1. Basic Financial Concepts
chapter 2
Basic Financial Concepts
Lonni Steven Wilson, Medaille College

2. Key Chapter Objectives
Distinguish between revenue and expenses.
Describe the difference between finance and accounting.
Understand the objectives of an accounting system.
Understand the basics of T-accounts and general data-entry techniques.

3. Key Terms
revenues—Money coming in. Examples include tickets, broadcast contracts, concessions, and sponsorships.
expenses—Costs that are incurred. Examples included salaries, equipment, travel, rent, and insurance.
debt—Money owed to others.

4. Revenues and Expenses of a High School Athletic Program
Local and city school taxes
Federal tax subsidies
State taxes
Participation fees
Donations
Booster clubs
Concession revenue
Attendance revenue
Broadcasting revenue
Advertising revenue
Fund-raising efforts
Licensing revenue
Sponsorship revenue
EXPENSES
Facility repair and maintenance costs
Uniform and equipment costs
Travel and lodging costs
Insurance costs
Umpire costs
Utility costs
Salaries and benefits
Advertising costs
Promotional costs
Office supplies

5. Sources of Revenue and Expenses
The primary revenues in professional sport are derived from the following:
Ticket sales
Broadcasting rights
Following are the primary expenses in professional sport:
Salaries
Benefits
(continued)

6. Sources of Revenue and Expenses (continued)
Substantial revenue streams DO NOT necessarily indicate that a business is profitable. Why?
Regardless of revenue, businesses must cover costs.
Take, for example, the problems of Canadian NHL teams:
High taxes
Payment of players in American dollars
Lower value of the Canadian dollar

7. Financial Documents
Disclosure documents are required by federal regulators.
10-K (annual report)
10-Q (quarterly report)
These are filed annually with the Securities and Exchange Commission (

8. Using the SEC Web Site On this Web site (www.sec.gov) . . .
Click on Search for Company Filings.
Click on Companies & Other Filers.
Type in the name of a company.
You can access the company’s financial statements, read corporate objectives, and so on.

9. Types of Financial Statements
Budget: A road map or plan expressed in monetary terms that highlights all anticipated assets, debt, expenses, revenue, and net worth.
Income statement: A document that tracks a company’s revenue and expenses over any given period.
Balance sheet: A statement of financial condition prepared at the end of a set period of time that lists a company’s assets, liabilities, and owners’ equity.

10. Proper Documentation
Proper documentation of revenues and expenses is crucial to a sport business’ ability to analyze and evaluate its performance.
Record keeping is a tool; it should not be seen as an end in itself.
Finance necessitates analyzing the financial feasibility of various projects based on the projected revenues to be gained, the expenses that will be incurred, and the availability of moneys to fund the project through to completion.

11. Financial Objectives
Making the highest profit possible
Keeping stockholders happy
Returning the highest possible earnings to shareholders
Increasing the value of stock
Decreasing total debt

12. Key Term
accounting—The art of processing the revenue and expense numbers to develop appropriate reporting procedures upon which financial decisions are made.

13. Objective of Accounting
To provide information for
making decisions about the use of limited resources,
effectively directing and controlling human and material resources,
maintaining and reporting on stewardship, and
contributing to the overall effectiveness of the organization.

14. Facts about Accounting
Accounting is performed by a controller who is responsible for documenting what happened, not what should have happened.
Managerial accounting is a process utilized to develop financial forecasts and monitor various budgets and costing models (Spiro, 1996).

15. Key Terms
stock—Wealth in a variety of forms such as cash, assets, real estate, and accounts receivable (a balance sheet documents the value of a company at a specific point in time).
flow—Expenditures or receipts between two specific points in time (an income statement portrays the flow occurring in a company throughout a business year).

16. The T-System
Accountants have developed the T-system to document monetary transactions.
A company’s balance sheet provides the best example of the T-system.
Refer to figure 2.1 in the text.

17. Questions for In-Class Discussion
What is the difference between accounting and finance?
Why is accounting important for financial analysis?
What is the value of budgeting?
Develop a list of revenue and expense streams for a professional baseball team.