CHAPTER
12
SLIDE 1
CHAPTER
12
Financial Management
12-1 Financial Planning
12-2 Financial Records and Financial
Statements
12-3 Payroll Management
12-4 Financial Decision-Making
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
12-1 Financial Planning
Goal 1 Recognize important financial
questions that must be answered in
a business.
Goal 2 List the steps in budget preparation.
Goal 3 Describe three types of business
budgets.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 2
CHAPTER
12
SLIDE 3
KEY TERMS
● revenue
● expenses
● budget
● start-up budget
● operating budget
● cash budget
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Principles of Business, 8e
CHAPTER
12
SLIDE 4
FINANCIAL PLANNING
● Beginning a business
● Ongoing operations
● Business expansion
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Principles of Business, 8e
CHAPTER
12
SLIDE 5
BASIC FINANCIAL EQUATION
● Revenue – Expenses = Profit or Loss
● Profit
● Revenue is greater than expenses
● Revenue > Expenses = Profit
● Loss
● Revenue is less than expenses
● Revenue < Expenses = Loss
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Principles of Business, 8e
CHAPTER
12
SLIDE 6
Checkpoint 
● What is the basic financial equation for
businesses?
● The basic financial equation for businesses
is revenue minus expenses equals profit or
loss.
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Principles of Business, 8e
CHAPTER
DEVELOPING BUSINESS
BUDGETS
12
SLIDE 7
● Sources of budget information
● Budget preparation
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Principles of Business, 8e
CHAPTER
12
SLIDE 8
Checkpoint 
● What are the four steps in preparing a business
budget?
● Preparing a list of each type of income and expense that will
be a part of the budget
● Gathering accurate information from business records and
other information sources for each type of income and
expense
● Creating the budget by calculating each type of income,
expense, and the amount of net income or loss
● Explaining the budget to people who need financial
information
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Principles of Business, 8e
CHAPTER
12
SLIDE 9
TYPES OF BUDGETS
● Start-up budget
● Operating budget
● Cash budget
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Principles of Business, 8e
CHAPTER
12
SLIDE 10
Checkpoint 
● Identify and describe the three types of
budgets needed by all businesses.
● Start-up budget — plans income and expenses
from the beginning of a new business or a major
business expansion until it becomes profitable
● Operating budget — describes the plan for
ongoing operations for a specific period
● Cash budget — is an estimate of the actual money
received and paid out for a specific period.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
12-2
Financial Records and
Financial Statements
Goal 1 Identify several types of financial
records needed by businesses.
Goal 2 Describe the differences between
an income statement and a balance
sheet.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 11
CHAPTER
12
SLIDE 12
KEY TERMS
● financial records
● assets
● liabilities
● owner’s equity
● balance sheet
● income statement
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
12
SLIDE 13
FINANCIAL RECORDS
● Types of records
●
●
●
●
●
●
●
Asset records
Depreciation records
Inventory records
Records of accounts
Cash records
Payroll records
Tax records
● Maintaining financial records
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Principles of Business, 8e
CHAPTER
12
SLIDE 14
Checkpoint 
● How has the process of maintaining financial records
been affected by technology?
● Most financial information is collected using point-ofproduction and point-of-sale technology and sent
electronically to the people who prepare the financial
records.
● Also, businesses use computerized financial systems that
complete the necessary mathematical calculations and
compare those records with budgets.
● The software can even complete what-if comparisons to help
managers determine the impact of changes in budgets and
financial performance.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
12
SLIDE 15
FINANCIAL STATEMENTS
● The balance sheet
● The income statement
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Principles of Business, 8e
CHAPTER
12
SLIDE 16
BALANCE SHEET
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Principles of Business, 8e
CHAPTER
12
SLIDE 17
INCOME STATEMENT
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Principles of Business, 8e
CHAPTER
12
SLIDE 18
Checkpoint 
● What is the difference between a
balance sheet and an income
statement?
● A balance sheet reports assets, liabilities,
and owner’s equity as of a specific date.
● An income statement reports sales,
expenses, and net profit or loss for a
specified time period.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
12-3 Payroll
Management
Goal 1 Describe the components of a
business payroll system.
Goal 2 Identify key information included in
payroll records and paychecks.
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SLIDE 19
CHAPTER
12
SLIDE 20
KEY TERMS
● payroll
● payroll record
● direct deposit
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Principles of Business, 8e
CHAPTER
12
SLIDE 21
PAYROLL SYSTEMS
● Income taxes
● Social Security and Medicare
● Unemployment taxes
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Principles of Business, 8e
CHAPTER
12
SLIDE 22
Checkpoint 
● What is the purpose of the payroll
system?
● The purpose of the payroll system is to
maintain information on each employee to
be able to calculate the company’s payroll
and make the necessary payments to each
employee, taking the proper legal state and
federal deductions from each paycheck.
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Principles of Business, 8e
CHAPTER
12
SLIDE 23
PREPARING A PAYROLL
● Payroll records
● Preparing paychecks
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Principles of Business, 8e
CHAPTER
SAMPLE EARNINGS REPORT
AND DIRECT DEPOSIT RECEIPT
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12
SLIDE 24
Principles of Business, 8e
CHAPTER
12
SLIDE 25
Checkpoint 
● What is the difference between a payroll
record and an earnings report?
● A payroll record is documentation used to
process earnings payments and record
each employee’s pay history.
● An earnings report contains information for
the current pay period as well as the
cumulative amounts for the year.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
12-4 Financial
Decision-Making
Goal 1 Recognize important financial
information managers use to make
decisions.
Goal 2 Identify the steps in making financial
decisions in business.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 26
CHAPTER
12
SLIDE 27
KEY TERMS
● financial performance ratios
● discrepancies
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Principles of Business, 8e
CHAPTER
USING FINANCIAL
INFORMATION
12
SLIDE 28
● Important financial information
● Understanding financial performance
ratios
● Current ratio
● Debt to equity ratio
● Return on equity ratio
● Net income ratio
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
FINANCIAL PERFORMANCE
RATIOS
Current Ratio
Debt to Equity Ratio
Return on Equity Ratio
Net Income Ratio
=
=
=
=
12
SLIDE 29
Current Assets
Current Liabilities
Total Liabilities
Owner’s Equity
Net Profit
Owner’s Equity
Total Sales
Net Income
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Principles of Business, 8e
CHAPTER
Checkpoint 
12
SLIDE 30
● Identify four important financial
performance ratios used by managers to
determine how well the business is
performing.
● Current ratio
● Debt to equity ratio
● Return on equity ratio
● Net income ratio
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
MAKING FINANCIAL
DECISIONS
12
SLIDE 31
● Prepare a budget
● Look for discrepancies between actual and
budgeted performance
● Make needed adjustments
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Principles of Business, 8e
CHAPTER
12
SLIDE 32
Checkpoint 
● List the three steps in financial decisionmaking.
● Preparing a budget.
● Using the budget as a guide to the
operation of the business.
● Making needed adjustments to bring
performance in line with the budget.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e