Unit 2: Planning

• Budgeting: Planning

• Accounting: What did happen

What is Accounting?

• System of tracking, recording, summarizing, and analyzing business and financial transactions

• Accounting has many aspects, including maintaining, financial records, verifying the accuracy of financial transactions and statements, and reviewing reported financial figures

• Keeping accurate records through accounting can help a business owner avoid tax discrepancies, bankruptcy, failure, revenue loss, and other negative situations

• Accounts payable is the balance due to a creditor on a current account and accounts renewable refers to the balance due from a debtor on a current account. Keeping track of accounts receivable is important because it can cost businesses money when debtors fail to pay bills on time.

Accounting Equation

• Assets are items of value a business owns, such as cash, property, and equipment.

• Intellectual property.

• Cash, inventory, and accounts receivable.

  • Intangible assets are speculative

• Liabilities are items a business owes, such as debts. Assets minus liabilities equal a business’s net worth

  • Things physically owed in a dollar sense

• Net worth in accounting is called owner’s equity or ending capital

• Owner’s Equity = Assets - Liabilities

Accounting Transactions

• An accounting transaction is an event that impacts a business’s financial statements. Every transaction has a credit and debit.

  • Credit is an increase in accounting balance.

  • Debit is a subtraction from accounting balance.

• After debits and credits are determined, a business then uses an accounting journal to capture a detailed record of transactions in chronological order.

• Once a specific transaction information is recorded in a journal, the same transaction is transferred into a general ledger, a full record of all accounts and transactions. General ledgers are organized by account and track overall balances.

• Sale of stock, loans, investments are all financial transactions

• Cash Flow Method: When the money actually enters/exits the account

• Accrual Method: Records transactions when they occur.

Budgeting

• A business budget is a detailed estimate of income and expenses for a specific period of time. Budgets are used to control money needed for business operations. Financial planners, occupants, managers, and entrepreneurs work together to decide which departments ore areas of a business require money. Budgeting is beneficial in the following ways:

  • Controlling money

  • Reducing stress

  • Increasing confidence

Characteristics of a Functioning Budget

• Define SMART goals

• Time frame: Identify specific period of time

• Revenue: Identify amount of income that will be available for that time frame

• Expenses: Fixed (same costs each month), variable (fluctuate each month and is dependent on production and sales volume)

Types of Business Budgets

1. Startup Budget

   1. Budget will not look the same as it will a year from now

   2. Strange things, like filing fees, DBA, CPA, sells of shares and stocks

   3. SBA loans

   4. Startup capital

2. Sells Forecast Budget

   1. Predicting of sales goals

3. Operating Budget

   1. Regular, ongoing, month-to-month, year-to-year budget

   2. Payroll, website expenses, taxes

4. Cash Budget

   1. Cash-Flow Analysis

   2. Statement of cash flows

Payroll

• A payroll is a list of a business’s employees and how they are to be compensated

• The payroll register includes a description of employees’ earnings throughout their employment, tax deductions, from their earnings, what benefits employees have received, whether they are paid wages, salaries, or more

• Paying employees is a business expense that must be recorded in accounting procedures and considered in a company’s budget

• Employees compensation should be recorded and executed efficiently to ensure businesses have the finances for continued operation.

• Hourly pay, overtime can affect your pay

• Federal & Texas minimum wage $7.25

• Budgeting, tips, wages, salaries (annual income, monthly income, fixed amount paid independent of hours that are worked)

• Salary is better for business owners, since it’s more predictable

• Making a “bonus” in work, healthcare insurance