1. 12-2 Financial Records and Financial Statements
Financial records- used to record and analyze the financial performance of a business
Local, state, and federal governments require some records.
Other records provide information needed by owners and managers to aid in decision-making.

2. Types of Records
Asset records- name the buildings and equipment owned by the business
Their original and current value
The amount owed if money was borrowed to purchase the assets

3. Depreciation records- identify the amount assets have decreased in value due to age and use
Inventory records- identify the type and number or products on hand for sale
Adequate records are crucial to correctly determine the number of products sold, damaged, or lost and the current value of inventory

4. Records of accounts- identify all purchases and sales made using credit
Accounts payable record- identifies the companies from which credit purchases were made and the amount purchased, paid, and owed
Accounts receivable record- identifies customers that made purchases using credit and the status of each account

5. Cash records- list all cash received and spent by the business
Payroll records- contain information on all employees of a company, their compensation and benefits
Tax records- show all taxes collected, owed, and paid
As a part of payroll, employers must withhold a percentage of employees’ salaries and wages for income taxes, Social Security and Medicare taxes, and unemployment compensation.
Some businesses collect and pay state and local taxes.

6. Maintaining Financial Records
Business records have to be accurate and should be kept up to date.
In the past, the preparation and maintenance of financial records was an expensive and time-consuming process. It was often done manually using paper documents that had to be completed, saved, and protected.
Those documents were then sent to the people responsible for preparing the company’s financial records.

7. Technology is changing the way financial information is collected.
Much of the information is now collected using point-of-production and point-of-sale technology
Examples: scanners, touch screens and personal digit assistants
Data files are transferred from the places information is collected to the computers of the people who prepare the final budget.

8. Technology is also changing the way financial records are prepared and maintained.
Businesses use computerized financial systems that have templates for each financial record.
The software completes the necessary math calculations, updates records, and compares those records with budgets.

9. Checkpoint>>
How has the process of maintaining financial records been affected by technology

10. FINANCIAL STATEMENTS
Assets- what a company owns
Liabilities- what a company owes
Owner’s equity- the value of the owner’s investment in the business

11. Financial statements- reports that sum up the financial performance of a business
Balance sheet- where a company reports its assets, liabilities, and owner’s equity
Income statement- where a business reports its sales, expenses, and profits

12. The Balance Sheet
Lists assets, liabilities, and owner’s equity for a specific date
Usually prepared every six months or once a year
See page 300 for a sample balance sheet.

13. Left Side
Assets- anything of value owned by the business
Current assets- include cash and anything that can be converted to cash
Examples: inventory and accounts receivable
Long term assets (fixed assets)- assets with a lifespan of more than a year
Examples: land, buildings, equipment

14. Right Side
Liabilities- amounts owed by the business to others
Current liabilities- those that will be paid within a year
Examples: payments owed to banks for short-term loans, payments to suppliers for inventory, or supplies
Long term liabilities- debts that will continue for longer than a year
Examples: debts owed for land, buildings, and expensive equipment

15. Owner’s equity- the value of the business after liabilities are subtracted from assets
Shows how much the business is worth on a specific date

16. The Income Statement
Income statement- reports revenue, expenses and net income or loss for a specific period
Usually prepared every six months or year
See page 301 for a sample income statement.

17. Revenue- all income received by the business during the period
Examples: sale of products, interest earned from investments
Expenses- all of the costs of operating the business during the period
Examples: rent, supplies, inventory, payroll, and utilities

18. Net income- when revenue is greater than expenses
Net loss- when expenses are greater than revenue
Because financial statements summarize financial performance for a specific period, the business owner can compare the current period with the performance of last month or year.

19. Checkpoint>>
What is the difference between a balance sheet and an income statement?

20. Please complete the 12-2 Assessment Questions at the end of the section.