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2. »Are vital because a business cannot exist without cash flow »Focus on the following: –creating up-to-date, accurate financial statements –making a plan to create profits –managing and utilizing company resources 2

3. »Is a system used to record, classify, summarize and report the financial position of a business »Responsibilities include: –recording financial transactions –creating financial statements 3

4. »Are financial entries affecting the financial position of a business »Include these classifications: –assets – items of value owned by a business examples include: cash, land, buildings, equipment –liabilities – debts or obligations of a business examples include: credit, mortgage payments –owner’s equity – amount of capital invested by owners total value of assets minus liabilities 4

5. »Include the accounting equation: »Are recorded, classified and summarized, providing information used to create financial statements 5 assets = liabilities + owner’s equity (both sides of the equation must balance)

6. »Are the reporting process of accounting »Are used to make financial decisions »Include two main types: –balance sheet – reports totals in asset, liability and owner’s equity accounts –income statement – reports net income or net loss of a company net income – when revenue is greater than expenses net loss – when expenses are greater than revenue 6

7. Kay’s Kloth Shop Balance sheet Assets Cash in bank $4,000.00 Cloth $8,000.00 Supplies $2,000.00 Total assets$14,000.00 Kay’s Kloth Shop Balance sheet Assets Cash in bank $4,000.00 Cloth $8,000.00 Supplies $2,000.00 Total assets$14,000.00 7 Liabilities Accounts payable $ 4,000.00 Owner’s Equity Capital from Kay $10,000.00 Total liabilities and owner’s equity $14,000.00

8. Kay’s Kloth Shop Income Statement Revenue: Cloth Sales$6,000.00 Expenses: Advertising$100.00 Utilities$300.00 Rent$600.00 Payroll $3,000.00 Total expenses$4,000.00 Net Income:$2,000.00 Kay’s Kloth Shop Income Statement Revenue: Cloth Sales$6,000.00 Expenses: Advertising$100.00 Utilities$300.00 Rent$600.00 Payroll $3,000.00 Total expenses$4,000.00 Net Income:$2,000.00 8

9. »Goal: –determine use of company resources and funds »Responsibilities include the following: –managing use of company funds –obtained needed funds –creating a financial plan 9

10. »Funds are used to do the following: –buy resources used to create goods and services –pay expenses required for operation »When available, excess funds can be used in many ways including: –purchasing assets to help the company grow –paying unexpected or high expenses –investing to obtain profit 10

11. »Sources of funding include: –borrowing funds –selling stock –looking for new investors –increasing owner contributions »The financial plan does the following: –specifies what funds are needed –documents period funds are needed –is crucial to the success of a business 11