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12 Financial Management 12-1 Financial Planning

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1 12 Financial Management 12-1 Financial Planning
C H A P T E R 12 Financial Management 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making

2 Climb your way to the top!
Job Opportunities Clerks Sorts and files accounting information Bookkeeper General accounting work with some analyzing and summarizing Accountant Person who plans, summarizes, analyzes, and interprets accounting information Public, Private, CPA Earn better than average salary $37,000 to $74,000 to start Climb your way to the top!

3 Need to know Vocabulary
Revenue, Sales, or Gross Income All income Expenses Costs of operation Fixed Costs (Overhead)= bills that do not change based on output Rent, insurance, loan costs, salary workers Variable Costs = bills that differ based on output Materials, hourly workers, Earnings or Net Income Income after taxes and expenses

Profit / Loss Difference in revenue and expenses Revenue – Expenses = Profit or Loss (Earnings) Profit Revenue is greater than expenses Revenue > Expenses = Profit Loss Revenue is less than expenses Revenue < Expenses = Loss Break Even Revenue = Costs No profit or loss

5 Budget Detailed plans for financial needs
Plan of all expenses and income Predict income and expenses Gather accurate information to support prediction Create a budget Share the budget with people who need to know Edit your budget

6 TYPES OF BUDGETS Start-up budget Operating budget Cash 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.

7 Check Book Work Question 1
Identify several unique business expenses for three important times in a business’ life. Startup, ongoing, expansion Create an operational budget for your daily life, steps 1 to 3 Predict income and expenses Gather accurate information to support prediction Create a budget Share the budget with people who need to know Edit your budget

8 12-2 Financial Records and Financial Statements
Goal 1 Identify several types of financial records needed by businesses. Goal 2 Describe the differences between an income statement and a balance sheet.

9 FINANCIAL RECORDS Financial records = Financial documents that are used to record and analyze performance of a business Question 2: Difference between budget and Financial Record Budget = Plan, Record = What happened. Both to track and stay on goal Types of records Asset records Depreciation records Depreciation = loss of value over time Inventory records Records of accounts Cash records Question 3: Why is cash budget important? Payroll records Tax records

10 Basics of Accounting Assets (A) Liabilities (L) Owner’s Equity (E)
Anything of value that is owned Cash, Inventory, Supplies, Accounts Rec. Liabilities (L) Amount owed Accounts Payable Owner’s Equity (E) Owner’s stake in the business How much $ invested Assets = Owner’s Equity + Liabilities Complete Page 1 Accounting Worksheet

11 Balance Sheet Show assets, liabilities and owner’s equity
Created once or twice a year Google’s Balance Sheet Complete PART 3: Balance Sheet

12 Balance Sheet and T-Charts
Transaction = a business activity that changes assets, liabilities, or owner’s equity At least 2 accounts must be used T account debit (dr) credit (cr) Normal Balance Assets = Left Side (dr) Liabilities = Right Side (cr) O.E. = Right Side (cr) Debits = Credits Assets = L. + O.E. Left Side Debit Side (A) Right Side Credit Side (L and E)

13 T – Chart Practice What accounts are affected?
How is each account classified? (Normal Balance) How is each account balance changed? How is each amount entered in the accounts? Do credits = debits?

14 Transactions - What Accounts are Affected?
Received cash from owner as an investment, 2,000 Paid cash for insurance, 600 Bought supplies on account from Swan’s Supply Company Cash, Owners Equity Asset (prepaid insurance), Cash Assets (supplies), Accounts Payable Complete Part 2 of Accounting Worksheet: Transactions on T-Charts

15 Income Statement Report of revenue, expenses, and net income or loss
Shows all income first, Shows all expenses, Shows the difference McDonalds Income Statement Question 4: What information is in a Balance Sheet that is not in an Income Statement?

16 Checkpoint  Complete the Lemonade Stand
Keep track of all transactions using T Charts Fill out Multiple Balance Sheets Credits = Debits

17 12-3 Payroll Management Goal 1 Describe the components of a business payroll system. Goal 2 Identify key information included in payroll records and paychecks.

18 PAYROLL SYSTEMS Legally must pay on time (at least once a month)
Must pay taxes for employees Social Security and Medicare Disability Unemployment Take taxes that employees pay from checks Income taxes


20 12-4 Financial Decision-Making
Goal 1 Recognize important financial information managers use to make decisions. Goal 2 Identify the steps in making financial decisions in business.

Every decision revolves around $$$ Preparing a budget. Using the budget as a guide to the operation of the business. Making needed adjustments to bring performance in line with the budget Alter budget if it was incorrect / things change Understanding 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 Equity Net Income Total Sales = Net Income Ratio Complete Financial Performance Ratio Worksheet

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