Budgeting+and+Finance

Types of (for profit) companies:

 * LLC - legal arrangement to protect the owner from losing personal assets more than that which is invested. Typically small businesses.
 * Partnership - 2 or more individuals, up to 20. Equal responsibility. Individuals responsible for taxes. Doctors, hairdressers, etc.
 * Sole Proprietorship - individual owns and is responsible for. No sharing, but lots of risk. Very small, typically.
 * Corporation - Typically large, separate legal entity. Can open a bank account, own property and do business. Managed by a Board of Directors, run by officers, appointed by the board.

Financial Accounting:
Keeps track, standard guidelines, records, financial statement. Provides a way for investors to quickly assess.

3 financial statements:

 * 1) Income statement (profit or loss) shows year's performance, or reporting period. Shows profit or loss.
 * 2) Balance Sheet (statement of financial position) shows debt, assets, spending, liabilities, shows the fiscal year
 * 3) Statement of Cash Flows - cash generated and used by operations, investments, and finances.

Managerial Accounting ( Sample Question 25 )
Info used internally to plan, evaluate, control, and decide. Often used as a benchmark for individual managers. Helps to cut losses, show differences in techniques that may result in an increase in profits. The key is to look for ways in which to keep the budget and companies in line by seeking and focusing on dargerous line items and expenditures. It is strategic in nature. Mostly for internal information. Removes dangerous items from budget (overtime, ftes, stock items, bad investments, etc.)

Depreciation
Most assets lose value over time, and must be replaced once the end of useful life is reached.

Tangible Assets vs. intangible assets
Assets in reality, cash equipment, etc vs. ideas, trade secrets, copyrights,

Analytical Techniques

 * Horizontal analysis - analyst compares ratios or line items in statements from year to year (looking at items in this FY vs. last FY).
 * Trend analysis - detect patterns over a longer period in order to detect relationships between variables, and project or predict future directions of the pattern.
 * Vertical Analysis -
 * Common Size Analysis - compares statements of different sized companies or same companies over different periods. How did a company achieve a certain $1M? How much did similar competitors earn?
 * Financial Ratio Analysis - calculation and comparison of ratios derived from financial statements. Types of financial ratios include leverage (debt), liquidity (solvency), operational (assets), profitability (margin analysis) and solvency (ability to generate cash flow) ratios.

Budgets

 * Operational Budgets - planned budget, concerns income and expenses of right now. lists expenses (salaries, advertising, general, administrative expenses) focuses solely on operating income and expenses.
 * Capital Budgets - (investment appraisal) discovers and shows whether physical and other assets are worth pursuing. Major capital or investment expenditures, including vehicles, land, buildings, etc.
 * Zero Based - A budgeting method in which all expenses must be justified in each new period. Starts at zero base and each function is analyzed for needs and costs. Instead of rolling over existing budget items, items must be created as if from scratch.
 * Unit cost budgets - you charge X amount for a service or item and all expenses are included in that cost. If expenses are less than the unit cost, prfit is gained.
 * Cost Reimbursements Budgets - State contracts in which anticipated expenses are submitted at the beginning of the year. Once agreed upon, 1/12th is delivered each month. You front the money and we will reimburse you. You'll get your money as a vendor after you've paid up front.

Preparing a budget ( Sample Question 24 )

 * 1) select a budget strategy board
 * 2) develop next year's goals and guidelines
 * 3) create an annual calendar
 * 4) creat forms, instructions and materials
 * 5) orient managers to goals and process
 * 6) prepare draft programs and unit budgets
 * 7) review and revise drafts
 * 8) prepare and review proposed budget tot he board
 * 9) review revise and approve the final budget
 * 10) implement and monitor the budget.