Money Matters Role of Finance A Describe the role of finance in a business organization. B Discuss capital investment decisions and working capital management. Finance LAP 7
Finance and Accounting Closely interrelated and may overlap Key differences: Focus Finance—investment and money management decisions Accounting—recordkeeping activities
Finance and Accounting Key differences: Ultimate purpose Finance—boost growth, reduce risks Accounting—provide accurate and timely information
Finance Activities Administration of assets (investment decisions) Acquisition of funds (financing decisions)
Importance of Finance Helps set goals for the future Plans and controls company spending Ensures sufficient financing Invests company money wisely Decides whether to pay dividends
Relationships With Other Business Activities Controls spending for production and marketing Responsible for capital budgeting (collaborates with accounting) Helps plan new projects and strategies
Capital Investment Decisions Which projects to invest in—capital budgeting How to finance—capital Issuing stock Getting a loan
Capital Investment Decisions Whether or not to pay dividends When? How much? Cash or stock?
What Is Accounting? The process of creating the following financial records: Income statement: Shows the profit or loss Balance sheet: Balances the accounting equation (assets = liabilities + owner’s equity) Maintaining the following: Accounts _________: Money owed to others Accounts ________: Money owed to the company
What Do Businesses Track with Accounting Information? The value of the things they own (assets) How much money they owe (liabilities) The company’s net worth (owner’s equity)
Why Is Accounting Important to Businesses? Enables them to maintain control of their money Is used to make good financial decisions
How Does Accounting Maintain Financial Control? Tracking the business’s spending Planning for the future
Chris—financial manager Working on a budget Friend in marketing wants more money What should he do?
Acknowledgments Original Developers: Kerry Winfrey and Lelia Ventling, MBAResearch Version 2.0 Copyright © 2014 MBA Research and Curriculum Center
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