Finance & Accounting

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Finance & Accounting

Finance & Accounting» Are vital because a business cannot exist

without cash flow» Focus on the following:

– creating up-to-date, accurate financial statements

– making a plan to create profits– managing and utilizing company resources

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Finance & Accounting

Accounting» Is a system used to record, classify,

summarize and report the financial position of a business

» Responsibilities include:– recording financial transactions– creating financial statements

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Finance & Accounting

Financial Transactions» Are financial entries affecting the financial

position of a business» Include these classifications:

– assets – items of value owned by a business• examples include: cash, land, buildings, equipment

– liabilities – debts or obligations of a business• examples include: credit, mortgage payments

– owner’s equity – amount of capital invested by owners• total value of assets minus liabilities

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Finance & Accounting

Financial Transactions» Include the accounting equation:

» Are recorded, classified and summarized, providing information used to create financial statements

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assets = liabilities + owner’s equity(both sides of the equation must balance)

Finance & Accounting

Financial Statements» Are the reporting process of accounting» Are used to make financial decisions» Include two main types:

– balance sheet – reports totals in asset, liability and owner’s equity accounts

– income statement – reports net income or net loss of a company• net income – when revenue is greater than expenses• net loss – when expenses are greater than revenue

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Finance & Accounting

Financial Statements – Balance Sheet Example

Kay’s Kloth ShopBalance sheet

AssetsCash in bank $4,000.00Cloth $8,000.00Supplies $2,000.00Total assets $14,000.00

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LiabilitiesAccounts payable $ 4,000.00

Owner’s EquityCapital from Kay $10,000.00

Total liabilities and owner’s equity $14,000.00

Finance & Accounting

Financial Statements – Income Statement Example

Kay’s Kloth ShopIncome Statement

Revenue:Cloth Sales

$6,000.00Expenses:Advertising $100.00Utilities $300.00Rent $600.00Payroll $3,000.00Total expenses $4,000.00Net Income:

$2,000.008

Finance & Accounting

Finance» Goal:

– determine use of company resources and funds

» Responsibilities include the following:– managing use of company funds– obtained needed funds– creating a financial plan

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Finance & Accounting

Finance» Funds are used to do the following:

– buy resources used to create goods and services

– pay expenses required for operation» When available, excess funds can be used

in many ways including:– purchasing assets to help the company grow– paying unexpected or high expenses– investing to obtain profit

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Finance & Accounting

Finance» Sources of funding include:

– borrowing funds– selling stock– looking for new investors– increasing owner contributions

» The financial plan does the following:– specifies what funds are needed– documents period funds are needed– is crucial to the success of a business

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