1. 12 Financial Management 12-1 Financial Planning
C H A P T E R 12
Financial Management
12-1 Financial Planning
12-2 Financial Records and Financial Statements
12-3 Payroll Management
12-4 Financial Decision-Making

2. Climb your way to the top!
Job Opportunities
Clerks
Sorts and files accounting information
Bookkeeper
General accounting work with some analyzing and summarizing
Accountant
Person who plans, summarizes, analyzes, and interprets accounting information
Public, Private, CPA
Earn better than average salary $37,000 to $74,000 to start
Climb your way to the top!

3. Need to know Vocabulary
Revenue, Sales, or Gross Income
All income
Expenses
Costs of operation
Fixed Costs (Overhead)= bills that do not change based on output
Rent, insurance, loan costs, salary workers
Variable Costs = bills that differ based on output
Materials, hourly workers,
Earnings or Net Income
Income after taxes and expenses

4. BASIC FINANCIAL EQUATION
Profit / Loss
Difference in revenue and expenses
Revenue – Expenses = Profit or Loss (Earnings)
Profit
Revenue is greater than expenses
Revenue > Expenses = Profit
Loss
Revenue is less than expenses
Revenue < Expenses = Loss
Break Even
Revenue = Costs
No profit or loss

5. Budget Detailed plans for financial needs
Plan of all expenses and income
Predict income and expenses
Gather accurate information to support prediction
Create a budget
Share the budget with people who need to know
Edit your budget

6. TYPES OF BUDGETS Start-up budget Operating budget Cash 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.

7. Check Book Work Question 1
Identify several unique business expenses for three important times in a business’ life.
Startup, ongoing, expansion
Create an operational budget for your daily life, steps 1 to 3
Predict income and expenses
Gather accurate information to support prediction
Create a budget
Share the budget with people who need to know
Edit your budget

8. 12-2 Financial Records and Financial Statements
Goal 1 Identify several types of financial records needed by businesses.
Goal 2 Describe the differences between an income statement and a balance sheet.

9. FINANCIAL RECORDS
Financial records = Financial documents that are used to record and analyze performance of a business
Question 2: Difference between budget and Financial Record
Budget = Plan, Record = What happened. Both to track and stay on goal
Types of records
Asset records
Depreciation records
Depreciation = loss of value over time
Inventory records
Records of accounts
Cash records
Question 3: Why is cash budget important?
Payroll records
Tax records

10. Basics of Accounting Assets (A) Liabilities (L) Owner’s Equity (E)
Anything of value that is owned
Cash, Inventory, Supplies, Accounts Rec.
Liabilities (L)
Amount owed
Accounts Payable
Owner’s Equity (E)
Owner’s stake in the business
How much $ invested
Assets = Owner’s Equity + Liabilities
Complete Page 1 Accounting Worksheet

11. Balance Sheet Show assets, liabilities and owner’s equity
Created once or twice a year
Google’s Balance Sheet
Complete PART 3:
Balance Sheet

12. Balance Sheet and T-Charts
Transaction = a business activity that changes assets, liabilities, or owner’s equity
At least 2 accounts must be used
T account
debit (dr)
credit (cr)
Normal Balance
Assets = Left Side (dr)
Liabilities = Right Side (cr)
O.E. = Right Side (cr)
Debits = Credits
Assets = L. + O.E.
Left Side
Debit Side
(A)
Right Side
Credit Side
(L and E)

13. T – Chart Practice What accounts are affected?
How is each account classified? (Normal Balance)
How is each account balance changed?
How is each amount entered in the accounts?
Do credits = debits?

14. Transactions - What Accounts are Affected?
Received cash from owner as an investment, 2,000
Paid cash for insurance, 600
Bought supplies on account from Swan’s Supply Company
Cash, Owners Equity
Asset (prepaid insurance), Cash
Assets (supplies), Accounts Payable
Complete Part 2 of Accounting Worksheet: Transactions on T-Charts

15. Income Statement Report of revenue, expenses, and net income or loss
Shows all income first, Shows all expenses, Shows the difference
McDonalds Income Statement
Question 4: What information
is in a Balance Sheet that is
not in an Income Statement?

16. Checkpoint  Complete the Lemonade Stand
Keep track of all transactions using T Charts
Fill out Multiple Balance Sheets
Credits = Debits

17. 12-3 Payroll Management
Goal 1 Describe the components of a business payroll system.
Goal 2 Identify key information included in payroll records and paychecks.

18. PAYROLL SYSTEMS Legally must pay on time (at least once a month)
Must pay taxes for employees
Social Security and Medicare
Disability
Unemployment
Take taxes that employees pay from checks
Income taxes

19. SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

20. 12-4 Financial Decision-Making
Goal 1 Recognize important financial information managers use to make decisions.
Goal 2 Identify the steps in making financial decisions in business.

21. USING FINANCIAL INFORMATION
Every decision revolves around $$$
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
Alter budget if it was incorrect / things change
Understanding financial performance ratios

22. 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 Equity
Net Income
Total Sales =
Net Income Ratio
Complete Financial Performance Ratio Worksheet