1 12 Financial Management 12-1 Financial Planning C H A P T E R12Financial Management12-1 Financial Planning12-2 Financial Records and Financial Statements12-3 Payroll Management12-4 Financial Decision-Making
2 Climb your way to the top! Job OpportunitiesClerksSorts and files accounting informationBookkeeperGeneral accounting work with some analyzing and summarizingAccountantPerson who plans, summarizes, analyzes, and interprets accounting informationPublic, Private, CPAEarn better than average salary $37,000 to $74,000 to startClimb your way to the top!
3 Need to know Vocabulary Revenue, Sales, or Gross IncomeAll incomeExpensesCosts of operationFixed Costs (Overhead)= bills that do not change based on outputRent, insurance, loan costs, salary workersVariable Costs = bills that differ based on outputMaterials, hourly workers,Earnings or Net IncomeIncome after taxes and expenses
4 BASIC FINANCIAL EQUATION Profit / LossDifference in revenue and expensesRevenue – Expenses = Profit or Loss (Earnings)ProfitRevenue is greater than expensesRevenue > Expenses = ProfitLossRevenue is less than expensesRevenue < Expenses = LossBreak EvenRevenue = CostsNo profit or loss
5 Budget Detailed plans for financial needs Plan of all expenses and incomePredict income and expensesGather accurate information to support predictionCreate a budgetShare the budget with people who need to knowEdit 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 profitableOperating budgetdescribes the plan for ongoing operations for a specific periodCash budgetis 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, expansionCreate an operational budget for your daily life, steps 1 to 3Predict income and expensesGather accurate information to support predictionCreate a budgetShare the budget with people who need to knowEdit 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 RECORDSFinancial records = Financial documents that are used to record and analyze performance of a businessQuestion 2: Difference between budget and Financial RecordBudget = Plan, Record = What happened. Both to track and stay on goalTypes of recordsAsset recordsDepreciation recordsDepreciation = loss of value over timeInventory recordsRecords of accountsCash recordsQuestion 3: Why is cash budget important?Payroll recordsTax records
10 Basics of Accounting Assets (A) Liabilities (L) Owner’s Equity (E) Anything of value that is ownedCash, Inventory, Supplies, Accounts Rec.Liabilities (L)Amount owedAccounts PayableOwner’s Equity (E)Owner’s stake in the businessHow much $ investedAssets = Owner’s Equity + LiabilitiesComplete Page 1 Accounting Worksheet
11 Balance Sheet Show assets, liabilities and owner’s equity Created once or twice a yearGoogle’s Balance SheetComplete PART 3:Balance Sheet
12 Balance Sheet and T-Charts Transaction = a business activity that changes assets, liabilities, or owner’s equityAt least 2 accounts must be usedT accountdebit (dr)credit (cr)Normal BalanceAssets = Left Side (dr)Liabilities = Right Side (cr)O.E. = Right Side (cr)Debits = CreditsAssets = L. + O.E.Left SideDebit Side(A)Right SideCredit 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, 2,000Paid cash for insurance, 600Bought supplies on account from Swan’s Supply CompanyCash, Owners EquityAsset (prepaid insurance), CashAssets (supplies), Accounts PayableComplete 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 differenceMcDonalds Income StatementQuestion 4: What informationis in a Balance Sheet that isnot in an Income Statement?
16 Checkpoint Complete the Lemonade Stand Keep track of all transactions using T ChartsFill out Multiple Balance SheetsCredits = Debits
17 12-3 Payroll ManagementGoal 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 employeesSocial Security and MedicareDisabilityUnemploymentTake taxes that employees pay from checksIncome taxes
19 SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT
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.
21 USING FINANCIAL INFORMATION 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 budgetAlter budget if it was incorrect / things changeUnderstanding financial performance ratios
22 FINANCIAL PERFORMANCE RATIOS Current LiabilitiesCurrent Assets=Current RatioOwner’s EquityTotal Liabilities=Debt to Equity RatioNet Profit=Return on Equity RatioOwner’s EquityNet IncomeTotal Sales=Net Income RatioComplete Financial Performance Ratio Worksheet