1. Copyright © Texas Education Agency, 2012. All rights reserved. Financial Accounting Principles Statistics & Risk Management 1

2. Copyright © Texas Education Agency, 2012. All rights reserved. 2 “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1)Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Call TEA Copyrights with any questions you have.

3. Copyright © Texas Education Agency, 2012. All rights reserved. Sole Proprietor vs. Corp Sole Proprietor or “S” Corp Sole Proprietor or “S” Corp – Taxed as earned whether taken as wages or NOT (retained). – Unlimited Liability Corporation (“C” type) Corporation (“C” type) – Earnings Taxed at Corporate Rate. – Limited Liability (Maybe) – Easy Capitalization (Sometimes) 3

4. Copyright © Texas Education Agency, 2012. All rights reserved. Public Vs. Private Public Public – Board of Directors – Extensive Regulations Sarbanes–Oxley Act of 2002 Sarbanes–Oxley Act of 2002 Private Private – Less Accountability – Easier to Pierce the Liability Veil http://en.wikipedia.org/wiki/Sarbanes-Oxley_Act 4

5. Copyright © Texas Education Agency, 2012. All rights reserved. Non-Profit Vs. Profit Some Serious Tax Advantages Some Serious Tax Advantages – Salaries can still be BIG. – No Dividends Paid Out. – Can still Service Loans 5

6. Copyright © Texas Education Agency, 2012. All rights reserved. Risk Management Employs objective analysis methodologies including Descriptive and Inferential Statistics to identify opportunities and reduce monetary risks. Employs objective analysis methodologies including Descriptive and Inferential Statistics to identify opportunities and reduce monetary risks. 6

7. Copyright © Texas Education Agency, 2012. All rights reserved. Raw Data is Meaningless Categorizing/Measuring Data Categorizing/Measuring Data – Nominal (Gender) – Ordinal (Zip Codes) – Interval (Sales by Year) – Ratio (Profit 0 to unlimited) 7

8. Copyright © Texas Education Agency, 2012. All rights reserved. Summing the Data Sum Up Total Sales Sum Up Total Sales Sum Up Total Expenses Sum Up Total Expenses Sum Up Totals Assets Sum Up Totals Assets Sum Up Totals Loans Sum Up Totals Loans Sum Up Total Investments Sum Up Total Investments 8

9. Copyright © Texas Education Agency, 2012. All rights reserved. Compare Data Over Time Income This Month Income This Month Over Last Month Over Last Month Same Period Last Year Same Period Last Year 9

10. Copyright © Texas Education Agency, 2012. All rights reserved. Organize Data by Category Breakout Revenue Breakout Revenue – Product Sales – Service Sales – Interests – Other Revenue 10

11. Copyright © Texas Education Agency, 2012. All rights reserved. Organize Data by Category Breakout Expenses Breakout Expenses – Payroll – Taxes – Utilities – Insurance – Bad Debt 11

12. Copyright © Texas Education Agency, 2012. All rights reserved. Compare Data to Population Your Sales/Expense Data Your Sales/Expense Data – To your Local Competition – To the Industry – To the Economy 12

13. Copyright © Texas Education Agency, 2012. All rights reserved. Extended Data Calculations Gross Profit Gross Profit Net Profit Net Profit Percentages (Sales/Gross) Percentages (Sales/Gross) Ratios (Acid Test) Ratios (Acid Test) 13