This activity is important because as a manager, it is important that you unders

ID: 337690 • Letter: T

Question

This activity is important because as a manager, it is important that you understand the financial language used to describe components of the business. While different businesses may approach their financials slightly differently, there are certain rules upon which the accounting profession has generally agreed. These are called generally accepted accounting principles (GAAP). Becoming familiar with the GAAP will be important for you throughout your career, no matter your industry or position.

The goal of this exercise is to demonstrate your understanding of basic concepts associated with GAAP, and apply the concepts in a broad level to an organization.

Read the case of the executive invited to serve on the board of a company, and answer the accompanying questions.

All through Cori’s business program in college, she avoided accounting and finance classes. Her passion was in logistics and marketing. Cori always recognized that she would need to understand the numbers, but always relied on members of her team to take responsibility for the details driving the financials.

Recently, Cori has been asked to serve on the board of a privately held organization. Even for a privately owned organization (vs. a publically traded firm), serving on the board is a big responsibility. The board often sets the firms strategic agenda, recognizes opportunities to gain advantage, and advises ownership if anything looks improper with the financial information. In general, the board looks at big picture information to make recommendations to help the organization.

While Cori was not invited to serve on the board based on her financial expertise, she also feels a sense of responsibility to the company. She recognizes that she needs to quickly become familiar with the generally accepted accounting principles for the industry, and recognize variations in the associated numbers. In addition, she does not want to be embarrassed at the first meeting if she fails to recognize a commonly known term!

Cori has been given the opportunity to ask for information prior to the meeting, and she is considering what she will need to know before the meeting to prepare herself for discussion.

1. Prior to the first meeting, Cori should request which of the following set of documents in order to prepare for the first meeting?

general ledger

financial statements

source documents

transaction journal

2. Cori should expect that the tax and audit statements have been verified by which of the following type of accountants?

Certified Fraud Examiner

Federal Bureau of Investigation agent

Private Accountant

Bookkeeper

Certified Public Accountant

3. In reviewing the information she was given, Cori recognized that the organization did not have enough money to pay an insurance fee two months of the year, even though the fee was not a problem for the organization during other times of the year. To understand whether this will occur again next year, Cori should ask to see which of the following documents?

annual report

income statement

budget

cash flow

balance sheet

4. Which of the following should Cori NOT expect to see counted as one of the firm’s assets?

cash

loans

property

inventory

equipment

5. Cori notices that the inventory turnover ratio is high, indicating that the company turns over its stock frequently throughout the year. Cori may consider giving the firm which of the following piece of advice?

Increase inventory to make certain there are not lost sales due to insufficient stock levels.

Decrease inventory to make certain there is not extra inventory that cannot be sold.

Decrease sales to make certain there is enough stock available for customers.

Increase sales to use all of the available inventory.

Explanation / Answer