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12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decis PowerPoint Presentation
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C H A P T E R. 12. Financial Management. 12-1 Financial Planning 12-2 Financial Records and Financial Statements 12-3 Payroll Management 12-4 Financial Decision-Making. 12-1 Financial Planning. Goal 1 Recognize important financial questions that must be answered in a business.

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slide1

C H A P T E R

12

Financial Management

12-1 Financial Planning

12-2 Financial Records and Financial Statements

12-3 Payroll Management

12-4 Financial Decision-Making

12 1 financial planning

12-1 Financial Planning

Goal 1 Recognize important financial questions that must be answered in a business.

Goal 2 List the steps in budget preparation.

Goal 3 Describe three types of business budgets.

key terms
KEY TERMS
  • revenue
  • expenses
  • budget
  • start-up budget
  • operating budget
  • cash budget
financial planning
FINANCIAL PLANNING
  • Beginning a business
    • Crucial to determine amount and sources of income, expenses to start, and when to pay
  • Ongoing operations
    • Will revenue be enough to cover expenses and still make a profit?
    • Good and bad ways to cut costs
  • Business expansion
    • Is it worth it?
    • Make sure expected profit gain will exceed expense
basic financial equation
BASIC FINANCIAL EQUATION
  • Revenue – Expenses = Profit or Loss
    • Profit
      • Revenue is greater than expenses
      • Revenue > Expenses = Profit
    • Loss
      • Revenue is less than expenses
      • Revenue < Expenses = Loss
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Poll: All income that a business receives over...

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Poll: What is the basic financial equation for...

checkpoint
Checkpoint 
  • What is the basic financial equation for businesses?
    • The basic financial equation for businesses is revenue minus expenses equals profit or loss.
developing business budgets
DEVELOPING BUSINESS BUDGETS
  • Reasons for budgets:
    • Anticipate sources/amounts of income
    • Predict types/amounts of expenses
  • Sources of budget information
    • Can use past financial records
    • New business – SBA, S&P, WSJ, bank, etc.
budget preparation
BUDGET PREPARATION
  • Like a roadmap: compare where you want to go with where you actually are
  • Budgeting Process:
    • Prepare list of each type of income/expense
    • Gather info from records (or other sources) for each type
    • Create budget: Calculate each type, determine net income/loss
    • Explain to decision-makers
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Poll: The main source of financial information...

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Poll: What are the four steps in preparing a b...

checkpoint1
Checkpoint 
  • What are the four steps in preparing a business budget?
    • Preparing a list of each type of income and expense that will be a part of the budget
    • Gathering accurate information from business records and other information sources for each type of income and expense
    • Creating the budget by calculating each type of income, expense, and the amount of net income or loss
    • Explaining the budget to people who need financial information
types of budgets
TYPES OF BUDGETS
  • Departmental/specialized budgets
  • Start-up budget (new or expanding bus.)
    • Includes expenses for building, licensing, supplies, employees, etc.
    • Should measure up to point of profitability
  • Operating budget – tracks income/ expenses for several months to a year
  • Cash budget – will there be enough cash to pay expenses as they’re due?
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Poll: Budgeting is much easier for a new busin...

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Poll: Identify and describe the three types of...

checkpoint2
Checkpoint 
  • Identify and describe the three types of budgets needed by all businesses.
    • Start-up budget — plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable
    • Operating budget — describes the plan for ongoing operations for a specific period
    • Cash budget — is an estimate of the actual money received and paid out for a specific period.
12 2 financial records and financial statements

12-2 Financial Records and Financial Statements

Goal 1 Identify several types of financial records needed by businesses.

Goal 2 Describe the differences between an income statement and a balance sheet.

key terms1
KEY TERMS
  • financial records
  • assets
  • liabilities
  • owner’s equity
  • balance sheet
  • income statement
financial records
FINANCIAL RECORDS
  • Types of records
    • Asset records
    • Depreciation records
    • Inventory records
    • Records of accounts
    • Cash records
    • Payroll records
    • Tax records
  • Maintaining financial records
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Poll: Records of accounts identify all purchas...

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Poll: What identifies the companies from which...

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Poll: Give at least two examples of how the pr...

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Checkpoint 
  • Give at least two examples of how the process of maintaining financial records has been affected by technology:
    • Most financial information is collected using point-of-production and point-of-sale technology and sent electronically to the people who prepare the financial records.
    • Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets.
    • The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.
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Poll: Records that name the buildings and equi...

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Poll: Records that contain information on all ...

financial statements
FINANCIAL STATEMENTS
  • The balance sheet
    • Reports assets, liabilities, and owner’s equity on a specific date
    • Current vs. fixed (long-term) assets/liabilities
  • The income statement
    • Shows revenue and expenses and calculates net income (or loss) for a period of time
    • Compare to previous time periods
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Poll: All of the following are fixed assets EX...

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Poll: What is the difference between a balance...

checkpoint4
Checkpoint 
  • What is the difference between a balance sheet and an income statement?
    • A balance sheet reports assets, liabilities, and owner’s equity as of a specific date.
    • An income statement reports sales, expenses, and net profit or loss for a specified time period.
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Poll: Cash and items that can readily be conve...

12 3 payroll management

12-3 Payroll Management

Goal 1 Describe the components of a business payroll system.

Goal 2 Identify key information included in payroll records and paychecks.

key terms2
KEY TERMS
  • payroll
  • payroll record
  • direct deposit
payroll systems
PAYROLL SYSTEMS
  • Income taxes
  • Social Security and Medicare (FICA)
  • Unemployment taxes
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Poll: ____________________ refers to income ta...

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Poll: Which of the following payroll deduction...

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Poll: What is the purpose of the payroll syste...

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Checkpoint 
  • What is the purpose of the payroll system?
    • The purpose of the payroll system is to maintain information on each employee to be able to calculate the company’s payroll and make the necessary payments to each employee, taking the proper legal state and federal deductions from each paycheck.
preparing a payroll
PREPARING A PAYROLL
  • Payroll records
  • Preparing paychecks
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Poll: The documentation used to track each emp...

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Poll: An earnings report includes

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Poll: What is the difference between a payroll...

checkpoint6
Checkpoint 
  • What is the difference between a payroll record and an earnings report?
    • A payroll record is documentation used to process earnings payments and record each employee’s pay history.
    • An earnings report contains information for the current pay period as well as the cumulative amounts for the year.
12 4 financial decision making

12-4 FinancialDecision-Making

Goal 1 Recognize important financial information managers use to make decisions.

Goal 2 Identify the steps in making financial decisions in business.

key terms3
KEY TERMS
  • financial performance ratios
  • discrepancies
using financial information
USING FINANCIAL INFORMATION
  • Important financial information
  • Understanding financial performance ratios
    • Current ratio (assets vs. liabilities)
    • Debt to equity ratio (reliance on debt to run company)
    • Return on equity ratio (money made on investment)
    • Net income ratio (profit per $1 of revenue)
financial performance ratios

Current Ratio

=

Current Assets

Current Liabilities

Debt to Equity Ratio

=

Total Liabilities

Owner’s Equity

Return on Equity Ratio

=

Net Profit

Owner’s Equity

Net Income Ratio

=

Total Sales

Net Income

FINANCIAL PERFORMANCE RATIOS
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Poll: ________________________________________...

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Poll: Identify four important financial perfor...

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Checkpoint 
  • Identify four important financial performance ratios used by managers to determine how well the business is performing.
    • Current ratio
    • Debt to equity ratio
    • Return on equity ratio
    • Net income ratio
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Poll: Ratio that tells you how much the busine...

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Poll: The net income ratio will show the rate ...

making financial decisions
MAKING FINANCIAL DECISIONS
  • Prepare a budget
  • Look for discrepancies between actual and budgeted performance
  • Make needed adjustments
    • Adjustments to revenue and/or expenses
    • Last resort: change budget to match actual amounts
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Poll: List the three steps in financial decisi...

checkpoint8
Checkpoint 
  • List the three steps in financial decision-making.
    • Preparing a budget.
    • Using the budget as a guide to the operation of the business.
    • Making needed adjustments to bring performance in line with the budget.
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Poll: Discrepancies are differences between __...

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Poll: If a budget contains several discrepanci...

homework

HOMEWORK

12-4 Assessment: 1-4, 6&7