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Chapter 3 Financial Management

Chapter 3 Financial Management. BCN 4772 Summer 2006. Financial Reports. Why is it important to be able to read financial reports? Will help you as a manager to: Plan Control Organize Identify Errors Uncover omitted items. Financial Management.

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Chapter 3 Financial Management

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  1. Chapter 3 Financial Management BCN 4772 Summer 2006

  2. Financial Reports • Why is it important to be able to read financial reports? • Will help you as a manager to: • Plan • Control • Organize • Identify Errors • Uncover omitted items

  3. Financial Management • What is the difference between Accounting and bookkeeping? • Bookkeeping – recording of business and financial data in a certain manner, all records or specific projects • Accounting – design of the system of records, preparation of reports on the data

  4. Financial Management • Owned vs Owed • Assets vs Liabilities • Everything else is owner’s equity • Assets = Liabilities + Owners Equity • Assets go up then Liabilities + Equity must? • Go Down

  5. Financial Management • Changes in Equity • Investments or Withdrawals • Earnings or Losses • Changes in equity are listed separately under their own categories • Revenues Vs Expenses • Sales • Expenses are incurred to produce sales

  6. Financial Management • When do you get revenue? • Is recorded when customer takes ownership • Not when you are paid for it • So, revenue occurs when you complete the contract and bill the customer • Becomes an Account Receivable • When are expenses are recorded? • Time they are incurred • Or if they can be matched to certain revenues

  7. Financial Management • Recording Transactions • Exchange of value • Specific accounts • Must be recorded according to GAAP EXAMPLE:

  8. Financial Management • Accrual Method • Account for revenue and Expenses when earned or incurred • Accurately match earnings with the activity that generated them • Accounts • Debits vs Credits • Debit balance or Credit balance

  9. Financial Management • Income Statement • Shows earnings in particular period • Earnings on the Balance Sheet = Net income year-to date • Debits and credits to revenue affect income • Previous Year’s Earnings • Current Year’s Earnings

  10. Financial Management • Journal • Lists by date of all transactions • Primary Record • Ensures record of all transactions • Includes: date, who involved, if $ received, paid or earned and activity that resulted in the transaction

  11. Financial Management • The Ledger • Detailed record of one account I.e. A/R • Posting • Transferring from the Journal to ledger • Compare balances of ledger • Trial Balance • Work-sheet

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