1. C. Financing a Small Business
5.00 Explain the financial statements maintained in a small business.
5.01 Develop the financial records used in a small business.

2. Balance Sheet XYZ Balance Sheet March 31, ____ Assets Cash $10,745
Accounts receivable
Inventory ,799
Supplies
Total Assets $17,845
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Liabilities
Accounts Payable $3,444
Notes Payable 5,705
Total Liabilities $ 9,149
Net Worth
Robin Smith ,696
Total Liabilities & Net Worth $17,845
Balance Sheet

3. Balance Sheet:
A financial statement that shows what a business owns, what it owes, and how much it is worth at a particular point in time.
Components include:
Assets
Liabilities
Net worth

4. Assets: Items of value owned by a business.
Types of Assets:
Current Assets: Easily converted into cash
Fixed Assets: Not easily converted into cash
Intangible Assets: Can not be seen or touched
Other Assets: Value of life insurance policy or retirement savings

5. Liabilities: The amount owed to others.
Types of Liabilities:
Current: Financial obligations that will be repaid within one year.
(Accounts payable, notes payable for small loan, salaries payable, income taxes payable)
Long-term: Financial obligations that will take the business more than one year to repay.
(Mortgage, notes payable for large loan)

6. Net Worth: The monetary amount a business owns.
Net worth is calculated by subtracting a business’ liabilities from assets.
Assets – Liabilities = Net Worth

7. Year Ended December 31, ____
XYZ Income Statement
Year Ended December 31, ____
Revenue Net Sales $450,000
Cost of goods sold ,000
Gross Profit on Sales $200,000
Operating Expenses:
Salaries $70,000
Advertising 12,000
Rent 14,000
Utilities ,600
Maintenance ,200
Insurance ,500
Miscellaneous 1,000
Total Expenses 103,300
Net Income (before taxes) $96,700
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Income
Statement

8. Income Statement:
A financial statement that shows how much a business has earned or lost during a year.
Components include:
Gross sales
Net sales
Cost of goods sold
Gross profit on sales
Expenses
Net income
Taxes

9. Gross sales: The dollar amount of all sales, usually within a one-year period.

10. Net sales: Gross sales minus returned goods.

11. Cost of goods sold: The dollar amount a company pays to purchase a product for resale.

12. Gross profit on sales: Net sales minus the cost of goods sold.

13. Expenses: All costs associated with running a business except for the cost of goods sold.
Includes:
Variable expenses: Business expenses that change month-to-month.
Fixed expenses: Business expenses that do not change month-to-month.

14. Net Income: The amount of money left after all costs and expenses have been deducted.
Net income is calculated by subtracting total expenses from gross profit.
This can result in a net profit or loss.
Gross Profit – Total Expenses = Net Income

15. Taxes: Federal, state, and local taxes that are owed to the government.
The tax due is calculated on the net income which represents the true profit of the business. Taxes are not considered an operating expense and are subtracted below net income on the income statement.

16. Cash Flow Statement

17. Cash Flow Statement:
A cash flow statement is a monthly financial report for internal use that describes the flow of money into and out of the business.
Components include:
Cash receipts
Cash disbursements
Net cash flow