Lesson+04

Important Documents for this Lesson:** [|04_Financial Statements lesson.pdf]
 * Lesson 4 Financial Planning


 * Important Terms for this Lesson:**

• Expenses – costs of operating a business • Budget – detailed plans for the financial needs of a business • 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 financial plan for ongoing operations of the business for a specific period of time • Cash budget-an estimate of the actual money received and paid out for a specific period of time • Financial records-financial documents that are used to record and analyze the financial performance of a business • Assets-what a company owns; anything of value owned by a business • Liabilities-what a company owes • Owner’s equity-the value of the business after liabilities are subtracted from assets; the value of the owner’s investment in the business • Balance sheet-a report that lists a company’s assets, liabilities, and owner’s equity • Income statement-a report of revenue, expenses, and net income or loss from operations for a specific period || Payroll-the financial record of employee compensation, deductions, and net pay • Payroll record-a financial document that contains information on all employees of the company, their compensation, and benefits • Direct deposit-funds are deposited electronically and available automatically for your use • Financial performance ratios-comparisons of a company’s financial elements that indicate how well the business is performing • Discrepancies-differences between actual and budgeted performance ||  ||
 * Revenue – all income that a business receives over a period of time

1. The basic financial equation for businesses is Revenues-Expenses = Profits (or Loss) 2. The three business budgets include start-up, operating, and cash. 3. The four steps in preparing a budget include listing expenses and income, gathering accurate information from business records, creating the budget by calculating each type of income, expense and amount of net income or loss, and showing/explaining the budget to people who need financial information to make decisions. 4. Technology has affected the process of maintaining financial records because new technologies allow point-of-production and point-of-sale to enter data. Technology has also made financial record-keeping more efficient. 5. Four financial ratios used by managers to determine the financial well-being of businesses include current ratio, debt to equity ratio, return on equity ratio, and net income ratio. 6. The three steps in financial decision-making include preparing a budget, using the budget to operate the business, and making needed adjustments.
 * Information you need to know!**