© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE Financial Planning Financial Records and Financial Statements Payroll Management Financial Decision-Making 12 C 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 SLIDE 2 FINANCIAL PLANNING ●Beginning a business ●Ongoing operations ●Business expansion

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 3 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 4 Checkpoint ●What is the basic financial equation for businesses? ●The basic financial equation for businesses is revenue minus expenses equals profit or loss.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 5 DEVELOPING BUSINESS BUDGETS ●Sources of budget information ●Budget preparation

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 6 TYPES OF BUDGETS ●Start-up budget ●Operating budget ●Cash budget

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 7 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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 8 FINANCIAL RECORDS ●Types of records ●Asset records ●Depreciation records ●Inventory records ●Records of accounts ●Cash records ●Payroll records ●Tax records ●Maintaining financial records

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 9 FINANCIAL STATEMENTS ●The balance sheet ●The income statement

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 10 BALANCE SHEET

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 11 INCOME STATEMENT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 12 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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 13 PAYROLL SYSTEMS ●Income taxes ●Social Security and Medicare ●Unemployment taxes

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 14 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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 15 PREPARING A PAYROLL ●Payroll records ●Preparing paychecks

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 16 SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 17 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.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 18 KEY TERMS ●financial performance ratios ●discrepancies

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 19 USING FINANCIAL INFORMATION ●Important financial information ●Understanding financial performance ratios ●Current ratio ●Debt to equity ratio ●Return on equity ratio ●Net income ratio

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 20 FINANCIAL 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 EquityNet Income Total Sales =Net Income Ratio

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 21 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

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 22 MAKING FINANCIAL DECISIONS ●Prepare a budget ●Look for discrepancies between actual and budgeted performance ●Make needed adjustments

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 12 SLIDE 23 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.