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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

• 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• 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• 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

• Financing needs

• Factors

• Finance companies

• Term loans

– Restrictive covenants

• 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

• 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-in-possession

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 SheetASSETS = LIABILITIES + STOCKHOLDER’S EQUITY

Income StatementGross Sales- returns and allowances= Net Sales- Cost of goods sold= Gross Profit- Expenses

SellingGeneral 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

• 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