Business Financial Records Flashcards
Financial records
- 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..
Record-Keeping system
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
Accounting
The process of recording, analyzing and interpreting financial activities of a business.
Data processing
The set of activities involved in obtaining, recording, organizing and maintaining the financial information of a organisation.
Types of Financial Records
- Cash records
- Credit records
- Depreciation records
- Special asset records
- Tax and Payroll records
- Protecting business records
Cash Records
- Cash receipts- Money taken in by business.
* Cash disbursements- Cash payments made by a business.
Credit Records
- 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.
Depreciation Records
- 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
Special Asset Records
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
Tax and Payroll Records
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.
Protecting Business Records
Information must be secure from theft and misuse and also be protected from hazards of nature such as fire floods…
Financial practices
- Maintaining a complete and up-to-date set of financial records.
- Detailed financial records reviewed regularly by objective professionals.
- Keeping accurate records of business inventory.
- Using financial budgets as planning and management tools.
Budget
- 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.
Types of Budgets
- Start-up budget
- Operating budget
- Cash budget
- Capitol budget
- Sales budget
Start-up budget
- 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.
Operating budget
Shows projected sales, costs, expenses and profits for the ongoing operations of a business.
Cash budget
An estimate of the flow of cash into and out of the business over a specific time period.
Capitol budget
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.
Sales budget
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.
Administering budget
- 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).
Financial Statements
- 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.
Balance sheet
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.
Income statement (profit/loss statement)
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.
Cash flow statement
- 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.
Working capitol
The difference between current assets and current liabilities.
Financial ratio
Managers use ratios the examine different areas of the business for possible financial problems.
Sources of Financial Information
- Accountants
- Bankers
- Consultants
- Government
