Basic Financial Statements Marketing I

Balance Sheet Balance Sheet: reports company’s assets, liabilities, and owners equity Assets: anything of monetary value Liabilities: amounts owed by a business Equity: net worth

Assets, Liabilities, Equity Current assets are cash and anything of value that can be converted into cash in a year Example: cash in the bank, accounts receivable (money owed to you by customers), inventory Liabilities: Current liabilities are the debts the business must pay during the upcoming business year Example: accounts payable (money owed to suppliers), notes payable (money owed to bank), taxes payable, money owed to employees for salaries Equity: Assets – Liabilities = Net Worth (Equity)

Income Statement Income Statement: business's profit and loss over a given period of time Include income from: Sales revenue Investments Costs Expenses

Profit v. Loss Profit & Loss Statement: reflect the ongoing operations of a firm Profitable company generates more income than it pays out for goods and expenses Company loss = costs and expenses exceed all revenue

Company Net Worth Net Worth: difference between assets and liabilities Net Worth = assets – debts Stockholder’ Equity is corporation net worth Owner’s Equity is sole proprietorship net worth

Small Business Administration Small Business Administration: role to support business and encourage Free Enterprise System Provides counseling and educational materials to prospective business owners

Class Activity What is the difference between an asset and a liability? How can a company determine if it has made a profit or incurred a loss? How does a company determine its net worth? What information can be seen on an income statement? On a balance sheet? Why is this information important? What might happen if an entrepreneur did not include financial documents in a business plan? How are a business's one-time start-up costs different from its continuing costs? How does the Small Business Administration (SBA) help businesses plan their financial needs?