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FINANCIAL RESOURCES MANAGEMENT. Explain how budgeting relates to financial planning Describe two kinds of financial reports prepared by businesses. Financial Management. One reason small businesses fail is they do not manage their finances properly.

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Presentation Transcript
financial resources management


Explain how budgeting relates to financial planning

Describe two kinds of financial reports prepared by businesses

financial management
Financial Management
  • One reason small businesses fail is they do not manage their finances properly.
  • A financial plan is an important part of a business plan.
  • Businesses must manage the money they take in and pay out to become profitable and stay in business.
financial planning
Financial Planning
  • Profit – what is left over after expenses are paid
  • Business Budget – a detailed plan for meeting the financial needs of the business
    • Anticipating sources and amounts of income
    • Predicting the types and amounts of expenses

Income(Revenue) – the money a business takes in or receives

    • Most revenue or income comes from sales of products or services
    • Credit – many sales not paid for 30 days or longer (is this still true?)
    • Statement of Cash Flow – shows actual cash a business receives and has available on a daily basis
  • Expenses – operating costs of the business
    • Employee wages, benefits, advertising, rent, utilities, supplies, etc.
  • Budget – a detailed plan for the financial needs of an individual, family, or business
  • Business budget – projects the amounts of income and expenses; a financial forecast
  • Well-prepared budget helps avoid costly financial mistakes
  • Lets managers know how the business is doing in terms of meeting its financial goals
types of business budgets
Types of Business Budgets
  • Start-Up Budget – used to plan income and expenses from the beginning of a new business or major business expansion until it becomes profitable
    • Purchase of buildings and equipment
    • Material, supplies, licenses
    • Advertising, hiring, payroll

Operating Budget – financial plan for the day-to-day operations of the business

    • Covers a specific period of time (ex. 3 months, 6 months, or 1 year)
    • Follows this equation:
      • Revenue – Expenses = Profit (or Loss)
    • All anticipated revenues and expenses are listed
    • Planned net profit or loss is shown

Cash Budget – an estimate of the money expected to be received and paid out over a specific period of time

    • Lets the manager know when to borrow
    • Money must always be on hand to pay expenses
    • Calculate the net profit or loss for the month for Galaxy Comic Books: (use equation)
      • Cash sales - $3560
      • Charge sales - $1240
      • Other revenue - $165
      • Salaries - $2450
      • Advertising - $200
      • Rent - $550
      • Supplies - $120
financial records
Financial Records
  • Show the financial performance of the business
  • Used to prepare 2 important financial statements – Income Statement, Balance Sheet
    • Asset records name the buildings and equipment owned by the business, their original and current value and amount owed
    • Depreciation records identify the amount that assets have decreased in value due to age and use
    • Inventory records identify the type and number of products on hand for sale
    • Payroll records contain information on all employees’ compensation and benefits
    • Cash records list all cash received and spent
    • Records of accounts identify purchases made using credit
    • Tax records show all taxes collected, owed, and paid
income statement
Income Statement
  • A financial statement that shows revenues, expenses, and net income (profit) or loss for a period of time.
  • Usually covers a period of 6 months or a year but may be shorter
  • End-of-year statement shows how the business did for the entire year
  • Basis for payment of taxes and decision-making
balance sheet
Balance Sheet
  • A financial statement that lists a business’ assets (what a company owns) and liabilities (what a company owes)
  • Shows what the business is worth on a particular date, usually the end of a year
  • Shows owners equity (value of the owner’s investment in the business (also called net worth)
  • Owner’s equity equation:
    • Assets – Liabilities = Owner’s Equity
overland design company income statement for the year ended december 31 2012
Overland Design Company Income StatementFor the Year Ended December 31, 2012


Cash Sales $ 38,200

Charge Sales 180,600

Other Revenue 12,900



Salaries and Wages $ 70,800

Marketing 22,250

Administrative Costs 31,900

Materials and Supplies 24,800

Other Expenses 19,100

Total Expenses 168,850

Net Income $ 62,850


In a balance sheet, both sides of the statement must be in balance

  • Right-hand side shows the total of liabilities and owner’s equity to show that they equal the value of the assets on the left-hand side

Ex. Schribner’sAutomotives, Inc. Balance Sheet

December 31, 2012

maintaining financial records
Maintaining Financial Records
  • Accuracy
  • Current
  • Technology use
  • Data files transfer easily
  • Software capabilities
    • What-if comparisons
    • Mathematical calculations
    • Updates records
    • Comparisons