Chapter 12: Financial Management
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All the money a company receives over a period of time
The cost of operating a business
basic financial equation
total revenue-expenses= profit
What does business expansion call for?
research to develop new products and locate new markets
Provides detailed plans for the financial needs
Two main purposes of a business budget
- 1) anticipate sources and amounts of income for a business
- 2) predict the types and amounts of expenses for a specific business activity or the entire business
Small Business Administration (SBA)
Provides many planning tools for new businesses
Most important step is creating a budget
Plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable
Budget process has 4 steps
- 1)prepare a list of each type of income and expense apart of the budget
- 2)gather accurate info. from business records and other sources
- 3)create the budget
- 4)explain the budget to people who need financial info. to make decisions
Describes the financial plan for ongoing operations of the business for a specific period
An estimate of the actual money received and paid out for a specific period.
Are used to record and analyze the financial performance of a business
Types of Records
Asset Records, Depreciation Records, Inventory Records, Records of Accounts, Cash Records, Payroll Records, Tax Records
what a company owns
What a company owns
Value of the owner's investment in the business.
- Assets, liabilities, and owners equity for a specific date are listed
- Prepared every six months or once a year
To report the revenue, expenses, and net income or loss from operations for a specific period
Net income and net loss
- Net income is when revenue is greater than expenses
- Net loss occurs when expenses are greater than revenue
is the financial record of employee compensation, deductions, and netpay
documentation used to process earnings payments and record each employee's pay history
employer transfers net pay electronically in to the employees bank account.
financial Performance Records Ratios
Are comparisons of a company's financial elements that indicate how well the business is performing
- Current Ratio: Current Assets/Current Liabilities
- Debt to Equity Ratio: Total Liabilities/Owners Equity
- Return on Equity Ratio: Net Profit/Owner's Equity
- Net Income Ratio:Total Sales/Net Income
Differences between actual and budgeted performance
What would you like to do?
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