Chapter 12 Financial Management Business Principles
Chapter 12 Financial Management for Principles of Business Administration
all income that a business receives over a period of time
costs of operating a business
detailed plans for the financial needs of individuals, families, and businesses
2 Main Purposes:
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
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.
Plans income and expenses from the beginning of a new business or a major business expansion until it becomes profitable.
describes the financial plan for ongoing operations of business for a specific period
an estimate of the actual money received and paid out for a specific period
used to record and analyze the financial performance of a business
Types of Record 1: Asset Record
identify the buildings and equipment owned by the business, their original and current value, and the amount owed if money was borrowed to purchase the assets
Types of Records 2: Depreciation Records
identify the amount assets have decreased in value due to their age and use
Types of Records 3: Inventory Records
identify the type and quantity of resources and products on hand along with the current value of each. Accurate records are crucial to determine if adequate resources are available to meet operating and production needs as well as customer demand.
Types of Records 5: Records of accounts
identify all purchases and sales made using credit.
- accounts payable record: identifies the companies from which credit purchases were made and the amounts purchased, paid, and owed.
- accounts receivable record: identifies customers that made purchases using credit and the status of each account.
Types of Records 6: Cash Records
list all cash received and spent by the business
Types of Records 7: Payroll Records
contain information on all employees of the company, their compensation, and benefits.
Types of Records 8: Tax Records
show all taxes collected, owed, and paid.
what the company owns
what the company owes
the value of the owner's investment in the business
where assets, liabilities, and owner's equity for a specific date are listed
reports the revenue, expenses, and net income or loss from operations for a specific period
the financial record of employees compensation, deductions, and net pay
the documentation used to process earnings payments and record each employee's pay history
auto transfer to employee's savings, etc.
Financial Performance Ratios
comparisons of a company's financial elements that indicate how well the business is performing
differences between actual and budgeted performance