Chapter 12 Financial Management
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All income that a business receives over a period of time.
The costs of operating a business.
A concept that provides a detailed plans for the financial needs of individuals, families, and businesses.
What are the two main purposes for a business budget?
1. Anticipate sources and amounts of income for a business.
2. Predict the type and amounts of expenses for a specific business activity or the entire business.
What is the purpose for The Small Business Administration (SBA)?
It provides many planning tools for new businesses.
Four steps for the budgeting process
1. Prepare a list of each type of income and expense that will be a part of the budget
2. Gather accurate information from business records and other information sources for each type of income and expense
3. Create the budget by calculating each type of income, expense, and the amount of net income or loss.
4. Explain the budget to people who need financial information to make decisions.
Definition: Start-up budget
It plans income and expenses from the beginning of a new business or a major business' or a major business expansion until it becomes profitable
Definition: Operating budget
It describes the financial plan for ongoing operations of the business for a specific period
Definition: Cash budget
An estimate of the actual money received and paid out for a specific period.
Definition: Financial record
They're used to record and analyze the financial performance of a business
What a company owns
What a company owes
Definition: Owner's Equity
The value of the owner's investment of the business
Definition: Balance sheet
The assets, liabilities, and owner's equity for a specific date are listed on this apparatus.
Definition: income statement
Reports the revenue, expenses, and net income or loss from operations for a specific period.
The financial record of employee comepnsation
Concept: Income taxes, Social Security, and Medicare
Requires employers to withhold and deposit contributions from employees' paychecks along with matching contributions by the employer
Concept: Unemployment taxes
Employers pay Federal Unemployment Tax (FUTA) tot he unemployment insurance system
Definition: Payroll records
Documents used to process earnings payments and record each employee's pay history.
Definition: Direct Deposit
The employer transfers net pay electronically into the employee's bank account
Definition: Financial performance ratios
Comparisons of a company's financial elements that indicate how well the business is performing
Differences between actual and budgeted performance
Concept: Records of accounts
Identifies all purchases and sales made using credit
Concept: Accounts payable record
Identifies the companies from which credit purchases were made and the amount purchased, paid, and owed.
Concept: accounts receivable record
Identifies customers that made purchases using credit and the status of each account
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