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. CHAPTER 12
12-1 Financial Planning
4/7/2017
Goal 1 Recognize important financial questions that must be answered in a business.
Goal 2 List the steps in budget preparation.
Goal 3 Describe three types of business budgets.

3. KEY TERMS revenue expenses budget start-up budget operating budget
cash budget

4. FINANCIAL PLANNING Beginning a business Ongoing operations
Business expansion

5. 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

6. Checkpoint  What is the basic financial equation for businesses?
The basic financial equation for businesses is revenue minus expenses equals profit or loss.

7. DEVELOPING BUSINESS BUDGETS
Sources of budget information
Budget preparation

8. Checkpoint  What are the four steps in preparing a business budget?
Preparing a list of each type of income and expense that will be a part of the budget
Gathering accurate information from business records and other information sources for each type of income and expense
Creating the budget by calculating each type of income, expense, and the amount of net income or loss
Explaining the budget to people who need financial information

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

10. 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.

11. 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.

12. KEY TERMS financial records assets liabilities owner’s equity
balance sheet
income statement

13. FINANCIAL RECORDS Types of records Maintaining financial records
Asset records
Depreciation records
Inventory records
Records of accounts
Cash records
Payroll records
Tax records
Maintaining financial records

14. Checkpoint 
How has the process of maintaining financial records been affected by technology?
Most financial information is collected using point-of-production and point-of-sale technology and sent electronically to the people who prepare the financial records.
Also, businesses use computerized financial systems that complete the necessary mathematical calculations and compare those records with budgets.
The software can even complete what-if comparisons to help managers determine the impact of changes in budgets and financial performance.

15. FINANCIAL STATEMENTS
The balance sheet
The income statement

16. BALANCE SHEET

17. INCOME STATEMENT

18. 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.

19. 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.

20. KEY TERMS
payroll
payroll record
direct deposit

21. PAYROLL SYSTEMS Income taxes Social Security and Medicare
Unemployment taxes

22. 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.

23. PREPARING A PAYROLL
Payroll records
Preparing paychecks

24. SAMPLE EARNINGS REPORT AND DIRECT DEPOSIT RECEIPT

25. 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.

26. 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.

27. KEY TERMS
financial performance ratios
discrepancies

28. USING FINANCIAL INFORMATION
Important financial information
Understanding financial performance ratios
Current ratio
Debt to equity ratio
Return on equity ratio
Net income ratio

29. 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

30. 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

31. MAKING FINANCIAL DECISIONS
Prepare a budget
Look for discrepancies between actual and budgeted performance
Make needed adjustments

32. 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.