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14-1McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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14-2
Budgeting And Controlling Operations And Taxes
Small Business ControlSmall Business ControlTypes Of BudgetsTypes Of BudgetsObtaining Information Obtaining Information & Ratios& RatiosTaxes & Tax SystemTaxes & Tax SystemRecord Keeping & Tax ReportingRecord Keeping & Tax ReportingFactors/Problems In Getting Factors/Problems In Getting CreditCredit
Ch
apte
r
14
Photodisc Collection/Getty Images
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14-3McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
ControlControl
“…“…the process of the process of ensuring that ensuring that
organizational goals organizational goals are achieved.”are achieved.”
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14-4McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Control ProcessControl Process1. Setup Standards1. Setup Standards
2. Measure Performance2. Measure Performance
3. Actual vs. Planned3. Actual vs. Planned
4. Deviations Excessive?4. Deviations Excessive?
5. Take Corrective Action5. Take Corrective Action
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14-5McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Set StandardsSet StandardsUnits Consumer/ProducedUnits Consumer/Produced
Standard Hours Per UnitStandard Hours Per UnitMiles Per GallonMiles Per Gallon
Price Paid/Charged- Price Price Paid/Charged- Price Per UnitPer Unit
RequiresRequiresIntuitionIntuitionPast PerformancePast PerformanceMeasurementMeasurementComparisonComparisonCommunicationCommunication
Keith Brofsky/Getty Images
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14-6McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Effective ControlsEffective ControlsTimelyTimelyCost EffectiveCost EffectiveAccurateAccurateQuantifiableQuantifiableMeasurableMeasurableIndicate Cause/EffectIndicate Cause/EffectResponsibilityResponsibilityAcceptableAcceptable
PhotoDisc Imaging/Getty Images
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14-7McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
BudgetBudget
“…“…a detailed statement a detailed statement of financial results of financial results
expected for a given expected for a given future period.”future period.”
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14-8McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of BudgetsTypes Of Budgets
CapitalCapital
OperatingOperating
Cash FlowCash FlowSteve Cole/Getty Images
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14-9McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Operating BudgetOperating Budget
•SalesSales
•ProductionProduction
•PersonnelPersonnelRoyalty-Free/CORBIS
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14-10McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash Flow BudgetCash Flow Budget$
$
$
$$ Plan Daily/Weekly Cash NeedsPlan Daily/Weekly Cash Needs$
$
$
$$ Plan Monthly Cash NeedsPlan Monthly Cash Needs$
$
$
$$ Prepare For Cash Flow CrisisPrepare For Cash Flow Crisis• Establish/Maintain Good CreditEstablish/Maintain Good Credit
• Set Aside Funds To Earn InterestSet Aside Funds To Earn Interest
• Schedule PaymentsSchedule Payments
• Keep Fixed Costs Low & Tie Variable Keep Fixed Costs Low & Tie Variable Costs To RevenueCosts To Revenue
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14-11McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash Budget FormatCash Budget Format
BudgetBudget ActualActual
Expected Cash ReceiptsExpected Cash Receipts $$$$$$$$ $$$$$$$$
Expected Cash PaymentsExpected Cash Payments $$$$$$$$ $$$$$$$$
Cash BalancesCash Balances $$$$$$$$ $$$$$$$$
Cash- Capital InvestmentCash- Capital Investment $$$$$$$$ $$$$$$$$
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14-12McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cash BalanceCash Balance
Beg. Of Month- Balance
+ Total Cash Receipts
- Total Cash Payments
End Of Month- Balance
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14-13McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Budgetary ControlBudgetary Control
“…“…the system of the system of budgets used to control budgets used to control a company’s financial a company’s financial
activities.”activities.”
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14-14McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Credit/Collections ControlCredit/Collections Control
Identify Slow PayersIdentify Slow Payers
Investigate Customer’s Ability Investigate Customer’s Ability & Willingness To Pay& Willingness To Pay
Monitor Past DueMonitor Past Due
Write-Off UncollectiblesWrite-Off UncollectiblesSteve Cole/Getty Images
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14-15McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
AuditAudit“…“…a formalized a formalized
examination and/or examination and/or review of a review of a
company’s financial company’s financial records.”records.”
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14-16McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of AuditsTypes Of Audits
FinancialFinancial
InternalInternal
OperationsOperations
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14-17McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
FeedbackFeedback
Obtain InformationObtain InformationObservationObservation
Oral ReportsOral Reports
Written Memos/ReportsWritten Memos/Reports
Compare Actual vs. StandardsCompare Actual vs. Standards
Jacobs Stock Photography/Getty Images
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14-18McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Causes OfCauses OfPoor PerformancePoor Performance
Wrong ObjectivesWrong ObjectivesCustomers Not BuyingCustomers Not BuyingPoor SchedulingPoor SchedulingTheft/SpoilageTheft/SpoilageToo Many EmployeesToo Many EmployeesLost OpportunitiesLost OpportunitiesToo Much Free Service/DonationsToo Much Free Service/Donations
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14-19McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
RatiosRatios
“…“…relationships relationships between two or more between two or more
variables.variables.
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14-20McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Ratio Comparison ValuesRatio Comparison Values
Firm’sFirm’s•Current ValueCurrent Value•Past ValuePast Value
Firm’sFirm’s•Current ValueCurrent Value• Industry ValuesIndustry Values
Can Be InterrelatedCan Be Interrelated
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14-21McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Financial RatiosFinancial Ratios
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14-22McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Profits Satisfactory?Profits Satisfactory?
Net Profit To Net Profit To Owners’ EquityOwners’ Equity
Net Profit To Net Profit To Net Sales Net Sales
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14-23McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Assets Productive?Assets Productive?
Net Sales To Net Sales To Fixed AssetsFixed Assets
Net Sales To Net Sales To Owners’ EquityOwners’ Equity
Ryan McVay/Getty Images
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14-24McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Debt Payments?Debt Payments?CurrentCurrent
Acid Test (Quick)Acid Test (Quick)
Working CapitalWorking Capital
Accounts Receivable To Accounts Receivable To Working CapitalWorking Capital
Inventory To Working CapitalInventory To Working Capital
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14-25McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Business Assets?Business Assets?
Collection PeriodCollection Period
Net Sales To Inventory Net Sales To Inventory (Inventory Turnover)(Inventory Turnover)
Net Sales To Working Net Sales To Working CapitalCapital
Royalty-Free/CORBIS
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14-26McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Equity Satisfactory?Equity Satisfactory?Long-Term Liabilities To Long-Term Liabilities To
Working CapitalWorking CapitalDebt To Owners’ EquityDebt To Owners’ EquityCurrent Liabilities To Current Liabilities To
Owners’ EquityOwners’ EquityFixed Assets To Owners’ Fixed Assets To Owners’
EquityEquity
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14-27McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
U.S. Tax SystemU.S. Tax SystemDetermines Taxes Determines Taxes
& Who Will Pay & Who Will Pay
Collection Of TaxesCollection Of Taxes
Internal Revenue Service- Internal Revenue Service- www.irs.ustreas.govwww.irs.ustreas.gov
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14-28McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
TaxesTaxes
IndirectIndirect
DirectDirect
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14-29McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Selected Direct TaxesSelected Direct Taxes
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14-30McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Tax EffectsTax EffectsIncome Tax On ProfitsIncome Tax On ProfitsEmployer Withhold/MatchEmployer Withhold/MatchOwner Personal TaxesOwner Personal TaxesTransfer Of OwnershipTransfer Of OwnershipBusiness DecisionsBusiness DecisionsGovernment Administrative Cost Government Administrative Cost Of CollectionOf Collection
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14-31McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Types Of TaxesTypes Of Taxes
Excise/Intangible Excise/Intangible PropertyProperty
Sales & UseSales & Use
Federal, State, & Federal, State, & Local Income Local Income S. Meltzer/PhotoLink/Getty Images
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14-32McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Licenses, PermitsLicenses, Permits& Registrations& Registrations
FederalFederalBusiness LicenseBusiness LicenseEmployer’s Federal Tax Employer’s Federal Tax
ID Number ID NumberMailing PermitsMailing Permits
StateStateIncorporation/PartnershipIncorporation/PartnershipTrade Name RegistrationTrade Name RegistrationProfessional RegistrationsProfessional Registrations
City/CountyCity/CountyZoning PermitsZoning PermitsBuilding PermitsBuilding Permits
Royalty-Free/CORBIS
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14-33McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Taxable IncomeTaxable Income
“…“…total revenues total revenues minus deductible minus deductible
expenses.”expenses.”
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14-34McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Deductible ExpensesDeductible ExpensesCost Of Goods SoldCost Of Goods Sold
SellingSelling
AdministrativeAdministrativePhotoDisc/Getty Images
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14-35McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cost of Goods SoldCost of Goods Sold& Inventory Valuation& Inventory Valuation
First-In, First-Out First-In, First-Out (FIFO)(FIFO)
Last-In, First-Out Last-In, First-Out (LIFO)(LIFO)
Average CostAverage CostKim Steele/Getty Images
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14-36McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Employment-Related TaxesEmployment-Related Taxes
Income Tax WithholdingIncome Tax WithholdingSocial Security/MedicareSocial Security/MedicareUnemployment Unemployment CompensationCompensationFederal AdministrationFederal AdministrationStateState
Workers’ CompensationWorkers’ Compensation
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14-37McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Owners’ Personal TaxesOwners’ Personal TaxesSalaries & Bonuses Withdrawn Salaries & Bonuses Withdrawn From CompanyFrom Company
DividendsDividendsContract For Business Contract For Business SaleSaleNoncompete ClauseNoncompete ClauseSeller Warranties & RepresentationsSeller Warranties & RepresentationsPurchase PricePurchase Price
Retro Americana
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14-38McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Credit ManagementCredit ManagementDecide Method Of Customer Decide Method Of Customer
PaymentPaymentCashCashCheck/DebitCheck/DebitCreditCredit
Set Credit Policies & PracticesSet Credit Policies & PracticesAdminister Credit OperationsAdminister Credit Operations
Jack Star/PhotoLink/Getty Images
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14-39McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Credit vs. Debit Card UseCredit vs. Debit Card Use