MAINTAINING FINANCIAL INFORMATION Chapter 14 2/17/2019 Unit 6, Part 3 MAINTAINING FINANCIAL INFORMATION Identify common sources of financial information for small businesses. Describe the three types of business budgets. Outline the primary financial records needed to manage a small business. Explain the financial statements used by business owners for decision making.

Chapter 14 2/17/2019 FINANCIAL PLANNING A business budget has two purposes: 1. to anticipate sources and amounts of income, and 2. to predict the types and amounts of expenses for a specific business activity or the entire business. Think of some businesses and make a list of expenses and income that business might have Why might successful businesses spend a great deal of time making and following budgets? What kinds of records should a business keep? Customer preferences records, employee records, equipment and inventory records Could a business operate without financial planning?

TYPES OF BUDGETS Start-up budget Operating budget Cash flow budget Chapter 14 2/17/2019 TYPES OF BUDGETS Start-up budget Operating budget Cash flow budget Startup budget – plans income and expenses from the beginning of the business until it becomes profitable Operating budget – describes the financial plan for the ongoing operations of the business. Usually planned for six months to a year Cash budget –estimate of the actual money received and paid for a specific time period Discuss revenue and expenses and how they equal net income Discuss balance sheet, assets, liabilities and owners equity

1. Prepare a list of each type of revenue and expense Chapter 14 2/17/2019 STEPS IN BUDGETING 4. Show and explain the budget to people who need financial information to make decisions 3. Create the budget by calculating each type of revenue, expense, and amount of net income or loss 2. Gather accurate information from business records and other sources for each type of revenue and expense The goals of budgeting are to determine sources of income and how it will be distributed. 1. Prepare a list of each type of revenue and expense

FINANCIAL RECORDS Cash records – cash receipts & payments Chapter 14 2/17/2019 FINANCIAL RECORDS Cash records – cash receipts & payments Records of accounts – Accounts Payable and Receivable Inventory records – Merchandise for sale Payroll records – employees and their earnings Asset records – things of value FINANCIAL RECORDS ARE USED TO RECORD AND ANALYZE THE FINANCIAL PERFORMANCE OF A BUSINESS Cash records - list all cash receipts and disbursements Records of accounts - accounts payable and accounts receivable, show all credit purchases and sales Inventory records - type and quantity of merchandise available for sale Payroll records - information on employees and their earnings THIS IS ONE OF THE MOST IMPORTANT FINANCIAL RESPONSIBILITIES OF A BUSINESS - a separate record is kept to keep track of payroll. Asset records - identify building and equipment owned by the business (things of value)

FINANCIAL STATEMENTS Balance sheet – A = L + O Income statement Chapter 14 2/17/2019 FINANCIAL STATEMENTS Balance sheet – A = L + O Assets = Liabilities Plus Owners Equity Income statement Revenue – Expenses = Net Income or (net loss) Financial statements - reports that summarize the financial performance of a business Balance sheet - shows lists assets, liabilities and owners equity Income statement - reports revenues, expenses and net income or loss Net income - when revenues exceed expenses Net loss - when expenses exceed revenues