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Transcript of © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 1...
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 1
12-1 Financial Planning
12-2 Financial Records and Financial Statements
12-3 Payroll Management
12-4 Financial Decision-Making
12C H A P T E R
Financial Management
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
2
Job Opportunities• Clerks
– Sorts and files accounting information
• Bookkeeper– General accounting work with some analyzing and summarizing
• Accountant– Person who plans, summarizes, analyzes, and interprets
accounting information– Public, Private, CPA
– Earn better than average salary $37,000 to $74,000 to start
Climb your way
to the top!
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12Need to know Vocabulary● Revenue, Sales, or Gross Income
● All income
● Expenses● Costs of operation● Fixed Costs (Overhead)= bills that do not change
based on output● Rent, insurance, loan costs, salary workers
● Variable Costs = bills that differ based on output● Materials, hourly workers,
● Earnings or Net Income● Income after taxes and expenses
SLIDE 3
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 4BASIC FINANCIAL EQUATION
● Profit / Loss● Difference in revenue and expenses
● Revenue – Expenses = Profit or Loss (Earnings)● Profit
● Revenue is greater than expenses● Revenue > Expenses = Profit
● Loss● Revenue is less than expenses● Revenue < Expenses = Loss
● Break Even● Revenue = Costs● No profit or loss
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
Budget
● Detailed plans for financial needs● Plan of all expenses and income
1. Predict income and expenses
2. Gather accurate information to support prediction
3. Create a budget
4. Share the budget with people who need to know
5. Edit your budget
SLIDE 5
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 6
TYPES OF BUDGETS● 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.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
Check ● Book Work Question 1
● Identify several unique business expenses for three important times in a business’ life.
● Startup, ongoing, expansion
● Create an operational budget for your daily life, steps 1 to 3
1. Predict income and expenses
2. Gather accurate information to support prediction
3. Create a budget
4. Share the budget with people who need to know
5. Edit your budget
SLIDE 7
© 2012 Cengage Learning. All Rights Reserved.SLIDE 8
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.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 9FINANCIAL RECORDS
● Financial records = Financial documents that are used to record and analyze performance of a business
● Question 2: Difference between budget and Financial Record● Budget = Plan, Record = What happened. Both to track and stay on goal
● Types of records● Asset records● Depreciation records
● Depreciation = loss of value over time
● Inventory records● Records of accounts● Cash records
● Question 3: Why is cash budget important?
● Payroll records● Tax records
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
Basics of Accounting• Assets (A)
• Anything of value that is owned– Cash, Inventory, Supplies, Accounts Rec.
• Liabilities (L)• Amount owed
• Accounts Payable
• Owner’s Equity (E) • Owner’s stake in the business
• How much $ invested
• Assets = Owner’s Equity + Liabilities – Complete Page 1 Accounting Worksheet
SLIDE 10
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12Balance Sheet
● Show assets, liabilities and owner’s equity● Created once or twice a year
● Google’s Balance Sheet
● Complete PART 3:
Balance Sheet
SLIDE 11
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
Balance Sheet and T-Charts● Transaction = a business activity that changes
assets, liabilities, or owner’s equity● At least 2 accounts must be used
● T account● debit (dr)● credit (cr)
● Normal Balance● Assets = Left Side (dr)● Liabilities = Right Side (cr)● O.E. = Right Side (cr)
● Debits = Credits
SLIDE 12
Assets = L. + O.E.
Left Side
Debit Side
(A)
Right Side
Credit Side
(L and E)
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
T – Chart Practice
1. What accounts are affected?2. How is each account classified? (Normal
Balance)3. How is each account balance changed?4. How is each amount entered in the
accounts? 5. Do credits = debits?
SLIDE 13
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12
14
Transactions - What Accounts are Affected?
1. Received cash from owner as an investment, 2,000
2. Paid cash for insurance, 600
3. Bought supplies on account from Swan’s Supply Company
1. Cash, Owners Equity2. Asset (prepaid insurance), Cash3. Assets (supplies), Accounts Payable
Complete Part 2 of Accounting Worksheet: Transactions on T-Charts
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12Income Statement
● Report of revenue, expenses, and net income or loss
● Shows all income first, Shows all expenses, Shows the difference
● McDonalds Income Statement
● Question 4: What information
is in a Balance Sheet that is
not in an Income Statement?
SLIDE 15
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 16
Checkpoint ● Complete the Lemonade Stand
● Keep track of all transactions using T Charts● Fill out Multiple Balance Sheets● Credits = Debits
© 2012 Cengage Learning. All Rights Reserved.SLIDE 17
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.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 18
PAYROLL SYSTEMS● Legally must pay on time (at least once a month)● Must pay taxes for employees
● Social Security and Medicare● Disability● Unemployment
● Take taxes that employees pay from checks● Income taxes● Social Security and Medicare
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 19SAMPLE EARNINGS REPORT
AND DIRECT DEPOSIT RECEIPT
© 2012 Cengage Learning. All Rights Reserved.SLIDE 20
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.
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 21USING FINANCIAL
INFORMATION
● Every decision revolves around $$$● 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● Alter budget if it was incorrect / things change
● Understanding financial performance ratios
© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e
C H A P T E R 12SLIDE 22FINANCIAL PERFORMANCE
RATIOS
Current Liabilities
Current Assets=Current Ratio
Owner’s Equity
Total Liabilities=Debt to Equity Ratio
Net Profit=Return on Equity Ratio
Owner’s Equity
Net Income
Total Sales=Net Income Ratio
Complete Financial Performance Ratio Worksheet