Slide #1.

Chapter 3 Financial Management BCN 4753 Summer 2007
More slides like this


Slide #2.

Financial Reports  Why is it important to be able to understand financial reports?  Will help you as a manager to: Plan Control Organize Identify Errors Uncover omitted items
More slides like this


Slide #3.

Financial Management  What is the difference between Accounting and bookkeeping?  Bookkeeping – recording of business and financial data in a certain manner, all records or specific projects  Accounting – design of the system of records, preparation of reports on the data
More slides like this


Slide #4.

Financial Management  Owned vs Owed  Assets vs Liabilities Everything  Assets else is owner’s equity = Liabilities + Owners Equity  Assets go up then Liabilities + Equity must?  Go Up
More slides like this


Slide #5.

Financial Management  Changes in Equity  Investments or Withdrawals  Earnings or Losses  Changes in equity are listed separately under their own categories  Revenues Vs Expenses Sales Expenses are incurred to produce sales
More slides like this


Slide #6.

Financial Management  Accrual Method  Account for revenue and Expenses when earned or incurred  Accurately match earnings with the activity that generated them  Accounts  Debits  Debit vs Credits balance or Credit balance
More slides like this


Slide #7.

Financial Management  When do you get revenue?  Is recorded when customer takes ownership  Not when you are paid for it  So, revenue occurs when you complete the contract and bill the customer  Becomes an Account Receivable  When are expenses are recorded?  Time they are incurred  Or if they can be matched to certain revenues
More slides like this


Slide #8.

Financial Management  Recording Transactions  Exchange of value  Specific accounts  Must be recorded according to GAAP EXAMPLE:
More slides like this


Slide #9.

Financial Management  Income Statement  Shows earnings in particular period  Earnings on the Balance Sheet = Net income year-to date  Debits and credits to revenue affect income  Previous Year’s Earnings  Current Year’s Earnings
More slides like this


Slide #10.

Financial Management  Journal  Lists by date of all transactions  Primary Record  Ensures record of all transactions  Includes: date, who involved, if $ received, paid or earned and activity that resulted in the transaction
More slides like this


Slide #11.

Financial Management  The Ledger  Detailed record of one account I.e. A/R  Posting  Transferring from the Journal to ledger  Compare balances of ledger Trial Balance Work-sheet
More slides like this


Slide #12.

Financial Management  Income Statement  Revenues, Expenses and Income  Categorized by the type of goods or services provided Operating Expenses Administrative Expenses  Determine Add income on income statement to earnings section should make balance sheet balance
More slides like this


Slide #13.

Financial Management  Adjusting  Needed Entries to comply with Accrual method  Helps to match revenues and expenses  Should try to match revenues and expenses to the same accounting period  Ex: End of year statements have not come in; must close out books
More slides like this


Slide #14.

Financial Management  Prepaid Expenses  Assets  Become expenses over time  Insurance policy  Should cost evenly across the whole year  Supplies  Matching?  Ending Inventory – Beginning Inventory
More slides like this


Slide #15.

Financial Management  Bad Debt  Set-up account for Allowance for Doubtful Accounts  Is subtracted from A/R  Depreciation  Expense allocated over the life of the asset  Like using up inventory
More slides like this


Slide #16.

Financial Management  The MACRS Depreciation System  Modified Acceleration Cost Recovery System  Assigns specific number of years depending on the type of asset  Has specific guidelines pertaining to each type of asset  ACRS Asset  Old system Cost Recovery System
More slides like this


Slide #17.

Financial Management  Expensing  Allowed Equipment 24,000 in year of purchase  This is an alternative to depreciating it  Does not benefit large purchases  Does benefit smaller purchases  Improves cash flow by tax deduction
More slides like this


Slide #18.

Financial Management  Amortization  What is it?  Refers to intangible assets  Same as straight line depreciation  Equal amounts over life of intangible asset  Most are done over 15 years  Some exceptions – computer software 36 months  Start-up costs and organization costs 60 months
More slides like this


Slide #19.

Financial Management  Accrued  Have Expenses incurred, not received a bill or invoice  Use adjusting entries to record unpaid  Can use reversing entry to account for this  You reverse the adjusting entry and enter the expense as if the adjusting entry was never made  Accrued Revenues work same way
More slides like this


Slide #20.

Financial Management  Closing the books  All revenue and expense accounts must = Zero  So new accounting period does not reflect any revenues or expenses from last period  This is done by a lengthy journal entry  The balance is retained in Previous Year’s Earnings account i.e. Retained earnings  Opening  Asset, the Books liabilities, and OE are same as previous balance Not Revenue or Expense
More slides like this


Slide #21.

Financial Management  Differences in Organizations  Partnerships will have separate accounts for their initial deposits  Owners equity is Stockholders Equity for Corporation  Preferred Stock  Common Stock
More slides like this


Slide #22.

Financial Management  Subsidiary Ledger  Account for each customer, supplier, employee, etc.  Keeps main ledger uncluttered  Keeps detailed info on accounts When paid How Paid How much paid Still outstanding
More slides like this


Slide #23.

Financial Management  Payroll  Determine gross earnings for pay period  Determine employee deductions  Calculate employer’s association expenses  Update employee payroll records  Create Journal entries  Remit funds to relevant government agencies
More slides like this


Slide #24.

Financial Management  Determining  Regular Gross Earnings Pay  Overtime Pay  Salary  Tips  Commissions  Taxable Benefits  Vacation Pay
More slides like this


Slide #25.

Financial Management  Employee Deductions  FIT  SIT  Social Security Tax (OASDI)  Medicare Tax (HI)  SUTA  SDI  Local  Union  Medical  Dental
More slides like this


Slide #26.

Financial Management  SUTA  “The Florida SUTA unemployment insurance tax applies to the first $8000 of wages. The 2005 rate for a new company is 2.7%. After that the rate can vary between .1% and 5.4% depending on payroll totals and the number of UI claims.”
More slides like this


Slide #27.

Financial Management  Remitting Funds  IRS Send check for total amount FIT an Medicare, accounted for in journal entry Must be accompanied by an explanation of check Separate check for FUTA Look at the Circular E, Employer’s Tax Guide Can go to IRS web site
More slides like this


Slide #28.

Financial Management  Inventory ownership  FOB  FAS  CIF  Inventory Control  FIFO  LIFO  AVG cost  Item by Item
More slides like this


Slide #29.

Financial Management  Maximizing  Bill Cash Flow\ customers Promptly  Deposit cash daily  Keep close watch on credit customers  Add late charges  Pay bills just before due date  Keep inventory low  Look at slow moving inventory Items  Consider leasing  Control Taxes  Money market accounts
More slides like this