1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 1 12-2 12-2Financial Records and Financial Statements 12 C H A P T E R Financial Management

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 12-2 Financial Records and Financial Statements Goal 1Identify several types of financial records needed by businesses. Goal 2Describe the differences between an income statement and a balance sheet.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 3 KEY TERMS ●Financial records - Financial documents that are used to record and analyze the financial performance of a business. ●Assets - What a company owns; anything of value owned by a business. ●Liabilities - What a company owes.

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 4 KEY TERMS ●Owner’s equity - The value of the business after liabilities are subtracted from assets; the value of the owner’s investment in the business. ●Balance sheet - A report that lists a company’s assets, liabilities, and owner’s equity at a specific point in time.

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 5 KEY TERMS ●Income statement - A report of revenue, expenses, and net income or loss from operations for a specific period.

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 6 FINANCIAL RECORDS ●Types of records ●Asset records ●Asset records identify the buildings and equipment owned by the business, their original and current value, and the amount owed if money was borrowed to purchase the assets. ●Depreciation records ●Depreciation records identify the amount assets have decreased in value due to their age and use.

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 7 FINANCIAL RECORDS ●Types of records ●Inventory records ●Inventory records identify the type and quantity of resources and products on hand along with the current value of each. ●Records of accounts ●Records of accounts identify all purchases and sales made using credit. ●An accounts payable record identifies the companies from which credit purchases were made and the amounts purchased, paid, and owed.

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 8 FINANCIAL RECORDS ●Types of records ●Records of accounts ●An accounts receivable record identifies customers that made purchases using credit and the status of each account. ●Cash records ●Cash records list all cash received and spent by the business. ●Payroll records ●Payroll records contain information on all employees of the company, their compensation, and benefits.

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 9 FINANCIAL RECORDS ●Types of records ●Tax records ●Tax records show all taxes collected, owed, and paid. ●Maintaining financial records ●Technology is changing the way financial information is collected, prepared and maintained.

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 10 FINANCIAL RECORDS ●Maintaining financial records ●Much of the information is now collected using point-of-production and point-of-sale technology such as scanners, touch screens, and personal digital assistants (PDAs). ●Businesses use computerized financial systems that have templates for each financial record. ●Financial software completes the necessary mathematical calculations. It updates records and compares those records with budgets.

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 11 Checkpoint ●How has the process of maintaining financial records been affected by technology? ●Most financial information is collected using point-of- production and point-of-sale technology and sent electronically to the people who prepare the financial records. ●Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets. ●The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 12 FINANCIAL STATEMENTS ●The three most important elements of a company’s financial strength are its assets, liabilities, and owner’s equity. In simple terms, assets are what a company owns, liabilities are what a company owes, and owner’s equity is the value of the owner’s investment in the business. ●Reports that sum up the financial performance of a business are financial statements. A company reports its assets, liabilities, and owner’s equity on the balance sheet.

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 13 FINANCIAL STATEMENTS ●The balance sheet ●The balance sheet is often prepared every six months or once a year. ●The assets, liabilities, and owner’s equity for a specific date are listed on the balance sheet. ●The left side of the balance sheet lists all assets. Assets are anything of value owned by the business. There are two common divisions of assets. ●Current assets include cash and those items that can be readily converted to cash such as inventory and accounts receivable.

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 14 FINANCIAL STATEMENTS ●The balance sheet ●Long-term assets (also known as fixed assets) are the assets with a life span of more than a year. Common fixed assets are land, buildings, equipment, and expensive technology. ●The right side of the balance sheet is divided into two categories. ●Liabilities are amounts owed by the business to others. As with assets, there are two types of liabilities. ●Current liabilities are those that will be paid within a year.

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 15 FINANCIAL STATEMENTS ●The balance sheet ●Long term liabilities are debts that will continue for longer than a year. ●Current liabilities include payments owed to banks and other financial institutions for short-term loans. ●Also included are payments due to suppliers for inventory purchases, supplies, and inexpensive equipment. ●Long-term liabilities are debts owed for land, buildings, and expensive equipment.

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 16 FINANCIAL STATEMENTS ●The balance sheet ●Finally, owner’s equity is the value of the business after liabilities are subtracted from assets. ●It shows how much the business is worth on the date the balance sheet is prepared. ●Another way of looking at owner’s equity is that it shows the value of the investments owners have made in the business.

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 17 BALANCE SHEET

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 18 FINANCIAL STATEMENTS ●Three other key financial elements for a business are the amounts of sales, expenses, and profits. ●Sales, expenses, and profits (or losses) for a specific time period are reported on the company’s income statement.

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 19 FINANCIAL STATEMENTS ●The income statement ●An income statement usually covers six months or a year, but may also encompass a shorter period such as a month. ●Revenue is all income received by the business during the period. Sources of income include the sale of products and services, plus interest earned from investments.

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 20 FINANCIAL STATEMENTS ●The income statement ●Expenses are all of the costs of operating the business during the period. Expenses include things such as rent, supplies, inventory, payroll, and utilities. ●The business has net income when revenue is greater than expenses. ●A net loss occurs when expenses are greater than income.

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 21 INCOME STATEMENT

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 22 Checkpoint ●What is the difference between a balance sheet and an income statement? ●A balance sheet reports assets, liabilities, and owner’s equity as of a specific date. ●An income statement reports sales, expenses, and net profit or loss for a specified time period.