2. The Main Idea
A financial plan outlines the essential financial facts
about a new business or venture. Businesspeople
use a financial plan to help them make decisions
about the future. This plan shows the amount of
money a business will need to start and operate. It
also explains how the business will acquire money
to expand.
3. The Purpose of the Financial Plan
A financial plan can
be used to attract
investors.
financial plan
a set of documents that
outlines the essential
financial facts about a new
venture
Financial plans project
the viability of a new
business or a project at
an existing firm.
4. Graphic Organizer
Characteristics of an Effective Financial Plan
Identifies the assets that need to be purchased
Describes the amount of money a business needs to start and
operate
Describes the expenses the business will incur and explains how
a business will cover its expenses
Describes how the business will document and report financial
records
Forecasts finances to project future profitability
Explains how the business will acquire money to grow or expand
5. Identifying Business Assets
Information about assets might show that
buying used items instead of new ones, or
renting them, would be best.
Examples of Assets
Cash Equipment Buildings Supplies Inventory Land
6. Determining Needed Capital
A financial plan
estimates that
amount of capital a
business will need.
capital
money supplied by
investors, banks, or
owners of a business
7. Determining Needed Capital
Start-up capital is the money used to pay for
the various assets and expenses of a new
venture or business.
A start-up may have a hard time attracting
investors because it has no track record.
8. Describing Start-Up and Operating
Expenses
Start-up expenses often require a large
amount of cash.
10. Describing Financial Records Management
A financial plan describes who will maintain
the financial records and why.
A financial plan also describes any legal
agreements that influence the way records
are kept.
Special accounting software is available to
businesses.
11. Forecasting Future Finances
A financial forecast
should be
conservative in its
outlook.
financial forecast
an estimate of a
business’s financial
outlook for each of the
next few years
A forecast should
consider changes in
the economy.
12. Describing Growth Financing
Planned growth can be rewarding, while
unplanned growth can be chaotic.
Investors want to know that a business has
thoughtfully developed strategies to finance
controlled growth.
13. Budgets
A budget helps guide
a company’s future. budget
a plan specifying how
money will be used or
spent during a particular
period
14. Graphic Organizer
Three Types of Budgets
Start-Up
Budget
Cash
Budget
Operating
Budget
A plan for your income
and expenses from
the time you start a
business to estimated
time it will make a
profit
A plan for the actual
money the business
owner spends on a
daily, weekly, or
monthly basis
A plan for the amount
expected to be spent
and earned over a
given period of time,
usually six months or
a year
15. You work as the purchasing agent for a small chain
of restaurants. One of your duties is deciding where
to purchase supplies, staples, and food items. A
coffee purveyor sends you a free case of coffee
beans. The coffee came with a message thanking
you for purchasing from him in the past.
Decision Making Would you consider the case of
coffee a bribe? Explain how you would make the
determination.
16. Answer
The message indicates the coffee is not a bribe.
Since the supplier’s business is coffee, sending a
case as a sample seems appropriate. Remind
students that the real determination about whether
to accept the gift should come from the company’s
code of conduct.
17. 1. What is the purpose of the financial plan?
It is used as an outline of essential financial
facts about a new business and to guide a
business as well as to secure funding.
18. 2. What does an effective financial plan do?
An effective plan identifies assets, determines
needed capital, describes start-up and
operating expenses, and describes financial
records management, forecasts future finances,
and describes growth financing.
19. 3. Why do business owners use a budget?
Budgets help business owners to predict the
amount of money the business will need.
They also help them to keep track of and
control spending.
20. The Main Idea
Accounting provides financial information about an
organization. It also helps guide business
decisions regarding operations and finances.
Balance sheets, income statements, and
statements of cash flows show the financial
position of a business.
21. Accounting for Business
Many companies hire
accounting firms to
manage or audit their
financial records.
accounting
the systematic process of
recording and reporting
the financial position of a
person or an organization
22. Accounting for Business
An accountant maintains and reviews
business records.
An audit is a review of accounting records
and procedures.
23. Accounting for Business
Accounting is often called the “language of
business.”
Everyone involved in a business should
understand the basics of accounting.
24. Accounting Software
There are software categories for all levels of
accounting, from home use to high-end
corporate use.
25. Questionable Accounting
Some companies have gotten into legal trouble
for committing accounting fraud. Fraud is the
crime of intentionally deceiving others for
financial gain or some other benefit.
26. Rules for Accountants
Each company sets
up an accounting
system according to
its specific needs, but
all businesses follow
generally accepted
accounting
principles (GAAP).
generally accepted
accounting principles
(GAAP)
the set of accounting rules
used by accountants to
prepare reports
27. Property Ownership and Control
The right to own
property is basic to a
free enterprise
system.
property
anything of value that is
owned or controlled
Accounting provides
financial information
about property and
rights to it.
28. Property Ownership and Control
In accounting, property and financial claims
are measured in dollar amounts.
Dollar amounts measure the cost of
property and the property rights, or financial
claims to the property.
29. Financial Claims in Accounting
Land and equipment
are examples of
assets.
assets
property and other items
of value owned by a
business
30. Financial Claims in Accounting
Current assets
include cash, supplies,
merchandise, and
accounts receivable.
current assets
assets that are either used
up or converted to cash
during the normal cycle of
the business
accounts receivable
the total amount of money
owed to a business
31. Financial Claims in Accounting
Equipment and
buildings are
examples of fixed
assets.
fixed assets
items of value that will be
held for more than one
year
32. Financial Claims in Accounting
The accounting term
for the financial claims
to all assets is equity.
equity
the present value of an
asset less all claims
against it
33. Financial Claims in Accounting
When a person or business buys property and
agrees to pay for it later, they are buying on
credit.
The business or person selling the property is
called the creditor.
34. Financial Claims in Accounting
Liabilities are
measured by the
amount of money a
business owes its
creditors.
liabilities
creditors’ claims to the
assets of a business
35. Financial Claims in Accounting
Owner’s equity is
also referred to as the
owner’s capital.
owner’s equity
an owner’s claim to the
assets of a business
36. The Accounting Equation
The accounting
equation ensures that
all accounting records
will be correct.
accounting equation
a rule that states that
assets must always equal
the sum of liabilities and
owner’s equity
37. Graphic Organizer
Assets Liabilities Owner’s Equity
= +
The Accounting Equation
Example
Company Assets:
$100,000
Liabilities:
$40,000
Owner’s Equity:
$60,000
= +
The owner’s rights to the assets that the owner possesses.
38. Financial Statements
The accounting
system is designed to
generate financial
statements.
financial statements
documents that
summarize the changes
resulting from business
transactions that occur
during an accounting
period
40. Financial Statements
Stockholders, employees, banks, and
investment companies use financial
statements to learn about the financial
conditions of a business.
Corporations must release their financial
statements to the public.
41. Income Statements
The income
statement is
sometimes called a
profit and loss
statement.
income statement
a report of the revenue,
expenses, and net income
or net loss over an
accounting period
42. Income Statements
Total revenue is greater
than total expenses
Total revenue is less
than total expenses
Net income
Net loss
$
$
43. Balance Sheet
A balance sheet is
like a photograph of a
business’s finances
at a specific moment.
balance sheet
a report of the balances in
all assets, liabilities, and
owner’s equity accounts at
the end of an accounting
period
44. Balance Sheet
The balance sheet applies the accounting
equation.
When added up, the two sides of the
equation are equal, or in balance.
45. Statement of Cash Flows
Cash flows are not
indicated in the
income statement or
the balance sheet.
cash flows
the money that is available
to a business at any given
time
46. Statement of Cash Flows
The statement of
cash flows helps
managers ensure
that the business
does not run out of
money.
statement of cash flows
a financial report that
shows incoming and
outgoing money during an
accounting period
47. Statement of Cash Flows
Lenders and investors expect business loan
applicants to be able to show a consistently
positive cash flow.
48. Computerized Accounting
Most companies use computer programs to
simplify their accounting procedures because
they are efficient at organizing and analyzing
data.
55. 1. How does accounting help a business?
Accounting keeps track of money and shows
how a business is doing.
56. 2. Discuss property ownership and control.
How are they related to the accounting
equation?
The person who owns property has a financial
claim to it. The accounting equation indicates
the amounts of financial claims to property.
57. 3. What are the three main financial statements
used in business?
balance sheet, income statement, and
statement of cash flows
