1. 14-1 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.

2. 14-2 Budgeting And Controlling Operations And Taxes Small Business Control Small Business Control Types Of Budgets Types Of Budgets Obtaining Information & Ratios Obtaining Information & Ratios Taxes & Tax System Taxes & Tax System Record Keeping & Tax Reporting Record Keeping & Tax Reporting Factors/Problems In Getting Credit Factors/Problems In Getting Credit Chapter 14 Photodisc Collection/Getty Images

3. 14-3 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Control “…the process of ensuring that organizational goals are achieved.”

4. 14-4 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Control Process 1. Setup Standards 2. Measure Performance 3. Actual vs. Planned 4. Deviations Excessive? 5. Take Corrective Action

5. 14-5 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Set Standards Units Consumer/Produced Units Consumer/Produced Standard Hours Per Unit Standard Hours Per Unit Miles Per Gallon Miles Per Gallon Price Paid/Charged- Price Per Unit Price Paid/Charged- Price Per Unit Requires Requires Intuition Intuition Past Performance Past Performance Measurement Measurement Comparison Comparison Communication Communication Keith Brofsky/Getty Images

6. 14-6 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Effective Controls Timely Timely Cost Effective Cost Effective Accurate Accurate Quantifiable Quantifiable Measurable Measurable Indicate Cause/Effect Indicate Cause/Effect Responsibility Responsibility Acceptable Acceptable PhotoDisc Imaging/Getty Images

7. 14-7 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Budget “…a detailed statement of financial results expected for a given future period.”

8. 14-8 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Types Of Budgets  Capital  Operating  Cash Flow Steve Cole/Getty Images

9. 14-9 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Operating Budget Sales Sales Production Production Personnel Personnel Royalty-Free/CORBIS

10. 14-10 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Cash Flow Budget Plan Daily/Weekly Cash Needs Plan Monthly Cash Needs Prepare For Cash Flow Crisis Establish/Maintain Good Credit Establish/Maintain Good Credit Set Aside Funds To Earn Interest Set Aside Funds To Earn Interest Schedule Payments Schedule Payments Keep Fixed Costs Low & Tie Variable Costs To Revenue Keep Fixed Costs Low & Tie Variable Costs To Revenue

11. 14-11 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Cash Budget Format BudgetActual Expected Cash Receipts $$$$$$$$ Expected Cash Payments $$$$$$$$ Cash Balances $$$$$$$$ Cash- Capital Investment $$$$$$$$

12. 14-12 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Cash Balance Beg. Of Month- Balance + Total Cash Receipts - Total Cash Payments End Of Month- Balance

13. 14-13 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Budgetary Control “…the system of budgets used to control a company’s financial activities.”

14. 14-14 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Credit/Collections Control  Identify Slow Payers  Investigate Customer’s Ability & Willingness To Pay  Monitor Past Due  Write-Off Uncollectibles Steve Cole/Getty Images

15. 14-15 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Audit “…a formalized examination and/or review of a company’s financial records.”

16. 14-16 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Types Of Audits FinancialInternalOperations

17. 14-17 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Feedback Obtain Information Obtain Information Observation Observation Oral Reports Oral Reports Written Memos/Reports Written Memos/Reports Compare Actual vs. Standards Compare Actual vs. Standards Jacobs Stock Photography/Getty Images

18. 14-18 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Causes Of Poor Performance  Wrong Objectives  Customers Not Buying  Poor Scheduling  Theft/Spoilage  Too Many Employees  Lost Opportunities  Too Much Free Service/Donations

19. 14-19 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Ratios “…relationships between two or more variables.

20. 14-20 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Ratio Comparison Values Firm’s Current Value Current Value Past Value Past ValueFirm’s Current Value Current Value Industry Values Industry Values Can Be Interrelated

21. 14-21 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Financial Ratios

22. 14-22 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Profits Satisfactory? Net Profit To Owners’ Equity Net Profit To Net Sales

23. 14-23 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Assets Productive? Net Sales To Fixed Assets Net Sales To Owners’ Equity Ryan McVay/Getty Images

24. 14-24 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Debt Payments? Current Acid Test (Quick) Working Capital Accounts Receivable To Working Capital Inventory To Working Capital

25. 14-25 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Business Assets? Collection Period Net Sales To Inventory (Inventory Turnover) Net Sales To Working Capital Royalty-Free/CORBIS

26. 14-26 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Equity Satisfactory? Long-Term Liabilities To Working Capital Debt To Owners’ Equity Current Liabilities To Owners’ Equity Fixed Assets To Owners’ Equity

27. 14-27 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. U.S. Tax System Determines Taxes & Who Will Pay Collection Of Taxes Internal Revenue Service- www.irs.ustreas.gov www.irs.ustreas.gov

28. 14-28 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Taxes IndirectDirect

29. 14-29 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Selected Direct Taxes

30. 14-30 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Tax Effects  Income Tax On Profits  Employer Withhold/Match  Owner Personal Taxes  Transfer Of Ownership  Business Decisions  Government Administrative Cost Of Collection

31. 14-31 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Types Of Taxes Excise/Intangible Property Excise/Intangible Property Sales & Use Sales & Use Federal, State, & Local Income Federal, State, & Local Income S. Meltzer/PhotoLink/Getty Images

32. 14-32 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Licenses, Permits & Registrations Federal Federal Business License Business License Employer’s Federal Tax ID Number Employer’s Federal Tax ID Number Mailing Permits Mailing Permits State State Incorporation/Partnership Incorporation/Partnership Trade Name Registration Trade Name Registration Professional Registrations Professional Registrations City/County City/County Zoning Permits Zoning Permits Building Permits Building Permits Royalty-Free/CORBIS

33. 14-33 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Taxable Income “…total revenues minus deductible expenses.”

34. 14-34 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Deductible Expenses Cost Of Goods Sold Cost Of Goods Sold Selling Selling Administrative Administrative PhotoDisc/Getty Images

35. 14-35 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Cost of Goods Sold & Inventory Valuation First-In, First-Out (FIFO) First-In, First-Out (FIFO) Last-In, First-Out (LIFO) Last-In, First-Out (LIFO) Average Cost Average Cost Kim Steele/Getty Images

36. 14-36 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Employment-Related Taxes Income Tax Withholding Income Tax Withholding Social Security/Medicare Social Security/Medicare Unemployment Compensation Unemployment Compensation Federal Administration Federal Administration State State Workers’ Compensation Workers’ Compensation

37. 14-37 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Owners’ Personal Taxes Salaries & Bonuses Withdrawn From Company Salaries & Bonuses Withdrawn From Company Dividends Dividends Contract For Business Sale Contract For Business Sale Noncompete Clause Noncompete Clause Seller Warranties & Representations Seller Warranties & Representations Purchase Price Purchase Price Retro Americana

38. 14-38 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Credit Management Decide Method Of Customer Payment  Cash  Check/Debit  Credit Set Credit Policies & Practices Administer Credit Operations Jack Star/PhotoLink/Getty Images

39. 14-39 McGraw-Hill/Irwin© 2006 The McGraw-Hill Companies, Inc. All rights reserved. Credit vs. Debit Card Use