****************** Chapter 15 Budgeting and Controlling Operations and Taxes McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

****************** Budgeting And Controlling Operations And Taxes Small Business Control Small Business Control Types Of Budgets Types Of Budgets Obtaining Information & Ratios Obtaining Information & Ratios Taxes & Tax System Taxes & Tax System Record Keeping & Tax Reporting Record Keeping & Tax Reporting Factors/Problems In Getting Credit Factors/Problems In Getting Credit Photodisc Collection/Getty Images

****************** McGraw-Hill/Irwin Control “…the process of ensuring that organizational goals are achieved.”

****************** Control Process 1. Setup Standards 2. Measure Performance 3. Actual vs. Planned 4. Deviations Excessive? 5. Take Corrective Action

****************** Set Standards  Units Consumer/Produced oStandard Hours Per Unit oMiles Per Gallon  Price Paid/Charged- Price Per Unit  Requires oIntuition oPast Performance oMeasurement oComparison oCommunication Keith Brofsky/Getty Images

****************** Effective Controls Timely Timely Cost Effective Cost Effective Accurate Accurate Quantifiable Quantifiable Measurable Measurable Indicate Cause/Effect Indicate Cause/Effect Responsibility Responsibility Acceptable Acceptable PhotoDisc Imaging/Getty Images

****************** Budget “…a detailed statement of financial results expected for a given future period.”

****************** Types Of Budgets  Capital  Operating  Cash Flow Steve Cole/Getty Images

****************** Operating Budget Sales Sales Production Production Personnel Personnel Royalty-Free/CORBIS

****************** Cash Flow Budget Plan Daily/Weekly Cash Needs Plan Monthly Cash Needs Prepare For Cash Flow Crisis Establish/Maintain Good Credit Establish/Maintain Good Credit Set Aside Funds To Earn Interest Set Aside Funds To Earn Interest Schedule Payments Schedule Payments Keep Fixed Costs Low & Tie Variable Costs To Revenue Keep Fixed Costs Low & Tie Variable Costs To Revenue

****************** Cash Budget Format BudgetActual Expected Cash Receipts $$$$$$$$ Expected Cash Payments $$$$$$$$ Cash Balances $$$$$$$$ Cash- Capital Investment $$$$$$$$

****************** Cash Balance Beg. Of Month- Balance + Total Cash Receipts - Total Cash Payments End Of Month- Balance

****************** Budgetary Control “…the system of budgets used to control a company’s financial activities.”

****************** Credit, Collections, & A/R Control  Identify Slow Payers  Investigate Customer’s Ability & Willingness To Pay  Monitor Past Due  Write-Off Uncollectibles Steve Cole/Getty Images

****************** Audit “…a formalized examination and/or review of a company’s financial records.”

****************** Types Of Audits FinancialInternalOperations

****************** Feedback  Obtain Information oObservation oOral Reports oWritten Memos/Reports  Compare Actual vs. Standards Jacobs Stock Photography/Getty Images

****************** Causes Of Poor Performance  Wrong Objectives  Customers Not Buying  Poor Scheduling  Theft/Spoilage  Too Many Employees  Lost Opportunities  Too Much Free Service/Donations

****************** Ratios “…relationships between two or more variables.

****************** Ratio Comparison Values Firm’s Current Value Current Value Past Value Past ValueFirm’s Current Value Current Value Industry Values Industry Values Can Be Interrelated

****************** Financial Ratios

****************** Profits Satisfactory? Net Profit To Owners’ Equity Net Profit To Net Sales

****************** Assets Productive? Net Sales To Fixed Assets Net Sales To Owners’ Equity Ryan McVay/Getty Images

****************** Debt Payments? Current Acid Test (Quick) Working Capital Accounts Receivable To Working Capital Inventory To Working Capital

****************** Business Assets? Collection Period Net Sales To Inventory (Inventory Turnover) Net Sales To Working Capital Royalty-Free/CORBIS

****************** Equity Satisfactory? Long-Term Liabilities To Working Capital Debt To Owners’ Equity Current Liabilities To Owners’ Equity Fixed Assets To Owners’ Equity

****************** U.S. Tax System Determines Taxes & Who Will Pay Collection Of Taxes Internal Revenue Service-

****************** Taxes IndirectDirect

****************** Selected Direct Taxes

****************** Tax Effects  Income Tax On Profits  Employer Withhold/Match  Owner Personal Taxes  Transfer Of Ownership  Business Decisions  Government Administrative Cost Of Collection

****************** Types Of Taxes  Excise/Intangible Property  Sales & Use  Federal, State, & Local Income S. Meltzer/PhotoLink/Getty Images

****************** State Sales Taxes

****************** Taxable Income “…total revenues minus deductible expenses.”

****************** Deductible Expenses  Cost Of Goods Sold  Selling  Administrative PhotoDisc/Getty Images

****************** Cost of Goods Sold & Inventory Valuation  First-In, First-Out (FIFO)  Last-In, First-Out (LIFO)  Average Cost Kim Steele/Getty Images

****************** Employment-Related Taxes  Income Tax Withholding  Social Security/Medicare  Unemployment Compensation oFederal Administration oState  Workers’ Compensation

****************** Owners’ Personal Taxes  Salaries & Bonuses Withdrawn From Company  Dividends  Contract For Business Sale oNoncompete Clause oSeller Warranties & Representations oPurchase Price Retro Americana

****************** Credit Management Decide Method Of Customer Payment  Cash  Check/Debit  Credit Set Credit Policies & Practices Administer Credit Operations Jack Star/PhotoLink/Getty Images

****************** Credit vs. Debit Card Use Sales Volume (in trillions)