Business
Business is the single domain on the MTEL Business (19) test, and it samples foundational knowledge from accounting, finance, management, marketing, economics, business law, and communication. Expect items that ask you to interpret financial statements, apply the accounting equation, classify costs, choose a marketing mix, identify management functions, explain market structures, or recognize the elements of an enforceable contract. The exam rewards precise terminology and the ability to connect a concept to a short scenario.
Core rules and concepts
- Accounting: double-entry bookkeeping; assets equal liabilities plus equity; accrual basis records revenue when earned and expenses when incurred; matching principle; balance sheet is a point in time, income statement over a period.
- Finance: gross profit equals revenue minus cost of goods sold; operating income equals gross profit minus operating expenses; net income equals operating income minus interest and taxes; break-even units equal fixed costs divided by price minus variable cost per unit.
- Management: planning, organizing, leading, controlling; marketing mix: product, price, place, promotion; segmentation targets a defined market.
- Economics: demand slopes downward, supply slopes upward; equilibrium occurs where quantity demanded equals quantity supplied; elasticity measures responsiveness; market structures range from perfect competition to monopoly.
- Law: a contract needs offer, acceptance, consideration, capacity, and legality; remedies include damages and specific performance.
Worked example
A firm reports sales of $120,000, cost of goods sold of $72,000, operating expenses of $30,000, interest of $2,000, and a 25% tax rate. Gross profit is $120,000 minus $72,000, or $48,000. Operating income is $48,000 minus $30,000, or $18,000. Taxable income is $18,000 minus $2,000, or $16,000. Tax is 25% of $16,000, or $4,000. Net income is $16,000 minus $4,000, or $12,000. Gross margin is $48,000 divided by $120,000, or 40%.
Traps that cost marks
Common traps: mixing cash-basis and accrual-basis results; subtracting interest before finding operating income; treating an owner's withdrawal as an expense; confusing the balance sheet with the income statement; labeling a price elasticity greater than 1 as inelastic; and forgetting that consideration is required for a contract.