C. Financing a Small Business

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. XYZ Balance Sheet March 31, ____ Assets Cash $10,745 Accounts receivable 868 Inventory 5,799 Supplies 433 Total Assets $17,845 ¯¯¯¯¯¯¯ Liabilities Accounts Payable $3,444 Notes Payable 5,705 Total Liabilities $ 9,149 Net Worth Robin Smith 8,696 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. XYZ Income Statement Year Ended December 31, ____ Revenue Net Sales $450,000 Cost of goods sold 250,000 Gross Profit on Sales $200,000 Operating Expenses: Salaries $70,000 Advertising 12,000 Rent 14,000 Utilities 3,600 Maintenance 1,200 Insurance 1,500 Miscellaneous 1,000 Total Expenses 103,300 Net Income (before taxes) $96,700 ¯¯¯¯¯¯ 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