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5/24/2016
CBA Exam Review
Marlene Groh, CCE, ICCE
Sunday, June 12, 2016
8:00 AM
25007
CBA EXAM REVIEW
Three classes
• Basic Financial Accounting
• Financial Statement Analysis I
• Principles of Business Credit
Apply for CBA Designation
CBA Exam
• True/False and Multiple Choice
CBA EXAM REVIEW
ACCOUNTING REVIEW QUIZ
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Accounts
Basis of Accounting
• Accrual basis
– GAAP requires
– Revenues reported when earned
• Cash basis
– Reported when cash is received or paid
Use of Assets
• Depreciation
• Amortization
• Depletion
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Inventories
• Inventory investment consists of:
– Raw materials, work in process and finished goods
• Perpetual Inventory
• Periodic Inventory
• Balance sheet, income statement and cash
flow statement affected by inventory
accounting
– FIFO: more correctly states the balance sheet
– LIFO: more correctly states the income statement
– Average: between FIFO and LIFO
Perpetual Inventory using FIFO Method
Beginning inventory, purchases, and sales for Item
SJ68 are as follows:
Aug. 1 Inventory - 28 units at $34
8 Sale – 15 units
15 Purchase – 22 units at $38
30 Sale – 20 units
Assuming a perpetual inventory system and using
the first-in, first –out (FIFO) method, determine (a)
the cost of merchandise sold on August 30 and (b)
the inventory on August 31.
Perpetual Inventory using LIFO Method
Beginning inventory, purchases, and sales for Item
SJ68 are as follows:
Aug. 1 Inventory - 28 units at $34
8 Sale – 15 units
15 Purchase – 22 units at $38
30 Sale – 20 units
Assuming a perpetual inventory system and using
the first-in, first –out (LIFO) method, determine (a)
the cost of merchandise sold on August 30 and (b)
the inventory on August 31.
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CBA EXAM REVIEW
CREDIT BUSINESS PRICIPLES
REVIEW QUIZ
Negotiable Instruments
Elements of Negotiable Instruments
• In writing and signed by the maker/drawer
• Unconditional promise to pay a certain sum of
money
• Payable at demand or at a specific date
• Payable to order or bearer (Payee)
• The certain sum of money must be callable to be
negotiable
• If time is not specified, the Instrument is
automatically a demand note.
Endorsements
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Blank endorsement
Special endorsement
Restrictive endorsement
Conditional endorsement
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Federal Reserve Controls on
Economy
U.S. monetary policy
• Open market method
• Discount rate
• Bank reserve requirement
Legal Environment of Credit
• Truth in Lending Act and Regulation
• Fair Credit Reporting Act
• Fair Debt Collections Practices Act
• Equal Credit Opportunity Act and Regulation
Antitrust Regulations
• The Sherman Act
• The Clayton Act
• The Robinson-Patman Act
Terms of Sales
Prepayment Conditions
•Cash with order
•Cash before delivery
•Cash on delivery
•Sight draft – bill of
lading
Unsecured Conditions
•Cash terms – 10-day
terms
•Individual order terms
Unsecured Conditions
•Single payment of
lumped terms
•End of month terms
•Middle of month
terms
•Proximo terms
•Progress payments
•Dating Terms
•Regular dating
•Seasonal dating
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Terms of Sales
Secured Conditions
•Uniform Commercial Code
•Consignment terms
•Standby letter of credit
•Guarantees
•Corporate purchasing cards
Discounts
•Regular discount terms
•Anticipation discounts
Freight Terms
Freight on Board (FOB)
• Shipping point
• Destination
When does title pass?
A Brief Guide to the UCC
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A Brief Guide to the UCC
Uniform Commercial Code Definitions
Uniform Commercial Code Definitions
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Uniform Commercial Code
Uniform Commercial Code
•Key Aspects and Background
• State law
• Filings with the Secretary of States
• 5-Year Filing
UCC Benefits
•Protection under the UCC Code
• Legal Protection
• Psychological Protection
• Practical Protection
Uniform Commercial Code
UCC Benefits (continued)
•Maximize lines of credit
•Minimizing bad debt loss with UCCs
• Reducing bankruptcy losses
• Bulk sales/transfers losses
• Loss payee provision
•Using UCCs to increase sales and growth
Uniform Commercial Code
The Blanket Security Agreement
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Covers Personal Property assets of debtor entity
Covers per-existing debt
The priority of interest is chronological
Does not require notification to prior secured creditors
Is perfected at the time of filing
The Purchase Money Security Agreement
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Secured party has senior interest in their goods
Only covers inventory received after perfection
Must be filed within 10 days for non-inventory goods
Does not affect a third party’s prior secured position until
they are notified
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Essential Components of a Credit Policy
Establishing the Credit Standard:
• This describes the profile for an acceptable credit
customer, including appropriate details and examples.
Determining Credit Availability:
• This describes how the maximum of available credit is
computed and managed, including decision criteria for
reducing or increasing a customer’s availability of
credit.
Setting Credit Terms:
• This stipulates the exact terms of sale for each class of
customer.
Defining Collection Policy:
• This provides criteria for regular collection procedures
for past due amounts.
Essential Components of a Credit
Policy
Benchmarking:
• Internal
• Central
Centralized and Decentralized Credit
Management:
• Strict credit policy
• Liberal credit policy
Financing and Insurance
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Financing needs
Factors
Finance companies
Term loans
– Restrictive covenants
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Leveraged buyouts
Government Programs
Business Insurance
Other forms of insurance
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Legal Composition of Business
Organizations
• Sole Proprietorship
• Partnership
– General
– Limited
– Silent
• Corporation
– C-Corporation
– S-Corporation
• Limited Liability Companies
• Joint Ventures
Credit Limits – Five Cs of Credit
Character: Those moral qualities and actions of
a credit applicant which impel the applicant to
pay.
– Morality
– Reputation
Capacity: The ability to pay when a debt is due.
– Cash flow
– Income
Capital: The financial strength of a risk measured
by the equity or net worth of the applicant.
– Asset Strength
Credit Limits – Five Cs of Credit
Conditions: The current and expected general
economic situations as they might affect the
applicant.
– Economic
– Political
Collateral: Possessions or equities from which
payment might be expected should character or
capacity fail.
– Protection
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Out of Court Settlement
• Extension Agreement
• Composition Agreement
• Assignment
Indirect Investigation
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The Impact of Automation
Credit Reporting Agencies
NACM
Specialized Agencies
Voluntary Trade Groups
Bankruptcy Acts
• Chapter 13
– Wage earner plan/small business
• Chapter 11
– Business reorganization
• Chapter 7
– Straight liquidation
• Chapter 9
– Municipalities and governmental units
• Chapter 12
– Family farm reorganization
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Chapter 7 Liquidation Priorities
1. Secured Creditors
2. Administrative expenses
3. Unsecured claims for sales to a debtor-inpossession
4. Wages & compensation claims
5. Customer deposits
6. Taxes
7. Unfunded pension liability
8. Unsecured creditors
9. Preferred stockholders
10.Common stockholders
CBA EXAM REVIEW
FINANCIAL ANALYSIS REVIEW QUIZ
Financial Statements
• Balance Sheet (Resource Sheet)
– Shows the financial position at a point in time
• Income Statement (Activity Statement)
– Profit or loss for the accounting period
• Statement of Retained Earnings
– Reconciles the change in retained earnings
account – profits, dividends and adjustments
• Statement of Cash Flows
– Separates cash flows into operating activities,
investing activities, and financing activities
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Accountant’s Opinions
• Unqualified opinion
• Unqualified opinion – with explanatory
language
• Qualified opinion
• Disclaimer of opinion
• Adverse opinion
• Compilation
Balance Sheet
ASSETS = LIABILITIES + STOCKHOLDER’S EQUITY
Income Statement
Gross Sales
- returns and allowances
= Net Sales
- Cost of goods sold
= Gross Profit
- Expenses
Selling
General and Administrative
= Income from operations
+ Interest revenue
- Expense
= Net income before taxes
- Provisions for income tax
= Net Income
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Statement of Cash Flows
• Statement consists of three basic parts:
– Cash flows from operating activities
– Cash flows from investing activities
– Cash flows from financing activities
• Change in cash is caused by cash flows
generated by or used by operations,
investments and financing activities of the
company. The sum of these three activities
equals the change in the cash on the balance
sheet.
Statement of Cash Flows
• Inflow/Source
– Decrease in any asset
– Increase in any liability
– Increase in any net worth
• Outflow/Use
– Increase in any asset
– Decrease in any liability
– Decrease in any net worth
Common-size Analysis
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Overview
Vertical analysis
Horizontal analysis
Income Statement
Balance Sheet
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Ratios
• Liquidity/Solvency
– Measures the ability to meet cash needs
• Activity
– Measure the liquidity of specific assets and the
efficiency of managing assets
• Leverage
– Measures the extent of a firm’s financing with debt
relative to equity and ability to cover interest charges
• Profitability/Efficiency
– Measures the overall performance of a firm
CBA Exam Ratio Sheet
CBA Exam Ratio Sheet
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CBA Exam Ratio Sheet
CBA Exam Ratio Sheet
* Cash Flow from Operating Activities
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