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  • 1. Marketing Management Indicator 2.03Implement accounting procedures to track money flow and to determinefinancial status.

2. The Importance of Adequate Cash Flow to Business Success Making sure there is enough cash to operate is oneof businesss most important financial activities Movement of cash is important Determines the amount can work with at any given time If running low May not be able to cover expenses May not be able to pay the employees May fail Businesses that are profitable may experiencecash-flow problems Sources of cash that flow into a business Some sources are more reliable and steady than others 3. Sources of Cash Start-up money Funds to cover expenses until revenue starts to come in Sale of products Main source of cash for established businesses Loans Businesses borrow cash to expand Possibly needed when sales are slow Interest Invest extra cash to earn interest Sale of assets Anything of value a business owns that can be sold 4. Sources of Cash That Flow Out of a Operating expenses Business materialsRaw Payroll and benefits Assets Health insurance Furniture, land, vehicles Paid vacation and sick time Loan payments Retirement fund contributions Taxes Rent or mortgage payment Property Utility Costs Income Electric Sales Gas Payroll Water Miscellaneous Supplies Legal fees Shipping and delivery expenses Maintenance and repairs Advertising Uncollectable accounts Insurance Unexpected emergencies Cost of goods 5. How do Cash Flow Statements TellWhen, Where, and How Much? When Warns when business will be low on cash Identifies high and low points Identifies months when certain sources of income will be collected Where What source Debit cards, cash, credit cards How much Tells how much cash is flowing into the business Can plan ahead for expected shortages 6. How New and EstablishedBusinesses Estimate their Cash Flow Figures New businesses Often a problem because donot have data from previousyears Rely on figures gained frommarketing research Established businesses Review profit and loss statement to determine cash coming into and going out of business Also use industry trends and predictions Rely on previous financial information to be safe 7. Components of a Cash Flow Statement Beginning cash balance amount of money business has available at the beginning of each month, can include cash remaining from previous month Includes loans, personal savings, investors Same as listed amount from previous months ending balance Cash receipts Sale of goods and services Loans Sale of assets Interest income ONLY CASH Total cash receipts ALL sources of income listed under cash receipts Examples include selling products, interest on investments, taking out loans 8. Components of a Cash FlowStatement Total cash available Amount of cash available to spend each month Add total cash receipts to beginning cash balance Cash payments Flow out of the business each month Three parts Cost of goods sold Variable expenses (shipping, taxes) Fixed expenses (payroll, rent) Total cash paid out All of businesss cash payments Includes cost of goods sold, variable expenses, and fixedexpenses) Ending cash balance Amount of cash a business has left at the end of the month Subtract total cash paid from total cash available Is the beginning cash balance for the next month 9. How is cash flow calculated? Write down Beginning Cash Balance List them items under Cash Receipts Sale of goods and services Loans Asset sales Interest income Add all items under Cash Receipts to get Total Cash Receipts Add Beginning Cash Balance to Total Cash Receipts to get Total Cash Available List all Cash Payments in one of three areasCost of goods to be sold (raw material, and resale inventory) Fixed expenses (stay the same) Variable expenses (change according to sales volume) Add all items under Cash Payments to get Total Cash Paid Out Subtract Total Cash Paid Out FROM Total Cash Available to get Ending CashBalance 10. Balance Sheet Example Company Balance Sheet December 31, 2010ASSETS LIABILITIESCurrent Assets Current LiabilitiesCash$ 2,100 Notes Payable $ 5,000Petty Cash100 Accounts Payable 35,900Temporary Investments10,000 Wages Payable 8,500Accounts Receivable - net40,500 Interest Payable2,900Inventory31,000 Taxes Payable 6,100Supplies3,800 Warranty Liability1,100Prepaid Insurance 1,500 Unearned Revenues 1,500 Total Current Assets89,000Total Current Liabilities 61,000 -Investments 36,000 Long-term LiabilitiesNotes Payable 20,000Property, Plant & Equipment Bonds Payable400,000Land 5,500Total Long-term Liabilities420,000Land Improvements6,500Buildings180,000Equipment201,000 Total Liabilities 481,000Less: Accum Depreciation (56,000) Prop, Plant & Equip - net 337,000-Intangible AssetsSTOCKHOLDERS EQUITY Goodwill105,000 Common Stock110,000 Trade Names 200,000 Retained Earnings 229,000Total Intangible Assets305,000 Less: Treasury Stock(50,000)Total Stockholders Equity 289,000Other Assets 3,000-Total Assets$770,000 Total Liab. & Stockholders Equity $770,000The notes to the sample balance sheet have been omitted. 11. Components of a Balance Sheet Assets resources of monetary value Current Assets Cash Cash equivalents Accounts receivable Inventory Intangible Assets (life insurance, copyrights, franchises, patents) Liabilities debts owed by the company Current liabilities Accounts payable Taxes Dividends Equity value of a business to its owners after all the commitments havebeen met 12. Examples of a Businesss Current Assets Cash Money market funds Short term investments Accounts receivable Notes receivable Inventory 13. Examples of Fixed Assets Buildings Office Equipment Property/Land Machinery Vehicles 14. Examples of Current Liabilities Accounts payable Taxes Dividends Short-term loans Interest payable Consumer deposits Tax reserves 15. Examples of Long-term Liabilities Debts that will take longer than one year to pay off Mortgage Leases Deferred taxes 16. Sources of Stockholder Equity Original money investedin business Stock sales (sell portionof company for money) Retained earnings(profits put back into thebusiness) 17. A Balance Sheet is a Snapshot of a Businesss Financial Condition Gives a fairly clear picture of the business at the moment Gives the businesss financial condition at a specific moment in time Allows a business owner to quickly get a handle on the financial strength andcapabilities of the business Allows a creditor to see what a company owns as well as what it owes to otherparties as of the date it was run. 18. An income statement Tells total revenue, expenses, and profit/loss is prepared to tell you how much money a corporation made or lost and is a record of the companys profitability.A balance sheet tells assets, liabilities, and capital is prepared to tell investors how much money the company has, how much it owes, and what is left for the stockholders. it can identify and analyze trends. 19. Ways a Business Can Use ItsBalance Sheet Easily understand their current financial state Keeps business up to speed on the current state ofrelevant finances Get a quick handle on the financial strength andcapabilities of the business Identify and analyze trends 20. Purpose of an Income Statement Summarizes where the businesss money came fromand where it went Summary of a businesss income and expenses over aperiod of time Also known as earnings statement operating statement profit-and-loss statement 21. Categories of Components ofIncome Statements Revenuerevenue Sales of businesss goods and services Total profit BEFORE all remaining Interest earnedexpenses have been deducted Return on investments Operating expenses (variable/fixed) Sale of businesss assets Employee wages/salaries Cost of goods sold Insurance Raw materials Utilities Packaging Mortgage/rent Shipping Advertising Labor Interest on outstanding loans Supplies Net income Return/unsold/stolen items Known as the bottom line Gross profit Final profit of the business Subtract cost of goods sold from 22. Income Statement is Cumulative Shows a businesss totalfinancial picture Represents a total forspecific period of time 23. Who Analyzes the Informationfound in Income Statements Top executives and managers Creditors Investors 24. What is the Difference BetweenDepreciation Expense and Accumulated Depreciation? Accumulated depreciation is all of the depreciation ever accumulated against the assets currently in service. It is shown on the balance sheet as a contra (negative) asset, directly below the assets it relates to. Depreciation expense is the current periods depreciation of the assets currently in service. It is shown on the income (P&L) statement as an expense.