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

2. ****************** 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 15 - 2

3. ****************** 15 - 3 McGraw-Hill/Irwin Control “…the process of ensuring that organizational goals are achieved.”

4. ****************** 15 - 4 Control Process 1. Setup Standards 2. Measure Performance 3. Actual vs. Planned 4. Deviations Excessive? 5. Take Corrective Action

5. ****************** 15 - 5 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

6. ****************** 15 - 6 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

7. ****************** 15 - 7 Budget “…a detailed statement of financial results expected for a given future period.”

8. ****************** 15 - 8 Types Of Budgets  Capital  Operating  Cash Flow Steve Cole/Getty Images

9. ****************** 15 - 9 Operating Budget Sales Sales Production Production Personnel Personnel Royalty-Free/CORBIS

10. ****************** 15 - 10 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

11. ****************** 15 - 11 Cash Budget Format BudgetActual Expected Cash Receipts $$$$$$$$ Expected Cash Payments $$$$$$$$ Cash Balances $$$$$$$$ Cash- Capital Investment $$$$$$$$

12. ****************** 15 - 12 Cash Balance Beg. Of Month- Balance + Total Cash Receipts - Total Cash Payments End Of Month- Balance

13. ****************** 15 - 13 Budgetary Control “…the system of budgets used to control a company’s financial activities.”

14. ****************** 15 - 14 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

15. ****************** 15 - 15 Audit “…a formalized examination and/or review of a company’s financial records.”

16. ****************** 15 - 16 Types Of Audits FinancialInternalOperations

17. ****************** 15 - 17 Feedback  Obtain Information oObservation oOral Reports oWritten Memos/Reports  Compare Actual vs. Standards Jacobs Stock Photography/Getty Images

18. ****************** 15 - 18 Causes Of Poor Performance  Wrong Objectives  Customers Not Buying  Poor Scheduling  Theft/Spoilage  Too Many Employees  Lost Opportunities  Too Much Free Service/Donations

19. ****************** 15 - 19 Ratios “…relationships between two or more variables.

20. ****************** 15 - 20 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

21. ****************** 15 - 21 Financial Ratios

22. ****************** 15 - 22 Profits Satisfactory? Net Profit To Owners’ Equity Net Profit To Net Sales

23. ****************** 15 - 23 Assets Productive? Net Sales To Fixed Assets Net Sales To Owners’ Equity Ryan McVay/Getty Images

24. ****************** 15 - 24 Debt Payments? Current Acid Test (Quick) Working Capital Accounts Receivable To Working Capital Inventory To Working Capital

25. ****************** 15 - 25 Business Assets? Collection Period Net Sales To Inventory (Inventory Turnover) Net Sales To Working Capital Royalty-Free/CORBIS

26. ****************** 15 - 26 Equity Satisfactory? Long-Term Liabilities To Working Capital Debt To Owners’ Equity Current Liabilities To Owners’ Equity Fixed Assets To Owners’ Equity

27. ****************** 15 - 27 U.S. Tax System Determines Taxes & Who Will Pay Collection Of Taxes Internal Revenue Service- www.irs.ustreas.gov www.irs.ustreas.gov

28. ****************** 15 - 28 Taxes IndirectDirect

29. ****************** 15 - 29 Selected Direct Taxes

30. ****************** 15 - 30 Tax Effects  Income Tax On Profits  Employer Withhold/Match  Owner Personal Taxes  Transfer Of Ownership  Business Decisions  Government Administrative Cost Of Collection

31. ****************** 15 - 31 Types Of Taxes  Excise/Intangible Property  Sales & Use  Federal, State, & Local Income S. Meltzer/PhotoLink/Getty Images

32. ****************** 15 - 32 State Sales Taxes

33. ****************** 15 - 33 Taxable Income “…total revenues minus deductible expenses.”

34. ****************** 15 - 34 Deductible Expenses  Cost Of Goods Sold  Selling  Administrative PhotoDisc/Getty Images

35. ****************** 15 - 35 Cost of Goods Sold & Inventory Valuation  First-In, First-Out (FIFO)  Last-In, First-Out (LIFO)  Average Cost Kim Steele/Getty Images

36. ****************** 15 - 36 Employment-Related Taxes  Income Tax Withholding  Social Security/Medicare  Unemployment Compensation oFederal Administration oState  Workers’ Compensation

37. ****************** 15 - 37 Owners’ Personal Taxes  Salaries & Bonuses Withdrawn From Company  Dividends  Contract For Business Sale oNoncompete Clause oSeller Warranties & Representations oPurchase Price Retro Americana

38. ****************** 15 - 38 Credit Management Decide Method Of Customer Payment  Cash  Check/Debit  Credit Set Credit Policies & Practices Administer Credit Operations Jack Star/PhotoLink/Getty Images

39. ****************** 15 - 39 Credit vs. Debit Card Use Sales Volume (in trillions)