3 Unit 6 Essential Question How is financial knowledge and skill employed to facilitate marketing decisions?
4 Essential Question 1 Financing What is the role of finance in business?
5 FinancingGetting the money needed to finance the operation of a business.
6 AccountingBusinesses must (keep track of) account for every dollar used.By law, businesses, regardless of type of ownership, are required to use Generally Accepted Accounting Practices (GAAP).
7 AccountingThere are three primary statements that need to be prepared at the end of every accounting cycle (usually annually)Income Statement: A summary of income and expenses during a specific period of time.Balance Sheet: A summary of a business’s assets, liabilities, and owner’s equityCash Flow Statement: Tracks the sources of cash coming into a business and cash payouts from a business on a monthly basis.
8 Essential Question 2 Financing What is the difference between business finance and personal finance?
9 Business FinanceBusiness finance is concerned with the financial well being and health of a business and its operations.Allows lenders and investors to see what monies are needed to start and operate a business as well as what may need to be borrowed.
10 Personal FinancePersonal finance is concerned with the financial well being and health of an individual person.Customer credit increases an individuals purchasing power.
11 Essential Question 3 Financing What are the types and purposes of credit?
12 CreditCredit: The privilege of buying something now, with the agreement to pay later, or borrowing money with the promise to pay it back later.Advantages of CreditProvide emergency funds.Increases buying power.More convenient, faster, and safer than cash.
13 Credit Disadvantages of Credit Financial cost of credit. Decreases amount of comparison shopping by limiting customers to stores that accept credit.Future income is tied up in paying off credit.Can lead to overspending.
14 Types of Credit30-day Accounts: Accounts must be paid in full within 30 days of billing.Installment Accounts: Allow payment over a specified period time.Budget Accounts: Allow payment over a short period of time (typically 90 days) with no finance charge.Revolving Accounts: Establishes a credit limit and minimum payment. Customers may make purchases with in those restrictions
15 The Cost of CreditThe cost of credit can be determined by using the simple interest formula, APR formula, previous balance method, adjusted balance method, or the average daily balance method.
16 The Cost of Credit Computing Simple Interest Computed using the formula I = PRT.I - InterestP - PrincipalR - RateT – TimeFinance Charge: The amount you pay if the last balance has not been paid in full.Is calculated using the simple interest formula.The principal is the unpaid balance.Time is always equal to one.
17 The Cost of CreditUnpaid Balance: Any of the last balance that was not paid. Is calculated by:Unpaid Balance = Last Balance – PaymentNew Balance: The amount owed after adding the finance charge and new purchases to the unpaid balance. Is calculated by:New Balance = Unpaid Balance + Finance Charge New Charges
18 The Cost of CreditAdjusted Balance Method: The finance charge is applied only to the amount owed after your payment is applied each month.Previous Balance Method: The finance charge is imposed on the entire amount owed from the previous month, then your payment is applied.
19 The Cost of CreditAverage Daily Balance Method: The finance charge is based on the balance of each day of the billing cycle added together then divided by the number of days of the billing cycle.
20 The Cost of CreditAnnual Percentage Rate Formula: Used in determining payments and interest with installment credit.APR: Annual percentage rate.n: Number of payment periods in one year.f: Total dollar cost of credit (Finance Charge).P: Principal or net amount borrowed.N: Total number of payments to pay off the amount borrowed.
21 Essential Question 4 Financing What are the various types of financial records that should be analyzed in making marketing decisions?
22 The Income StatementThe Income Statement is a summary of the business’s income and expenses and is used to calculate Net Profit.Gross Sales: The total of all sales for a given period of time.Net Sales: Gross sales less returns and allowances.
23 The Income Statement Gross Sales Returns and Allowances = Net Sales Cost of goods Sold= Gross ProfitOperating Expenses= Net Income from Operations+ Other IncomeOther Expenses= Net Profit Before TaxesIncome Taxes= Net Profit
24 The Income Statement Cost of Goods Sold is calculated by: Beginning Inventory+ Purchases= Goods Available for SaleEnding Inventory= Cost of Goods Sold
26 The Balance SheetA balance sheet is a summary of a business’s assets, liabilities, and owner’s equity.Asset: Anything of Monetary value that person or business owns.Liability: A debt that a person or business owes to another.Assets = Liabilities + Owner’s Equity
27 The Balance Sheet A balance sheet consists of: Assets: Liabilities: Current assetsFixed assetsLiabilities:Current liabilitiesLong-term liabilitiesOwner’s Equity
29 Cash Flow StatementCash Flow Statement is a monthly plan that shows when you anticipate cash coming into the business and when you expect to pay out cash.Cash Flow also helps you see if you will have enough money when you need to pay your bills.
31 Essential Question 5 Financing How do profit, cash flow, margin, and sales relate to the financial plan?
32 The Financial PlanThe financial plan shows the amount of sales necessary to make a profit while maintaining solvency.The income statement shows the relation of profit to sales. It also shows the margin, or profitability, by comparing net profit to revenue.The cash flow statement shows whether the company will maintain solvency.