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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 2 KEY TERMS ●Revenue- Income from a business over a period of time ●Expenses- the cost of operating a business ●Budget- calculating details about revenue and expenses to develop a plan

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 3 BASIC FINANCIAL EQUATION ●Revenue – Expenses = Profit or Loss ●Profit ●Revenue is greater than expenses ●Revenue > Expenses = Profit ●Loss ●Revenue is less than expenses ●Revenue < Expenses = Loss

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 4 ELEMENTS OF A BUSINESS BUDGET ●Anticipate sources and amounts of income ●Predict the types and amounts of expenses for a business activity or for the entire business

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 5 ●What are the four steps in preparing a business budget? ●Preparing a list of each type of income and expenses ●Gathering accurate information from business records and other information ●Creating the budget by calculating each type of income, expense, and the amount of net income or loss ●Explaining the budget to people who need financial information

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 6 3 TYPES OF BUDGETS ●Start-up budget — plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable ●Operating budget — describes the plan for ongoing operations for a specific period ●Cash budget — is an estimate of the actual money received and paid out for a specific period.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 7 FINANCIAL RECORDS- (ACCOUNTING) Information that is gathered and recorded on all business transactions to analyze business performance ●Types of records ●Asset records ●Depreciation records ●Inventory records ●Records of accounts ●Cash records ●Payroll records ●Tax records

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 8 ACCOUNTING- “RECORDKEEPING” 2 Main Financial Statements ●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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 9 Balance Sheet ●Assets- What a company owns, something of value (equipment, trucks) ●Liabilities- What a company owes, debt or loans ●Owner’s Equity- the value of the owners investment in the business

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 10 BALANCE SHEET

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 11 Income Statement ●Revenue- Income, money coming in ●Expenses- Cost of business, money going out ●Net Income- Income after taxes (R>E) ●Net Loss- Loss after taxes (R<E)

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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE Payroll ●Payroll- the financial record of employee compensation, deductions, and net pay. ●What is the purpose of the payroll system? ●The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 14 PAYROLL TAXES (DEDUCTIONS) ●Income taxes ●Social Security and Medicare ●Unemployment taxes

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 15 PREPARING A PAYROLL ●Payroll records- the documentation used to process earnings payments and record each employee’s pay history. ●Direct Deposit- Electronic transfer (deposit) of paycheck into employees bank

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 16 SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE Financial Decision Making ●financial performance ratios- calculations that indicate the profitability and health of a business- analytical data

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 18 FINANCIAL PERFORMANCE RATIOS Current Liabilities Current Assets =Current Ratio Owner’s Equity Total Liabilities =Debt to Equity Ratio Net Profit =Return on Equity Ratio Owner’s EquityNet Income Total Sales =Net Income Ratio