1. Marketing
Management
Indicator 2.03
Implement accounting procedures to
track money flow and to determine
financial status.
2. The Importance of Adequate
Cash Flow to Business Success
• Making sure there is enough cash to operate is one
of business’s 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 experience
cash-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 materials
Raw •
• 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 Tell
When, 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 Established
Businesses Estimate their Cash
Flow Figures
• New businesses
• Often a problem because do
not have data from previous
years
• Rely on figures gained from
marketing 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 month’s 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 Flow
Statement
• 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 business’s cash payments
• Includes cost of goods sold, variable expenses, and fixed
expenses)
• 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 areas
• Cost 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 Cash
Balance
10. Balance Sheet
Example Company
Balance Sheet
December 31, 2010
ASSETS LIABILITIES
Current Assets Current Liabilities
Cash $ 2,100 Notes Payable $ 5,000
Petty Cash 100 Accounts Payable 35,900
Temporary Investments 10,000 Wages Payable 8,500
Accounts Receivable - net 40,500 Interest Payable 2,900
Inventory 31,000 Taxes Payable 6,100
Supplies 3,800 Warranty Liability 1,100
Prepaid Insurance 1,500 Unearned Revenues 1,500
Total Current Assets 89,000 Total Current Liabilities 61,000
-
Investments 36,000 Long-term Liabilities
Notes Payable 20,000
Property, Plant & Equipment Bonds Payable 400,000
Land 5,500 Total Long-term Liabilities 420,000
Land Improvements 6,500
Buildings 180,000
Equipment 201,000 Total Liabilities 481,000
Less: Accum Depreciation (56,000)
Prop, Plant & Equip - net 337,000
-
Intangible Assets STOCKHOLDERS' EQUITY
Goodwill 105,000 Common Stock 110,000
Trade Names 200,000 Retained Earnings 229,000
Total Intangible Assets 305,000 Less: Treasury Stock (50,000)
Total Stockholders' Equity 289,000
Other Assets 3,000
-
Total Assets $770,000 Total Liab. & Stockholders' Equity $770,000
The 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 have
been met
12. Examples of a Business’s Current
Assets
• Cash
• Money market funds
• Short term investments
• Accounts receivable
• Notes receivable
• Inventory
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 invested
in business
• Stock sales (sell portion
of company for money)
• Retained earnings
(profits put back into the
business)
17. A Balance Sheet is a Snapshot of
a Business’s Financial Condition
• Gives a fairly clear picture of the business at the moment
• Gives the business’s financial condition at a specific moment in time
• Allows a business owner to quickly get a handle on the financial strength and
capabilities of the business
• Allows a creditor to see what a company owns as well as what it owes to other
parties 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 company’s 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 Its
Balance Sheet
• Easily understand their current financial state
• Keeps business up to speed on the current state of
relevant finances
• Get a quick handle on the financial strength and
capabilities of the business
• Identify and analyze trends
20. Purpose of an Income Statement
• Summarizes where the business’s money came from
and where it went
• Summary of a business’s income and expenses over a
period of time
• Also known as
• earnings statement
• operating statement
• profit-and-loss statement
21. Categories of Components of
Income Statements
• Revenue revenue
• Sales of business’s goods and services • Total profit BEFORE all remaining
• Interest earned expenses have been deducted
• Return on investments • Operating expenses (variable/fixed)
• Sale of business’s 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 business’s total
financial picture
• Represents a total for
specific period of time
23. Who Analyzes the Information
found in Income Statements
• Top executives and managers
• Creditors
• Investors
24. What is the Difference Between
Depreciation 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
period's depreciation of the assets
currently in service. It is shown on the
income (P&L) statement as an
expense.
