pp. 268-281
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pp. 268-281
Chapter 17 Managing Business Finances
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Learning ObjectivesLearning Objectives
After completing this chapter, you’ll be After completing this chapter, you’ll be able to:able to:
1.1. ExplainExplain the three important aspects of financial planning.
2.2. Name Name the responsibilities of a financial manager.
3.3. IdentifyIdentify different types of budgets for managing business finances.
4.4. DescribeDescribe the types of financial records businesses use.
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Why It’s ImportantWhy It’s Important
Every large or small business has to have a financial plan, a budget, and financial records to manage its financial resources.
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Aspects of Financial Management
1. Managing the finances of a business involves putting together a________
_____________________________ _____________________________ _____________________________
financial plan, budgeting, and keeping track of income and expenses
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Financial PlanningFinancial Planning
2. A ___________________is an outline of your expenses, needs, and goals, and how you expect to meet them.
financial plan
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.
Financial PlanningFinancial Planning
3. You need a financial plan to tell you how much ___________________
________________and to operate your business once it’s running
4. You also need the financial plan to explain how you’re going to ____________________.
money you’ll need to start out
cover expenses.
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Financial PlanningFinancial Planning
5. An entrepreneur starting a new business must also ____________________________
6. The entrepreneur must find adequate funding.
plan for finances.
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Assets Needed Assets Needed
7. ________________________is the first step in a financial plan.
7a. Any ______________________ that your business owns is an asset.
Identifying your assets
property or item of value
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Assets NeededAssets Needed
7b. __________________________is important before buying any major asset.
7c. Analyze and _________________ of each different item.
Researching your options
compare the price
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Purchasing Assets Purchasing Assets
8. _____________________ is the second step in your financial planning.
8a. _____________________ you will use to purchase the items.
Determine the method
Purchasing your assets
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Purchasing AssetsPurchasing Assets
8b. If you’re working with limited resources, you need to make decisions _____________________ and how you’ll pay for them, whether with cash or credit.
based upon your needs
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Accounting RequirementsAccounting Requirements
9. ____________________________ you need to keep is the third important step in financial planning.
Recognizing the financial records
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Accounting RequirementsAccounting Requirements
9a. __________________________ of what business conditions will be like in the future.
9b. A forecast includes
___________________________ that might affect your business.
A financial forecast is an estimate
planning for changes in the economy
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Graphic Organizer
FINANCIALFINANCIALPLANNNINGPLANNNINGFINANCIALFINANCIAL
PLANNNINGPLANNNING
Elements of Financial PlanningElements of Financial Planning
Graphic OrganizerGraphic Organizer
GOALSGOALS
RECORD-KEEPING
PLAN
RECORD-KEEPING
PLAN
FINANCIALFORECASTFINANCIALFORECAST
PROJECTEDINCOME
PROJECTEDINCOME
PROJECTEDBUDGETS
PROJECTEDBUDGETS
ASSETALALYSIS
ASSETALALYSIS
PROJECTEDEXPENSES
PROJECTEDEXPENSES
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Fast Review
1. Why is financial planning important to a business?
2. What are examples of assets?
To figure out how much a business needs to get started an to keep it going.
Cash, equipment, buildings, supplies, and land
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Fast Review
3. Describe the three steps of a financial plan.
Putting together a financial plan, budgeting and tracking income and expenses.
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Accounting Accounting
10. _______________ is the systematic process of recording and reporting the _______________ of a business.
Accounting
financial position
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Accounting Accounting
financial manager11. The _________________ is the person in charge of a business’s____________
______________________
12. Three important functions of a financial manager are:• Managing funds and making sure the business is meeting its financial obligations.•Finding sources for additional funds.•Planning long-range financial goals
financial planning, funding and accounting
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BudgetingBudgeting13. A __________ is a written plan of
what you expect your __________________ to be over a certain period of time.
budget
14. The three main types of budgets are:
•Start-up budget•Cash budget•Operating budget
income and expenses
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Start-up Budget Start-up Budget
15. A start-up budget is a plan for your income and expenses from the ___________________________
_____________________________
16. It includes the ___________________________
_____________________________
the time you start the business to when it makes a profit.
cost of equipment, supplies, rent and hiring workers
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Start-up Budget Start-up Budget
17. Most new businesses ___________________________
_____________, so you also need to plan for covering your own personal expenses.
don’t make a profit during the first year
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Cash BudgetCash Budget
18. A _______________ is a plan for the __________________________
_________________________ on a daily, weekly, or monthly basis.
cash budgetactual money you expect to spend and earn
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Operating Budget Operating Budget
19. An _________________ is a plan for how much you expect to spend and earn over a given period of time, usually __________________.
operating budget
six months or a year
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Personal Budget
Income Sources:Work 00Parents 00Other 00Total income 00
Expenses:List all 00
00Total Expenses 00
Net Income(Loss) 00
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Fast Review
1. What are some of the expenses a start-up budget includes?
2. What is the main difference between a cash budget and an operating budget?
Buying equipment and supplies, renting property, hiring workers, borrowing money.
Cash Budget – a plan for the actual money you expect to spend.
Operating Budget – total amount of money you expect to spend in a six month period or year. Includes non-cash items.
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Financial RecordsFinancial Records
20. To keep track of how your business is actually doing financially, you need to keep _______________________. accurate written accounts
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Financial RecordsFinancial Records
21.An _________________ may be one month, three months, or one year.
22. If the reports are for one year, the accounting period is a _____________.
accounting period
fiscal year.
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Financial Records Financial Records
23. There are many business software programs you can buy that not only set up budgets, but also keep financial records.
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Financial StatementsFinancial Statements
24. Accounting records keep track of _____________________________ your business.
money coming into and going out of
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Financial StatementsFinancial Statements
25. __________________ sort out ________________ to show what your business owns, how much money it takes in, and how much it owes to others.
Accounting recordstransactions
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Financial StatementsFinancial Statements
26.Any amount your business owes is a ____________.
27. When you buy anything from a
supplier, such as food products, you usually __________________.
liability
buy it on credit
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Financial Statements Financial Statements
28. _____________ you owe banks or investors are also _____________________ of your business.
29. The claim on the assets by the owner is called the _______________.
Debts you owe
claims against the assets
owner’s equity
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Financial Statements Financial Statements
30. The relationship between a company’s assets and the claims against those assets is expressed by an equation:
Assets = Liabilities + Owner’s Equity
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Income Statement Income Statement
31. The __________________ is a report of net income or net loss over an accounting period.
income statement
Income: 35,000$
Expenses: Rent 2,500 Utilities 4,500 Materials 3,000 Other 2,500 Total Expenses 12,500
Net Income 22,500$
The Graham Company
For the 12 months ended December 31, 2006Income Statement
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Income StatementIncome Statement
32. If total revenue, or earnings, is greater than a business’s total expenses, it has a ____________.
33. If expenses are greater than its revenue, then it has a ___________.
net income
net loss
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Balance SheetBalance Sheet
34. A __________________ is a report of the financial state of your business on a _______________.
balance sheet
certain date
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Balance SheetBalance Sheet
35. A balance sheet includes a report of __________________________
__________________________ assets, liabilities, and the owner’s equity
Assets: Cash 5,000$ Building 30,000 Supplies Inventory 6,000 Total Assets 41,000$
Liabilities Accounts Payable 6,200$ Total Liabilities 6,200
Owner's Equity 34,800
Total Liabilities and Owner's Equity 41,000$
The Graham Company
31-Dec-06Balance Sheet
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Balance SheetBalance Sheet
36. The left side of the sheet lists all your assets and the right side lists all your liabilities and equity.
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Figure17.2 COMMON SOURCES AND USES OF FUNDS IN A BUSINESS
A budget is a written plan of what you expect your income and expenses to be over a certain period of time. This helps control your spending.What are some uses of funds for a company? List at least four.
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Fast Review
1. What’s the purpose of financial records?
2. Explain the difference between total assets and total liabilities.
To keep track of how a business is doing financially
Assets are everything a business owns. Liabilities are everything a business owes. The difference between them is the owner’s equity
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Making an Ethical Decision
1. In what ways is a nonprofit like a business?2. What can an accountant provide for a
nonprofit that a volunteer cannot?3. What ethical questions arise when a
volunteer is the treasurer for a nonprofit?
continued
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Making an Ethical Decision
4. How would you tactfully convince a volunteer to step down from his or her role as treasurer for a nonprofit? Are there other roles that a volunteer treasurer could fulfill in a nonprofit organization?
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For any business, what is the first step to financial management?
continued
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Name some long-term goals a company might have.
continued
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What helps a company control its spending?
continued
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What does a company use to track the money coming in and going out?
pp. 268-281
End ofChapter 17 Managing Business Finances
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Key WordsKey Words
financial planassetfinancial forecastaccountingfinancial managerbudget
continued
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Key WordsKey Words
fiscal yearowner’s equityincome statementbalance sheet
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Figure17.1 WHAT’S YOUR FINANCIAL ID?
Your personality can help guide your future. On a piece of paper, write ten characteristics that best describe you. Find out if you’re a persuader, a communicator, or an individualist. How will this influence your financial future?
Take this financial quiz to see.
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