net income.
activities :

operating Long-term, or noncurrent, assets acquired for use in the business rather than
assets : for resale; includes property, plant, and equipment; intangible assets; and
natural resources.

21
operating A simple rental agreement.
lease :

operating The extent to which fixed costs are part of a company's cost structure; the
leverage : higher the proportion of fixed costs, the faster income increases or
decreases with sales volumes.

operating An overall measure of the efficiency of operations during a period;

performance computed by dividing net income by net sales.
ratio :

organizational Lines of authority and responsibility.

structure :

other Items incurred or earned from activities that are outside, or peripheral to,
revenues the normal operations of a firm.
and
expenses :
outstanding Issued stock that is still being held by investors.
stock :

owners' The ownership interest in the assets of an entity; equal total assets minus
equity (net total liabilities. http://vustudents.ning.com
assets) :

parent A company that owns or maintains control over other companies, known as
company : subsidiaries, which are themselves separate legal entities; control generally
refers to more than 50 percent ownership of the stock of another company.

partnership An association of two or more individuals or organizations to carry on

: economic activity.

partnership A legal agreement between partners; it usually specifies, among other

agreement things, the capital contributions to be made by each partner, the ratios in
: which partnership earnings and losses will be distributed, the management
responsibilities of the partners, and the partners' rights to transfer or sell
their individual interests.
par-value Stock that has a nominal value assigned to it in the corporation's charter and
stock : printed on the face of each share of stock.

22
patent : An exclusive right granted for 17 years by the federal government to
manufacture and sell an invention.

payee : The person (entity) to whom payment on a note is to be made.

P/E (price A measure of growth potential, earnings stability, and management

earnings) capabilities; computed by dividing market price per share by earnings per
ratio : share.

pension A contract between a company and it employees whereby the company

plan : agrees to pay benefits to employees after their retirement.
periodic A system of accounting for inventory in which cost of goods sold is
inventory determined and inventory is adjusted at the end of the accounting period,
method : not when merchandise is purchased or sold.

perpetual A system of accounting for inventory in which detailed records of the

inventory number of units and the cost of each purchase and sales transactions are
method : prepared throughout the accounting period.

petty cash A small amount of cash kept on hand for making miscellaneous payments.
fund :

physical Physical precautions used to protect assets and records, such as locks on
safeguards doors, fireproof vaults, password verification, security gauds.
:

post- A listing of all real account balances after the closing process has been
closing completed; provides a means of testing whether total debits equal total
trial credits for all real accounts prior to beginning a new accounting cycle.
balance :
posting : The process of transferring amounts from the journal to the ledger.

preemptive The right of current stockholders to purchase additional shares of stock in

right : order to maintain their same percentage of ownership if new shares are
issued.

preferred A class of stock that usually provides dividend and liquidation preferences
stock : over common stock.

23
premium The excess of the issuance (market) price of stock over its par or stated
on stock : value.

prepaid Payments made in advance for items normally charged to expense.

expenses :
present The value today of $1 to be received or paid at some future date given a
value of $1 specified interest rate.
:

present The value today of a series of equally spaced, equal-amount payments to be

value of an made or received in the future given a specified interest rate.
annuity :

price- A measure of growth potential, earnings stability, and management

earnings capabilities; computed by dividing market price per share by earnings per
(P/E) ratio share.
:

primary The balance sheet, income statement, and statement of cash flows, used by
financial external groups to assess a company's economic standing.
statements
:

principal The amount that will be paid on a bond at a maturity date.

(face value
or
maturity
value) :
principal The face amount of a note; the amount (excluding interest) that the maker
on a note : agrees to pay the payee.

prior- Adjustments made directly to Retained Earnings in order to correct errors

period in the financial statements of prior periods.
adjustments
:

profitability A company's ability to generate revenues in excess of the costs incurred in

: producing those revenues.

proper Policy regarding either a general class of transactions such as inventory

24
authorization or a specific transaction to achieve control objectives.
:

property The distribution to shareholders of assets other than cash.

dividend :
property, Tangible, long-lived assets acquired for use in business operations; includes
plant, and land, buildings, machinery, equipment, and furniture.
equipment
:

property, A measure of how well property, plant, and equipment are being utilized in
plant, and generating a period's sales; computed by dividing net sales by average
equipment property, plant and equipment.
turnover :

proprietorship A business owned by one person.

:

pro rata : A term describing an allocation that is based on a proportionate distribution

of the total.

public Entities whose stock is publicly traded.

companies
:
purchase A reduction in the purchase price, allowed if payment is made within a
discount : specified period.

purchase A method used to prepare consolidated financial statements when one

method : company has acquired a controlling interest in another company with
similar activities by exchanging cash or other assets for more than 50
percent of the acquired company's outstanding voting stock.

Purchase A contra-purchase account used for recording the return of, or allowances
Returns for, previously purchased merchandise.
and
Allowances
:

purchases An account in which all inventory purchases are recorded; used with the
account : periodic inventory method.

25
purchases A special journal in which credit purchases are recorded.
journal :
qualified Opinion issues when the work of the auditor has been limited in scope or
opinion : the entity has failed to follow GAAP

real Accounts that are not closed to a zero balance at the end of each accounting
accounts : period; permanent accounts appearing on the balance sheet.

realized Gains and losses resulting from the sale of securities in an arm's length
gains and transaction. http://vustudents.ning.com
losses :

receivables Claims for money, goods, or services.

:

recourse : The right to seek payment on a discounted note from the payee if the maker
defaults.
recovery The time period designated by Congress for depreciating business assets.
period :

redemption The price, stated in the contract, to be paid by a company to repurchase

value : preferred stock.

registered Bonds for which the names and addresses of the bondholders are kept on
bonds : file by the issuing company.

relative A way of allocating a lump-sum or "basket" purchase price to the individual

fair assets acquired based on their respective market values.
market
value
method :

residual The amount of net income an investment center is able to earn above a
income : specified minimum rate of return on assets.
retail A procedure for estimating the dollar amount of ending inventory; the
inventory ending inventory at retail prices is converted to a cost basis by using a ratio
method : of the cost and the retail prices of goods available for sale.

26
retained The portion of a corporation's owners' equity that has been earned from
earnings : profitable operations and not distributed to stockholders.

return on A measure of operating performance and efficiency in utilizing assets

investment computed in its simplest form by dividing net income by average total
(ROI) : assets.

return on A measure of operating performance; computed by dividing net income by

sales total sales revenue. http://vustudents.ning.com
revenue :

return on A measure of overall performance from a stockholder's viewpoint;

stockholders' includes management of operations, uses of assets, and management of
equity : debt and equity, and is computed by dividing net income by average
stockholder's equity.
return on An overall measure of the return to both stockholders and creditors;
total assets includes operating performance and asset turnover.
:

revenue The idea that revenues should be recorded when (1) the earnings process
recognition has been substantially completed and (2) an exchange has taken place.
principle :

revenues : Increases in a company's resources from the sale of goods or services.

ROI A measure of operating performance and efficiency in utilizing assets

(return on computed in its simplest form by dividing net income by average total
investment) assets. http://vustudents.ning.com
:

S A domestic corporation that is recognized as a regular corporation under

corporation state law but is granted special status for federal income tax purposes.
:
sales A reduction in the selling price that is allowed if payment is received within
discount : a specified period.

Sales A special journal in which credit sales are recorded.

Journal :

27
Sales A contra-revenue account in which the return of, or allowance for,
Returns reduction in the price of merchandise previously sold is recorded.
and
Allowances
:

sales tax Money collected from customers for sales taxes, that must be remitted to
payable : local governments and other taxing authorities.

salvage, or Estimated value or actual price of an asset at the conclusion of its useful
residual, life, net of disposal costs.
value :
SEC The government body responsible for regulating the financial reporting
(Securities practices of most publicly owned corporations in connection with the
and buying and selling of stocks and bonds.
Exchange http://vustudents.ning.com
Commission)
:

secured Bonds for which assets have been pledged in order to guarantee repayment.
bonds :

Securities The government body responsible for regulating the financial reporting
and practices of most publicly owned corporations in connection with the
Exchange buying and selling of stocks and bonds. http://vustudents.ning.com
Commission
(SEC) :

segregation Strategy to provide an internal check on performance through separation of

of duties : custody of assets from accounting personnel, separation of authorization of
transactions from custody of related assets, separation of operational
responsibilities from record keeping responsibilities.

shareholders Individuals or organizations that own a portion (shares of stock) of a

(stockholders) corporation.
:
significant Influence presumed if a company owns between 20% and 50% of another
influences : company.

social Federal Insurance Contributions Act taxes imposed on employee and

28
security employer; used mainly to provide retirement benefits.
(FICA)
taxes :

solvency : A company's long-run ability to meet all financial obligations.

special A book of original entry for recording similar transactions that occur
journal : frequently. http://vustudents.ning.com

special An order that may be priced below the normal price in order to utilize
order : excess capacity and thereby contribute to company profits.
specific A method of valuing inventory and determining cost of goods sold
identification whereby the actual costs of specific inventory items are assigned to them.
:

standard Audit report indicating that all auditing conditions have been met, no
unqualified significant misstatements have been discovered and remain uncorrected,
audit and the auditors feel the financial statements are fairly stated in accordance
report : with generally accepted accounting principles.

stated rate The rate of interest printed on the bond.

of interest
:

stated A nominal value assigned to no-par stock by the board of directors of a

value : corporation.

statement The financial statement that shows an entity's cash inflows (receipts) and
of cash outflows (payments) during a period of time.
flows :
statement The financial statement that summarizes the revenues generated and the
of earnings expenses incurred by an entity during a period of time.
(income
statement)
:

statement A partnership report showing the changes in the capital balances; similar to
of a statement of retained earnings for a corporation.
partners'
capital :

29
statement A report that shows the changes in the Retained Earnings account during a
of retained period of time. http://vustudents.ning.com
earnings :

statement of A financial statement that reports all changes in stockholders' equity.

stockholders'
equity :

stock A document issued by a corporation to stockholders evidencing ownership

certificate : in the corporation.
stock A pro rata distribution of additional shares of stock to shareholders.
dividend :

stockholders Individuals or organizations that own a portion (shares of stock) of a

(shareholders) corporation.
:

stock split The replacement of outstanding shares of stock with a greater number of
: new shares that have a proportionately lower par or stated value.

straight-line A method of systematically writing off a bond discount or premium in

amortization equal amounts each period until maturity.
:

straight-line The depreciation method in which the cost of an asset is allocated equally
depreciation over the periods of an asset's estimated useful life.
method :
subsidiary A company owned or controlled by another company, known as the parent
company : company.

subsidiary A grouping of individual accounts that in total equal the balance of a

ledger : control account in the General Ledger.

sum-of-the- The accelerated depreciation method in which a constant balance (cost

years'-digits minus salvage value) is multiplied by a declining depreciation rate.
(SYD)
depreciation http://vustudents.ning.com
method :

30
supplies : Materials used in a business that do not generally become part of the sales
product and were not purchased to be resold to customers.

SYD (sum- The accelerated depreciation method in which a constant balance (cost
of-the- minus salvage value) is multiplied by a declining depreciation rate.
years'-
digits) http://vustudents.ning.com
depreciation
method :
tangible Depreciable operating assets of a business, other than real property,
personal including machinery, furniture and fixtures, automobiles and trucks, and
business equipment.
property :

term bonds Bonds that mature in one lump sum at a specified future date.
:

time period The idea that the life of a business is divided into distinct and relatively
(or short time periods so that accounting information can be timely.
periodicity)
concept :

times Ratio that indicates the company's margin above the fixed interest charged
interest to be paid to creditors; calculated by dividing income before interest and
earned income taxes by interest expense.
ratio :

trading Debt and equity securities purchased with the intent of selling them should
securities : the need for cash arise or to realize short-term gains.
transactions Exchange of goods or services between entities (whether individuals,
: businesses, or other organizations), as well as other events having an
economic impact on a business.

transportation Costs of transferring merchandise into or out of a firm.

costs :

treasury Issued stock that has subsequently been reacquired by the corporation.
stock :

31
trial A listing of all account balances; provides a means of testing whether total
balance : debits equal total credits for all accounts.

Uncollectible An account that represents the portion of the current period's receivables
Accounts that are estimated to become uncollectible.
Expense :
unearned Amounts received before they have been earned.
revenues :

units-or- The depreciation method in which the cost of an asset is allocated to each
production period on the basis of the productive output or use of the asset during the
depreciation period.
method :

unlimited The lack of a ceiling on the amount of liability a proprietor or partner must
liability : assume; meaning that if business assets are not sufficient to settle creditor
claims, the personal assets of the proprietor or partners may be used to
settle the claims.

unrealized Gains and losses resulting from changes in the value of securities that are
gains and still being held.
losses :

unrecorded Expenses incurred during a period that have not been recorded by the end
expenses : of that period.
unrecorded Revenues earned during a period that have not been recorded by the end of
revenues : that period.

useful life : The term used to describe the life over which an asset is expected to be
useful to the company; cost is assigned to the periods benefited from using
the asset.

vertical A technique for analyzing the relationships between items on an income

analysis of statement or balance sheet by expressing all items as percentages.
financial
statements
:

weighted- A periodic inventory cost flow alternative whereby the cost of goods sold
average : and the cost of ending inventory are determined by using a weighted-

32
 average cost of all merchandise available for sale during the period.

work sheet A columnar schedule used to summarize accounting data.

:
working Current assets minus current liabilities.
capital :

working A measure of the amount of working capital used in generating the sales of
capital a period; computed by dividing net sales by average working capital.
turnover :

zero- Bonds issued with no promise of interest payments; only a lump sum
interest payment will be made.
bonds :

33