Used X Performance indicators for ACT

2 Analyze business systems and procedures

 Does the company have a Code of Conduct that explains the company’s expectations
with respect to ethical situations?
 There is a Code of Conduct for accountants from the professional organization
 According to the Code, is the employee required to report stock purchases based on
company information (eg. Legal insider trading)
 Has there been training ethics in the company? Example—a workshop in dealing
with ethical dilemmas
 Is there whistleblower protection?
 Has the company culture set a moral tone and expectations?
 Does the leadership in the company act ethically?
 Participants should outline the role and necessary action of the operations/loss
prevention team within the business system. Ideas might include:
o Recommending and enforcing a safe warehouse layout
o Assessing the current employee training program as well as recommending
training changes to the HR department for them to enforce
o Evaluate current security systems and make recommendations for further
action to reduce theft
 Participants should make the connection between the impact of the operations/loss
prevention team on the procedures of other departments and the success of the
business as a whole
Analyze cash flow.
Analyze daily transactions.
2 Analyze operating results in relation to budget/industry.
2 Analyze operating results of the budget in relation to a budget/industry
Analyze the daily transactions
 Using First In, First Out
o Monday - bought 500 units at $1.00; total value = $500
o Tuesday – bought 300 units at $1.25; total value = $375
o Total 800 units $875
o Using the periodic inventory system, the timing of the sales are ignored and
an allocation is made at the end of the period
o Sold 650 units; therefore 150 units remain in inventory x $1.25 = $187.50


Using Last In, First Out
o Sold 650 units, therefore 150 units remain in inventory x $1.00 = $150.00
2 Apply the accounting equation to business transactions.
Assess risk-return tradeoffs.
10 Calculate financial ratios
Financial ratios are the most widely used tool of financial analysis. It can be
expressed as a percent, rate, or proportion. The most common ratios used by lenders
 include:
Ratio Calculated What it means
The total funds provided by
Debt to equity
creditors vs. owners
Times interest The extent to which a company
earned can pay its interest costs
The extent to which a company
Current ratio can meet its short term
obligations
A measure of how much profit a
Profit margin company can generate with the
amount of sales
A measure of how well the
Return on assets company can use its assets to
generate profits
A measure of how much profit a
Return on
company can generate with the
equity
amount of equity invested
Participants should demonstrate one or two ratios and describe a positive versus
negative trend
Working Capital = current assets/current liabilities
- Indicates if a firm has enough short-term assets to cover its immediate liabilities
- If the ratio is less than one then they have negative working capital
- A high working capital ratio isn't always a good thing, it could indicate that they have
too much inventory or they are not investing their excess cash

Liquidity Ratio – this is also known as the “Acid Test” or “Quick” Ratio
Liquidity = Cash + Accounts Receivable + any short term investments/current
liabilities

- A stringent test that indicates whether a firm has enough short-term assets to cover its
immediate liabilities without selling inventory. The acid-test ratio is far more strenuous
than the working capital ratio, primarily because the working capital ratio allows for the
inclusion of inventory assets
- A ratio between 1.5 and 2 is generally considered to be desirable
- *Tangible net worth = total assets – liabilities – intangible assets(copyrights, patents and
intellectual property)
- tangible net worth represents the amount of physical assets a company has net of its
liabilities. Thus, it represents the supposed liquidation proceeds a company would fetch
if its operations were to cease immediately and the firm was sold off
- Rarely should your business's total liabilities exceed its tangible net worth (therefore a
ratio not much greater than 1 is acceptable). If it does, creditors assume more risk than
stockholders. A business handicapped with heavy interest charges will likely lose out to
its better financed competitors
Net Income to Net Sales (also called “Profit Margin”)
Net Income/Net Sales
 - This is an indication of what percentage of sales are actually kept after all
expenses are paid
- The higher the profit margin, the better for the business. This is a good way to
tell if disposable income is growing or shrinking from year to year

2 Calculate payroll earnings and deductions.

5 Conduct a break even analysis
 The break-even point for a product is the point where total revenue received equals
the total costs associated with the sale of the product (TR=TC)
 Break even analysis can also be used to analyze the potential profitability of an
expenditure in a sales-based business
 In using break even analysis, it is important to remember the problem associated with
sensitivity analysis:
 Variables are often interdependent, which makes examining them each individually
unrealistic
 Often the assumptions upon which the analysis is based are made by using past
experience / data which may not hold in the future
 Variables have been adjusted one by one; however it is unlikely that in the life of the
project only one variable will change until reaching the break even point
 Management decisions made by observing the behavior of only one variable are most
likely to be invalid
 Break even analysis is a pessimistic approach by essence
 The figures shall be used only as a line of defense in the project analysis
In this example, the Break-even point is 24 packages
Unit Sales x N = (VC x N) + FC
$127 x N = 50 x N + 1800
N = 24
2 Conduct a staff meeting
Conduct break-even analysis
2 Defend ideas objectively
 Support ideas with facts
 Leave opinion and emotion out
 Be conscious of tone of voice
 The company must answer complaints quickly and to the customer’s satisfaction
The participant may indicate defending ideas objectively:
 Supporting their ideas and answers with facts and business terminology
 Answer questions effectively and in detail.
3 Demonstrate the effects of transactions on the accounting equation
The basic accounting equation is:
Assets = Liabilities + Equity
In the first set of transactions:
Increase the asset – supplies inventory– with a debit
Increase the liabilities – accounts payable – with a credit

Decrease the liability – accounts payable – with a debit

 Decrease the asset – cash – with a credit

The net effect of the two transactions – increase supplies inventory and decrease
cash (both are assets), so the accounting equation always stays in balance

In the second set of transactions:

Increase the asset – accounts receivable – with a debit
Increase equity – revenues – with a credit

Increase the asset – cash – with a debit

Decrease the asset – accounts receivable – with a credit

The net effect of the two transactions – increase cash and increase equity, so the
accounting equation always stays in balance
2 Demonstrate the wise use of credit
Credit is a way to receive cash or goods now and pay later, most commonly by a credit
card or a loan. The participant should demonstrate knowledge of the importance of using
credit responsibly by discussing the following:
 Can the buyer afford the item in the first place
 Would it be better to use savings instead of credit?
 Should the purchase be put off until a later date?
 Do the benefits of purchasing now on credit outweigh the costs, including fees and
interest charges?
Using credit wisely can build a better credit history allowing you better interest rates as well
as a better image with lenders. It is important to avoid the temptation to buy more than you
can afford, especially when purchasing a new vehicle where most often they are bought on
credit. Failing to repay a loan can ruin your credit history and could lead to losing income,
property or the car itself in the process.
2 Describe current business trends
There are many correct answers to this question. Examples could include:
 Economic recession
 Credit crisis
 Companies focusing on being more environmentally friendly
 Double income families or single parent families that need and are willing to pay for
services because of their busy lives
 Big box stores
 Increase in discounts to encourage sales
 Lower profits, maintenance of sales
 Competitive market
 React / respond to economies of scale
2 Describe economies of scale.
4 Describe the concept of economies of scale.
5 Describe the concept of price
 Price is the amount the consumer must pay for a product
 Influenced by costs, competition, demand, and supply
  Cost—all costs are calculated and then a mark-up is applied to achieve the price
 Competition—set the price in relation to competitors
 Demand—apply the concepts of supply and demand, the greater the demand for the
product, the higher the price charged
 Supply—a product in short supply will have a greater demand
If the product is a luxury product, a pricing strategy of skimming or prestige should be used.
People will be able and willing to pay a higher price because it is located in an affluent
neighbourhood
2 Describe the economic impact of inflation
 Inflation is a period of constantly rising prices
 Inflation causes businesses to frequently have to adjust their prices upwards or make
their products smaller
When prices go up, consumers need more money to have the same purchasing power,
therefore, they ask for higher wages. The companies then must increase wages. They can
afford to do this by raising the prices of their products. It is a cycle
Describe the nature of a profit and loss statement
2 Describe the nature of balance sheets
 Describes a company’s financial position at a given point in time
 A snapshot of the company’s financial structure
 Shows assets (what a company owns), Liabilities (what a company borrowed, its
obligations) and equity (contributions from owners – common stock, plus
contributions from profit (retained earnings)
 The Balance Sheet must balance!
 Loans. Shows cash received from sale of stock any cash paid out for dividends
2 Describe the nature of business records
Participants should make the connection between business records and business decisions
based on those records. Records of business transactions are essential to maintaining control
of a business. Business records need to be accurate, timely, and verifiable to be of any
value. Accurate information is necessary for making good decisions. Making good
decisions is what management is all about.
Points to address this may include:
 Inaccurate records could lead to an under or over projection of the business’s financial
position in its financial statements
 Since these statements are used to make business decisions by management and
investors, it can lead to misinformed business decisions as well as billing and
delivery errors
 Business records are also used as reference points if and when the company is
audited, thus these records must be accurate and maintain for future use
4 Describe the nature of cash flow statements
 Where does the cash come from? Where does it go?
 Shows what used/provided cash for the organization over a specific period of time.
 It focuses on change from one accounting period to the next
 It is broken down into 3 sections:
 Cash Flows from Operating Activities – from the day-to-day business of the
 organization.
 Cash Flows from Investing Activities – shows the cash outlay for capital
expenditures and acquisitions.
 Cash Flows from Financing Activities – cash received from borrowing and cash
used to repay l
2 Describe the nature of income statements
A financial statement measures a company's financial performance over a specific
accounting period. Financial performance is assessed by a summary of how the business
incurs its revenues and expenses through both operating and non-operating activities. It also
shows the net profit or loss incurred over a specific accounting period
Students should have a variation of the following:
Revenue
Gross sales $10,000
Less Cost of Goods Sold ($1.00 + $1.50 @ 1,000 pairs sold) $ 2,500
Gross Margin $ 7,500

Expenses
Any expence required to make money come in $ 1,200
Net Profit $ 6,300
 (If student includes start-up costs of $1,000) $ 5,300
Describe the nature of income statements.
2 Describe the nature of managerial control (control process, type of control, what to
control)
Participants should demonstrate an understanding of the importance of managerial control
measures to ensure the integrity of the business. Having more than one person reviewing
financial records avoids any abuse of positional power by employees to influence records or
overlook errors.
 Control:
 the process of measuring performance and taking action to ensure desired results
 Make sure that plans are achieved
 Make certain that actual performance meets or exceeds specific performance
 Control process:
 Establish objectives and standards
 Measure actual performance
 Compare results with objectives and standards
 Take corrective action—fix if below standard, and learn how to repeat if above
standard
 Managers are responsible for planning, organizing, leading and controlling
 Control refers to measuring how well the organization/their area of responsibility is
performing with respect to organizational goals and then taking action to ensure goals
are met
 In this case, managerial control would require the supervisor/manager to monitor hours
worked, ensure that employees are working the required number of hours, ensure that
employees are properly added to benefits for which they qualify and taking corrective
action if requirements are not met
 It would appear that managerial control was lacking in this case and now the manager must
take corrective action
2 Describe the nature of operating budgets
2 Describe the nature of profit-and-loss statements.
Describe the role of a financial institution
 The use of a bank contributes significantly to good internal control over cash
 Cash is safeguarded when banks are used as a depository and as a clearing house for
cheques received and written
 The use of a bank minimizes the amount of cash that must be kept on hand at the
worksite
 The use of banks creates a double record of all bank transactions – one by the business
and one by the bank
 Banks will provide the depositor with a book of serially numbered cheques and deposit
slips
Determine cost of goods sold
2 Determine factors affecting business risk
 Business risk is the potential for business loss or failure
 3 kinds of business risk: economic, natural and human
 Economic- occur from changes in overall business conditions (competition,
changing consumer lifestyles, population changes, limited usefulness or
stylishness of some products, product obsolescence, government regulation,
inflation or recession)
 Natural- result from natural causes (weather conditions-floods, fires, hurricanes, etc.)
 Human-caused by human mistakes and the unpredictability of employees or
customers (dishonesty, carelessness, incompetence, accidents, illness, non-payment
of accounts)
o In this case, the business risk would be economic as a result of the
declining sales
 There are many types of risks businesses face—political, financial, social, economic,
legal, theft, safety, etc
 There are many types of risks faced in the restaurant industry—alcohol, underage
drinking, fire, burns, food poisoning, spills, broken glass, etc
 It is important that businesses anticipate possible risks and create plans to deal with
these risks
If possible, businesses should find ways to make certain that the risks are prevented before
they occur
2 Determine financial strengths/weaknesses of a business
 Financial strengths my include positive profit and income numbers
 Minimal promotion expenses as related to sales, meaning word of mouth and repeat
customers are the main source of promotion
 The fact that the business is able to travel and take advantage of prosperous
communities
 Carnivals seem to be a low cost alternative to high priced entertainment in
economically deprived communities
  Weaknesses may include high payroll expenses
 The business may suffer if economic downturn continues as customers cut back on
spending
 Students should summarize the 4 ratios that they were asked to calculate and any others
they may have calculated
 Students could provide examples of scenarios in which the business in question could
be exposed to financial risk and examples of under which conditions the business could
thrive
2 Determine profit margin requirement
 The profit margin is mostly used for internal comparison
 A low profit margin indicates a low margin of safety: higher risk that a decline in
sales will erase profits and result in a net loss
 Profit margin is an indicator of a company's pricing policies and its ability to control
costs
 It is a cost accounting method that allows a company to determine the profitability of
individual products
 Contribution margin refers to a per unit measure of a product's gross operating
margin; it is calculated simply as the product's price minus its total variable costs
Determine relationships among total revenue, marginal revenue, output and profit.
Determine the book value of a plant asset.
Determine the cost of goods sold
 Using FIFO; 650 units sold
o 500 units sold x $1.00 = $500
o 150 units sold x $1.25 = $187.50
o therefore Cost of Goods Sold = $687.50

 Using LIFO; 650 units sold

o 300 units sold x $1.25 = $375
o 350 units sold x $1.00 = $350
o therefore Cost of Goods Sold = $725
Determine the cost of inventory
Determine the reconciled bank balance
 In reconciling the bank account, it is customary to reconcile the balance per books and
balance per bank to their adjusted balances
 Outstanding deposits and cheques are identified; errors and unrecorded memoranda re
reconciled
2 Determine the relationship among total revenue, marginal revenue, output and profit.
2 Determine the relationship between government and business.
4 Develop expense control plans
3 Discuss the nature of annual reports
 Annual reports communicate financial information to interested users
 There are typically four different financial statements that organizations use to
communicate this information. They are:
o the income statement;
 o the statement of retained earnings;
o the balance sheet; and
o the statement of cash flows
5 Discuss the nature of the accounting cycle
The term accounting cycle refers to the steps in preparing financial statements. It is
called a cycle because the steps are repeated each reporting period
There are nine steps in the cycle:
1) Analyze transactions;
2) Journalize the transactions in the general journal;
3) Post the transactions to the general ledger;
4) prepare an unadjusted trial balance;
5) Adjust the accounts;
6) Prepare an adjusted trial balance;
7) Prepare financial statements;
8) close the accounts; and
9) Prepare a post-closing trial balance
3 Discuss the use of financial ratios in accounting
 Ratios are the most widely used tools for analyzing financial statements
 They provide clues to and symptoms of underlying conditions
 Ratios refer to an economically important relation between two variables from the
financial statements that are expressed as a mathematical relationship
 They are used by Wall Street to detect intra-company trends (trends from one
period to the next), compare one company to a competitor, and to compare one
company to industry benchmarks
2 Discuss the use of Generally Accepted Accounting Principles (GAAP)
 GAAP should lead to external users having the most useful financial information
possible when making their business decisions
 GAAP encompass broad principles and conventions of general application as well as
rules and procedures that determine accepted accounting practices at a particular time
 “Generally Accepted” means that these principles have authoritative support through the
Canadian and provincial business corporations acts and securities legislation
 Must comply with GAAP is a company has publically traded shares or debt (follow the
CICA Handbook)
 Most other companies also follow GAAP as these principles result in the most useful
information for decision making
 The petty cash fund is a current asset
 By accounting for the petty cash fund this allows the financial statements to provide
information on the economic resources (assets) of the company
 Replenishment of the petty cash fund allows for recognition of the effect of the fund on
the financial statements
2 Evaluate a business’s liabilities
 Can conduct a debt/equity ratio analysis: 30,000/126,000 = 23.8% which is quite low
meaning company is financed mainly by contributions from the owner
 There are accounts payables meaning credit has been extended to the business, a good
thing because it keeps cash longer within the business
2 Evaluate projected income statements
5 Explain cash control procedures
Cash is easily concealed and transported, lacks owner identification and is highly desirable.
To safeguard cash and ensure accuracy of accounting records, effective internal control over
cash is important. Companies may not want to write cheques or use EFT to pay for small
amounts because this is impractical and a nuisance. As a result, the company will set up a
petty cash fund for small cash disbursements The petty cash fund is usually operated on an
“imprest” system – an advance of a specific amount of money for a specific purpose. Every
transaction should be recorded to keep track of exactly where there money is being spent
and the balance is always updated
Always keep cash on hand so that the company remains liquid
Cash controls over petty cash can include the following:
 Appoint a petty cash custodian to be responsible for the petty cash fund (“the fund”)
 Determine the size of the fund (i.e. $100)
 The custodian has authority to make payments from the fund in accordance with
management policies
 Each payment from the fund should be documented on a pre-numbered petty cash
receipt signed by both the custodian and the person who receives the payment
 If other supporting documentation is available (i.e. freight bill or invoice), this
should also be attached to the receipt
 A supervisor can make surprise counts of the fund to check whether paid receipts
and the fund cash equal the imprest amount
 To replenish the fund, a request is made by the petty cash custodian and sent to the
controller’s office
 The request should include a schedule (summary) of the payments that have
been made along with the petty cash receipts and supporting documentation
 The controller’s office will verify that that proper payments from the funds
were made and approve the request and prepare a cheque to replenish the fund
 The supporting documentation is stamped “paid” so it cannot be submitted
again for payment
 The petty cash fund should be replenished at the end of each accounting period
2 Explain ethical considerations in providing information
 Information ethics has been defined as "the branch of ethics that focuses on the
relationship between the creation, organization, dissemination, and use of information,
and the ethical standards and moral codes governing human conduct in society". It
provides a critical framework for considering moral issues concerning informational
privacy, moral agency, new environmental issues problems arising from the life-cycle
(creation, collection, recording, distribution, processing, etc.) of information (especially
ownership and copyright, digital divide, and digital rights). Dilemmas regarding the life
of information are becoming increasingly important in a society that is defined as "the
information society". Information transmission and literacy are essential concerns in
establishing an ethical foundation that promotes fair, equitable, and responsible
practices. Information ethics broadly examines issues related to ownership, access,
privacy, security, and community
 In this case, there is a certain amount of privacy on the part of the evaluators, but
 because of the public nature of their comments, the companies they are evaluating are
demanding more information on the evaluations and evaluators
 The accountant had an ethical and moral obligation not to insider trade
 If a person has access to information as a part of their job, they are morally bound not to
use it for their own gain. They are also ethically bound not to share the information
 In this case, the accountant used the information to defraud shareholders of the
manufacturing firm
2 Explain the benefits of electronic funds transfer (ETF)
 ETF systems transfer funds between parties without use of paper (e.g. deposits, cheques
etc.)
 Debit and bank credit cards, on-line banking payments and pre-authorized monthly
payments are examples of ETFs
 ETFs normally result in better internal control because no cash or cheques are handled
by company employees
 The benefits include:
o Reduction in cost of making payments by cheque, such as postage and envelope
costs
o Also reduces the risk of lost, stolen or forged cheques
11 Explain the concept of accounting
Accounting is an information and measurement system that identifies, records, and
communicates relevant, reliable, and comparable information about an organization’s
business activities to interested users.
Accrual basis accounting recognizes revenues when they are earned and expenses when
incurred. Generally Accepted Accounting Principles (GAAP) requires that businesses use
accrual basis accounting because it presents a better picture of a business’s economic
activity during a specific timeframe
 It is the measuring, communicating, and interpreting of financial activity
 It is used by decision makers (e.g. managers, owners, etc.) to decide optimally (e.g.
on whether to expand, to take on new debt, to offer credit to customers, etc.)
 It is the “language” of business
Participants should be able to identify and explain accounting fundamentals as they apply to
this situation. The participant’s address may include:
 Accounting involves the careful and accurate recording of the transactions of a business
 These records are used to formulate financial statements that represent the financial
position of the business
 Accounts payable handles invoices charged to the company on orders made, in this case,
for materials to make spirit items
2 Explain the concept of competition
The rivalry between two or more businesses to gain as much of the total market sales or
customer acceptance as possible Helps to maintain reasonable prices, provides
consumers with new and improved products, and results in a wide selection of products
from which to choose. Forces businesses to operate efficiently. In this case there is a
competition between the companies being evaluated, and the evaluations can have a great
effect on competition
Competition
  Did the student discuss the pros and cons of competition?
 Did the student address issues related to competitive advantage?
Competitors
 Who are the direct/indirect competitors?
What target market are they competing for?.
2 Explain the concept of organized labor and business.
2 Explain the effect of inventory systems on cost of goods sold
 First In, First Out (FIFO) gives the lowest cost of goods sold and the higher value of
ending inventory
 Last in, First Out (LIFO) gives the highest cost of goods sold and the lower ending
inventory valuation
Explain the importance of maintaining financial records
With regards to bank reconciliations, the maintenance of financial records allows the user to
check for accuracy of cash receipts and payment cheques against bank records; allows
journal entries to be made to update the cash account; allows for discrepancies to be
identified and corrected; and produces regular monthly reports
3 Explain the nature of accounts payable
 Accounts payable are short-term obligations arising from the purchase of goods and
services in the ordinary course of the business
 Accounts payable exist when you have not yet paid for the assets or services you have
received
3 Explain the nature of accounts receivable
 Accounts receivable are amounts owed by customers on account resulting from the sale
of goods and services in the ordinary course of business
 Accounts receivables are generally expected to be collected in 30 days or so and are
classified as current assets
6 Explain the nature of balance sheets
A balance sheet describes a company’s position (types and amounts of assets, liabilities, and
equity) at a point in time. Participants should use examples of assets, liabilities, etc. that
specifically relate to the bakery industry
 Summary of all assets, liabilities, and owner’s equity for a company at a certain day,
usually fiscal year end
 Can be described as a “snapshot” of the business on that particular day
 They show details of the Assets and Liabilities (things it owns and owes) and the Net
Worth or Owner’s Equity.
 From them, other aspects of the business can be interpreted – liquidity, turnover, etc.
 Managers, Owners and investors use balance sheets to analyse and evaluate the current
operations of a business and suggest changes/improvements
2 Explain the nature of business plan
2 Explain the nature of costing procedures
A business uses costing procedures to track and account for all the costs associated with
manufacturing or merchandising. Costs can include both direct costs (such as raw materials)
and indirect costs (overhead items like utilities and salaries) associated with production or
operation. Costing procedures ensure that a business knows its average per item costs.
  First In, First Out (FIFO) assumes that the earliest goods purchased are the first to be
sold
 FIFO matches the physical flow of inventory, because it is generally good practice to
sell the oldest goods first
 Last In, First Out (LIFO) assumes that the goods purchased last are the first to be sold
 Does not match the physical flow of inventory in a small merchandising business
 More suitable for bulk foods or commodities such as sand or gas
2 Explain the nature of overhead/operating costs
 Fixed costs that are “sunk costs”, i.e. already spent and not material in decision
making
 Arbitrarily assigned on a per unit basis for accounting reasons
 Will decrease on a per unit basis as unit produced increases; this will have no real
impact on business
 Explain the difference between fixed and variable costs
 Fixed costs do not fluctuate due to the number of items sold
 Variable costs fluctuate depending on the total number of items sold
Overhead costs and operating costs deal with different types of company expenses
Overhead costs generally relate to expenses necessary for the functioning of the business
but which do not help to directly generate profits. Typical of these would be rent,
gas/electricity, indirect wages). Examples of rising overhead costs would be for the
installation of security cameras or more expensive cash registers that would reduce
employee errors
Operating costs are the recurring expenses which are related to the production and sales
of a business, and therefore directly related to profits. These include direct wages,
advertising, and food preparation, such as our food preparers using too much of the
inventory to make our menu items. If too much food is put on a plate, or too much food
is wasted in making the food, our operating costs will rise compared to sales.
Since all costs will eventually reduce the amount of profit a business has, any expenses
the business has related to inventory control systems and shrinkage are important
Ideally, the money spent to install and implement these systems would more than make
up for the amount of shrinkage a company faces, but it still has an impact on the
efficiency of a business when one includes the additional time necessary to monitor and
administer these procedures.
 Overhead and Operating costs combine to add up to the costs of operating the
business
 These costs can either be fixed (overhead) or variable (operating)
 Overhead costs (fixed) must be paid regardless of the level of production or sales
o costs that remain the same for a period of time (insurance, rent, hydro, water,
heat, wages, taxes)
 Operating costs (variable) are dependent on the business’ level of production or sales
o can change monthly depending on the needs of the business (advertising,
office supplies, utilities, packaging, labour salaries)
3 Explain the nature of special journals
 A special journal is used to record similar types of transactions, such as all cash
receipts or all cash payments (cash receipts or cash payments journal)
  Other special journals include: periodic inventory system, purchases journal and a
sales journal
 Special journals are useful as they are designed as a simple way to record a single type
of frequently occurring transactions
o It reduces the time needed to record and post transactions
o Only totals, rather than individual entries are posted to the general ledger
 As a comparison, in the typical two-column manual accounting system, transactions are
entered as debits to one (or more) account and balancing credits to one (or more)
account
o If you consider some recurring transactions (such as sales) that will hopefully
occur many times during an accounting cycle, all this double entry can add up
to a lot of work. That's where special journals are useful
 Special journals also permit greater division of labour because different employees can
record entries in different journals
o The division of responsibilities ensures one person does not have control over
all aspects of a transaction
o This may reduce the opportunity for intentional or unintentional error and is
one aspect of a good internal control system
2 Explain the nature of wage and benefit programs.
2 Explain the principles of supply and demand
Supply and demand determine the prices and quantities of goods and services produced.
Supply is the amount of goods and services producers are willing to make and sell
Demand is the willingness and ability of consumers to buy goods and services.
 The law of supply states that price and quantity supplied move in the same direction (a
direct relationship)
 As price increases, the amount of goods and services supplied increases. The law of
demand states that as price increases, the amount desired by consumers will decrease
(an inverse relationship)
 When the amount of a product/service being supplied equals the amount being
demanded, equilibrium exists in the marketplace at that price.
 A surplus exists when there is more supply than demand, leading to lower prices
 A shortage exists when there is more demand than supply, leading to higher prices
2 Explain the structure of the budgeting process.
2 Explain the types of business ownership.
4 Forecast sales.
2 Foster Positive Relationships
Answers will vary and should include methods of creating good working relationships
among all employees of an organization
 Answers may also include benefits to the organization of positive working
relationships.
 Ensure that employees keep personal problems with other co-workers out of work
time so that job performance and customer service is the main focus
 Ensure that employees are happy and courteous to fellow employees even if they
did not have a good day. A negative attitude sets everyone off in a bad way
 Make work fun – arrange social events for employees to establish a more personal
 relationship, not just working relationship (i.e. team sports, get togethers, drinks
after work, etc.)- create a bond between workers
o Establish team member roles and responsibilities
o Determine a common goal and strategies to achieve it
o Lay out employee expectations
o Weekly meetings
o Strategically match workers by skill, experience, education, interests, etc
o Open communication – allow employees to approach leader about any issues
they are experiencing
o Have fun – plan a social so members can bond on a more personal level and
not just business (i.e. drinks after work, lunch with the team, etc)
 The company needs to celebrate the success of the new schedule
 Organize a company picnic or other social event for all of the families that recognizes
that the entire family, not just the employees, has had to make adjustments because of
the changes
 Perhaps 5% of the 23% cost savings could be passed on to the employees
There are several characteristics that make up good, healthy working relationships:
 Trust – This is the foundation of every good relationship. When you trust your team
and colleagues, you form a powerful bond that helps you work and communicate
more effectively. If you trust the people you work with, you can be open and honest
in your thoughts and actions, and you don't have to waste time and energy "watching
your back."
 Mutual Respect – When you respect the people that you work with, you value their
input and ideas, and they value yours. Working together, you can develop solutions
based on your collective insight, wisdom and creativity
 Mindfulness – This means taking responsibility for your words and actions. Those
who are mindful are careful and attend to what they say, and they don't let their own
negative emotions impact the people around them
 Welcoming Diversity – People with good relationships not only accept diverse
people and opinions, but they welcome them. For instance, when your friends and
colleagues offer different opinions from yours, you take the time to consider what
they have to say, and factor their insights into your decision-making
Open Communication – We communicate all day, whether we're sending emails and
IMs, or meeting face-to-face. The better and more effectively you communicate with
those around you, the richer your relationships will be. All good relationships depend
on open, honest communication
7 Identify factors affecting a business’s profit
Profit is the monetary return a business` owner receives for taking the risk of investing in
the business. Profit equals income less expenses. There are two types of profit: gross –
the money left over after the cost of goods is subtracted from sales, and net – the money
left over after the operating expenses are subtracted from the gross profit
Factors that affect profit include: the demand for the good/service, expenses, prices, the
economy, and chance. To increase profit, a business can increase worker efficiency,
increase sales or decrease expenses
 Revenues: number sold * sales price per ruler
 Expenses: Fixed costs + (variable costs * number produced)
  4 P’s of marketing – Product; Price; Place; Promotion
 4 C’s of marketing – Consumer wants/needs; Cost to satisfy; convenience to buy;
Communication
 The amount of sales
 The cost of the merchandise
 Price merchandise is being sold for
 Amount of overhead
 Cost of sales
 Competition
 Success of an advertising campaign
 Merchandise that is being sold
 Ability of the sales staff
 Ability of staff to close sales and to add on sales once an initial sale has been closed
 Revenues: rentals
 Expenses: advertising, salary, rent, utilities expenses
2 Interpret business policies to customers/clients
 Employees should be well trained on the policy. Provide many examples of how the
policy can be interpreted
 After this situation has been handled, it should be used as an example for employees
for future reference
 Phone and explain clearly that the restaurant is sorry that COMPUTER CORP’s visit
was unsatisfactory
 Explain the new changes
 Book a new reservation
Interpreting business policies typically involves explaining company procedures, often
written in bureaucratic language, to customers who are already irritated and upset. By
acknowledging their frustration and using plain and ordinary language to describe what's
required from the customer to proceed, customer service representatives can diffuse a tense
situation, maximize the opportunity to conduct a successful transaction and provide pointers
to other information, such as brochures, website links and other phone numbers for help and
support
Back up the business policy by describing how it helps streamline business transactions that
actually help customers in the long run. Provide details about why changes to previous
policies make the current policy more advantageous in terms of long-term gains. Cite any
laws, studies conducted, customer feedback obtained or conventional business practices that
reinforce the implementation of the business practice
Involve customers in the interpretation of any business policy. Ask for candid feedback
about how the rules impact their business. For example, record input with online surveys
using free software applications such as Qualtrics, Zoomerang or SurveyMonkey. Publish
your findings so that customers can see that you have taken their feedback seriously and
intend to act on their suggestions
Propose an implementation date that allows the customer time to adjust to your new policy
and enforcement of a current policy. Ensuring customer satisfaction involves validating that
new mechanisms meet the needs of existing customers and future customers alike.
3 Interpret Financial Statements
 Answers will vary for this section. Students sold be evaluated on the concepts and
principles involved in financial statement analysis
 Fundamental analysis that should be given are questions pertaining to profitability and
repayment of debt
 Basically, the income statement shows how much money the company generated
(revenue), how much it spent (expenses) and the difference between the two (profit)
over a certain time period
 The income statement lets investors know how well the company’s business is
performing - or, basically, whether or not the company is making money
 Cost of goods sold is the expense most directly involved in creating revenue. It
represents the costs of producing or purchasing the goods or services sold by the
company
 Companies with high gross margins will have a lot of money left over to spend on
other business operations, such as R&D or marketing. So be on the lookout for
downward trends in the gross margin rate over time. This is a telltale sign of future
problems facing the bottom line. When cost of goods sold rises rapidly, they are likely
to lower gross profit margins - unless, of course, the company can pass these costs onto
customers in the form of higher prices
 High operating margins can mean the company has effective control of costs, or that
sales are increasing faster than operating costs. Operating profit also gives investors an
opportunity to do profit-margin comparisons between companies that do not issue a
separate disclosure of their cost of goods sold figures (which are needed to do gross
margin analysis)
 Operating profit measures how much cash the business throws off, and some consider
it a more reliable measure of profitability since it is harder to manipulate with
accounting tricks than net earnings
 When a company has a high profit margin, it usually means that it also has one or more
advantages over its competition. Companies with high net profit margins have a bigger
cushion to protect themselves during the hard times. Companies with low profit
margins can get wiped out in a downturn. And companies with profit margins
reflecting a competitive advantage are able to improve their market share during the
hard times - leaving them even better positioned when things improve again
A common profitability ratio is:
Net Income
Profit Margin = -----------------
Sales
2 Journalize/ post entries to establish and replenish the petty cash fund

a) Entry to establish petty cash fund

Dr. Petty Cash $100
Cr. Cash $100
(No change in cash flows as we increase Assets by $100 and decrease Assets by
$100)

b) Entry to replenish petty cash (if there is no cash shortage or cash overage)
Dr. Postage expense $45
 Dr. Inventory 30
Dr. Miscellaneous exp. 10
Cr. Cash $85
(Cash flows decrease by $85 and petty cash is not affected)

c) Entry to replenish petty cash (if there is a cash shortage)

Dr. Postage expense $45
Dr. Inventory 30
Dr. Miscellaneous exp. 10
Dr. Cash short 1
Cr. Cash $86
(Cash short amount is reported in the income statement as a miscellaneous expense.
If there was a cash overage, it would be recorded as miscellaneous income in the
income statement)

d) Entry to replenish cash fund and increase it to $125

Dr. Petty Cash $25
Dr. Postage expense 45
Dr. Inventory 30
Dr. Miscellaneous exp. 10
Dr. Cash short 1
Cr. Cash $111
(Cash flows decrease by $111)

Journalize/post entries related to banking activities

2 Lead change
Maintain a customer file for accounts receivable
Maintain a vendor file
3 Maintain daily financial transactions
 How to track daily cash transactions and record them
 T-chart, debits and credits
2 Maintain financial records
Participants should emphasize the importance of maintaining accurate financial records and
should explain to the Accounts Payable Manager what to look for before coming for final
approval from the participant, the manager, by use of the correct invoice created by him/her.
2 Maintain petty cash records
4 Make capital expenditure decisions
Ultimately, students are making a recommendation about which investment option fits the
best needs of Northern Landscaping. Students need to demonstrate a clear understanding of
the strengths and weaknesses of each possibility. A strong response would include both
qualitative and quantitative reasoning to justify the suggestions. Students are welcome to
make reasonable assumptions to support their decision-making process.
Make financial recommendations to meet client needs
5 Make oral presentations
 Is the student speaking professionally and communicating clearly
  Are the indicators flowing into each other smoothly
 Is the student speaking directly or are they reading from their notes
Measure financial return
2 Persuade others
2 Prepare an accounts payable schedule

Schedule of Accounts Payable

Kitty Litters 1,245
Lions, Tigers, and Bears Oh My 630
Office Super Store 2,120
Total Accounts Payable 3,995
2 Prepare and accounts receivable schedule

Schedule of Accounts Receivable

Freddie Perkins 710
Furry Friends 85
Paul Ryan 95
Pets R Us 1,350
Sally Sue 250
Total Accounts Receivable 2,490

2 Prepare cash flow statements

 Calculate the amount of cash in, cash out and balance based on the transactions
provided
 Values listed in the judge’s instructions
2 Prepare customer statements
Prepare depreciation schedules
2 Process inventory adjustments
Process invoice of inventory
Process notes payable and receivable
2 Process results of inventory
2 Record inventory usage
Record the disposition of assets
4 Record transactions in a general journal

Dr. Supplies Inventory 1,000

Cr. Accounts Payable 1,000

Dr. Accounts Payable 1,000

Cr. Cash 1,000

Dr. Accounts Receivable 10,000

Cr. Revenue 10,000
 Dr. Cash 10,000
Cr. Accounts Receivable 10,000
2 Record transactions in special journals
 The petty cash account is a sub-account of the cash account
 The following steps are required to account for the petty cash fund:
o To establish the fund, set up a separate general ledger account
o Determine how much cash is required to replenish the fund by subtracting the cash
remaining from the petty cash fund balance
o Total the petty cash receipts. Determine any cash over or short (the difference
between the cash needed to replenish the fund and the total of cash receipts)
o Record the expenses incurred according to the petty cash receipts when
replenishing the fund
3 Set financial goals
2 Use budgets to control operations
4 Use ratio analysis to evaluate company performance
 Return on sales (net margin) is 43.39% which is quite high, could be due to low
operating costs or high revenues
 This figure should be compared with historical data or with industry standards as it is
relative
 If it is increasing it shows more profitability, if it is decreasing then the reason why
should be examined
2 Use T accounts
2 Validate credit history
 Customer has never been past 10 days past due on any debts
 Consistently paying a Visa and MasterCard bill, therefore building a credit history
2 Value long-term debt