Business Financial Records

Question 1

Financial records

Answer 1

• Organised summaries of a business’s financial information and activities.
• Main purpose is to determine if business is profitable.
• Make it possible for owners and managers to understand a business’s financial performance and make the best decisions regarding the use of resources..

Question 2

Record-Keeping system

Answer 2

Manual or automated process for collecting, organizing and maintaining the financial information of a business.
Four elements- 1. Records
2. People
3. Procedures
4. Tools

Question 3

Accounting

Answer 3

The process of recording, analyzing and interpreting financial activities of a business.

Question 4

Data processing

Answer 4

The set of activities involved in obtaining, recording, organizing and maintaining the financial information of a organisation.

Question 5

Types of Financial Records

Answer 5

1. Cash records
2. Credit records
3. Depreciation records
4. Special asset records
5. Tax and Payroll records
6. Protecting business records

Question 6

Cash Records

Answer 6

• Cash receipts- Money taken in by business.

* Cash disbursements- Cash payments made by a business.

Question 7

Credit Records

Answer 7

• Accounts receivable record- shows what each customer purchases, pays and owes
• Accounts payable record- Identifies the credit purchases of a business, amounts owed and payments made.

Question 8

Depreciation Records

Answer 8

• Asset- Anything of value owned.
• Depreciation- The gradual loss of an asset’s value due to age and wear.
• Fixed assets- Expensive assets of a business that are expected to last and be used for a long time.
• Book value- The asset’s original value minus the total amount of depreciation

Question 9

Special Asset Records

Answer 9

Financial statements list assets and their values, but do not provide detailed information about these assets. As a result, a business must keep special records

Question 10

Tax and Payroll Records

Answer 10

Federal and state tax law require every business to keep adequate records in order to report its income and expenses, file required forms, and calculate and pay taxes.

Question 11

Protecting Business Records

Answer 11

Information must be secure from theft and misuse and also be protected from hazards of nature such as fire floods…

Question 12

Financial practices

Answer 12

1. Maintaining a complete and up-to-date set of financial records.
2. Detailed financial records reviewed regularly by objective professionals.
3. Keeping accurate records of business inventory.
4. Using financial budgets as planning and management tools.

Question 13

Budget

Answer 13

• Budget is a written financial plan for business operations developed for a specific period of time.
• Studies of differences between successful and unsuccessful new businesses consistently find that those carefully develop and follow budgets increase their chances of survival and success.

Question 14

Types of Budgets

Answer 14

1. Start-up budget
2. Operating budget
3. Cash budget
4. Capitol budget
5. Sales budget

Question 15

Start-up budget

Answer 15

• Projects income and expenses from the beginning of a new business until it becomes profitable.
• Identifies the start up costs, initial operating expenses, types and sources of financing and projected income for the time period of budget.

Question 16

Operating budget

Answer 16

Shows projected sales, costs, expenses and profits for the ongoing operations of a business.

Question 17

Cash budget

Answer 17

An estimate of the flow of cash into and out of the business over a specific time period.

Question 18

Capitol budget

Answer 18

Financial plan for replacing fixed assets or acquiring new ones.
Important because acquiring assets ties up large sums of money for long periods of time.

Question 19

Sales budget

Answer 19

A forecast of the sales revenue a company expects to receive in a month, quarter or year.
Provide a goal for the sales and source of information for preparing related budgets such as production.

Question 20

Administering budget

Answer 20

• Because a budget is an estimate of what might happen, it usually cannot be followed exactly.
• Staying close to the amount budgeted is desirable.
• The use of budget and budgeting system cannot guarantee business success.
• The entire budgeting process is valuable in planning and controlling activities for managers (reduce loss or increase profits).

Question 21

Financial Statements

Answer 21

• Are reports that summarize financial data over a period of time, such as a month, three months, half a year, or a full year. Two most in use are Balance sheet and Income statement.
• Business activity is in large part measured in terms of money.

Question 22

Balance sheet

Answer 22

A financial statement that reports a business’s assets, liabilities, and capitol on a specific date.

• Liabilities are claims against assets (debts).
• Capitol is the value of the owners’s investment in the business after subtracting liabilities from assets.
• Total of all assets must equal total of all liabilities plus capitol. Assets = Liabilities + Capitol.
• Accounts receivable are amounts customers owe the business.
• Accounts payable are the amounts the company owes for purchases it made on credit.

Question 23

Income statement (profit/loss statement)

Answer 23

A financial statement that reports information about a company’s revenues and expenses for a specific period

Kinds of Financial data:

• 𝗖𝗼𝘀𝘁 𝗼𝗳 𝗴𝗼𝗼𝗱𝘀 𝘀𝗼𝗹𝗱 is the amount the retailer pays the supplier for the merchandise it buys and sells.
• 𝐆𝐫𝐨𝐬𝐬 𝐩𝐫𝐨𝐟𝐢𝐭 is the amount remaining after subtracting the cost of goods sold from revenue.
• 𝐍𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 is the amount remaining after subtracting all expenses from revenue, expect taxes.

Question 24

Cash flow statement

Answer 24

• Financial report that would primarily be used for internal control of cash.
• Regardless of the size of a business, cash is both a short-term and long-term concern.
• Businesses must have cash on hand to pay bills when due and to plan ahead for large cash payments, such as the purchase of equipment of launching a new product.

Question 25

Working capitol

Answer 25

The difference between current assets and current liabilities.

Question 26

Financial ratio

Answer 26

Managers use ratios the examine different areas of the business for possible financial problems.

Question 27

Sources of Financial Information

Answer 27

• Accountants
• Bankers
• Consultants
• Government