FINANCIAL MANAGEMENT Definitions Accounting — process of identifying, measuring, and communicating financial data Financial accounting — provides information to external users Managerial accounting — provides frequent operational data and information to internal users Basic Accounting Principles Balance sheet — a financial report that gives a status report of assets, liabilities, and equity as of a specific date (used to show changes and the ability to pay debts) Income statement — a financial report of revenues and expenses for a time period (used to analyze success) Matching — account for revenues and expenses in same period Depreciation — lowering the value of an asset as it ages Balance Sheet Liabilities (what is owed) Current liabilities Assets (what is owned)* Accounts payable (bills from suppliers) Current assets Accrued taxes or taxes Cash payable (owed, but not Accounts receivable paid) (owed by customers) Accrued expenses Inventory (owed, but not paid) Prepaid insurance Deferred revenues (advanced payments) Fixed assets Notes payable (short- Plant and equipment term loans) minus depreciation Long-term liabilities Property Mortgage loan Equity (investment) *Items are listed in decreasing Funds invested order of liquidity (readiness of Retained earnings (net worth minus withdrawals) being converted to cash). Assets = Liabilities + Equity BALANCE SHEET THE ATHLETIC ZONE SEPTEMBER 30, 2007 Assets Liabilities Cash on hand $ 700 Accounts payable $ 2,400 Cash in bank $30,000 Accrued expenses $10,200 Accounts $100 Deferred revenues $800 receivable Inventories $101,400 Notes payable $100,000 Prepaid insurance $300 $113,400 Office equipment $7,500 and displays Land $50,000 Equity $76,600 $190,000 $190,000 Examples of Income Sources Advertising Luxury boxes Concessions and Merchandise sales food service sales Parking fees Conference sharing Premium seating Corporate Program sales sponsorships Radio rights fees Donations and gifts Stadium or arena Facility rentals naming rights Fund raising events Student fees Guarantees Television rights Institutional support fees Investment income Ticket sales Examples of Expenses Salaries and Advertising and printing benefits Athletic training supplies Grants-in-aid Capital expenses Band Facility maintenance Cheerleaders General and administrative Equipment (office equipment; furniture; supplies; telephones; postage) Insurance Loan and interest repayment Officials Marketing Recruiting Media and community relations Uniforms Transportation, lodging, and Utilities food INCOME STATEMENT PRIVATE ACADEMY ATHLETIC ASSOCIATION FOR THE YEAR ENDING DECEMBER 31, 2006 Income Expenses Ticket sales $30,000 Salaries and benefits $34,000 Program sales $2,500 Team equipment $14,000 Team uniforms $6,000 Concession sales $5,600 Travel $7,000 Officials $15,000 Merchandise sales $800 Security $1,300 Parking revenues $1,100 Insurance $900 Advertising sales $2,700 Office supplies and equipment $1,200 Private donor $40,000 Telephone $800 Booster club donation $9,000 Postage $4500 Athletic training supplies $8,000 $91,700 Team awards $3,000 $91,700 Managerial Accounting On the following slide are listed the expenses, revenues, assets, and liabilities for Private University’s Athletic Department. These items need to be placed in the correct category for a balance sheet and an income statement. When these statements are completed correctly, the asset category and the liability/equity category on the balance sheet will each total $481,000. The athletic department's income and expenses will each equal $562,000. Accounts payable $3,000 Office supplies purchases $3,000 Accrued salaries $70,000 Officials' pay $23,000 Advertising (in game $15,000 Parking income $14,000 programs) Advertising (printing costs) $10,000 Prepaid insurance $2,000 Athletic training supplies $7,000 Postage purchases $7,000 (cost of) Booster Club donation $200,000 Prepaid ticket sales $8,000 Cash in bank $56,000 Program sales $9,000 Concessions profits $43,000 Salaries and benefits $400,000 Equipment purchases $40,000 Security expense $2,000 Equity $200,000 Team equipment and clothing $27,000 inventories Facilities owned $370,000 Team travel costs $40,000 Insurance costs $4,000 Telephone costs $4,000 Mortgage payable on facilities $200,000 Ticket sales $200,000 Office equipment inventories $26,000 Uniform purchases $22,000 Television rights sales $81,000 Fund Accounting For nonprofit entities Current unrestricted fund (operations) Current restricted fund (such as for coaches’ salary supplements) Endowment fund (usually for grants-in-aid) Retirement fund Plant fund (facilities) Types of Businesses Sole Proprietorship Partnership Advantages Advantages Revenues only taxed Revenues taxed only once once Owner makes all Shared decision making decisions and management Few government Few government restrictions restrictions Easy to form and to Easy to form and to sell sell Disadvantages Disadvantages Joint personal unlimited Unlimited personal liability liability Limited access to capital Limited access to funds capital funds Corporation Advantages Limited Liability Corporation or Limited Liability is limited to the Liability Partnership corporate assets Advantages Ownership is easily transferable Classified as a partnership for income Led by talented managers tax purposes Disadvantages Has the liability Complex and costly to form protection of a Double taxation for C, not corporation S, corporations Disadvantage Answerable to Must comply with shareholders state and federal laws Must comply with state and federal laws Advantages of Budgeting Plan and review entire operations Provide guidelines for staff Monitor expenditures Provide information for fiscal control Ensure accountability so expenditures can be measured and reported on Types of budgets Line item, such as for uniforms, public relations, or office equipment Program, such as for a team or the marketing department Itemized Budget Request from Coaches of each Team or Managers of each Department Cost and justification for each requested item Itemization of requested items, i.e., number, sizes, and description in full Quotes for each item to be purchased Budgeting Assignment You are the manager of Southwest Fitness Club. Each year you must develop and present a balanced budget to the owners. This budget must include realistic revenues and expenses given the size and scope of this club (which you should provide). You may include up to 5 revenue sources and must include at least 10 anticipated expenses, with amounts provided for each of the revenues and expenses. Your budget should include a brief justification for each budgetary item. Financial Planning Short-term planning — usually for less than two years; examines mostly internal data, such as cash flow, working capital, and a cost-benefit analysis of day-to-day decisions Long-term planning — forecasting the future by examining mostly external factors, such as the competition Pro-forma budget — a financial plan for the future that reflects the mission and strategic plan expressed in financial terms Components of a Business Plan Plan summary Industry section Company section Analysis of the product or service Market section Marketing section Operations section Management and personnel section Financial projections section Capital needs section Fund Raising KEY CONCEPT: "PEOPLE GIVE TO PEOPLE" Establish a worthy cause (important opportunities for which to make a contribution) Identify prospective donors (be inclusive) Educate prospective donors about the worthiness of the giving opportunity Ask for a financial commitment (asking for money is a compliment) Anderson Family Strength Center Fund Raising KEY CONCEPT: "PEOPLE GIVE TO PEOPLE" Make the collection (the larger the gift, the longer it takes) Express gratitude so as to leave a lasting appreciation (as simple as a thank-you letter; or a dignified public recognition if this is what the donor wishes) Report to donor how the gift has been used Recycle (the best prospect is a giver who is happy with the opportunity to give and the outcome of the process) Fund Raising Purpose Examples Supplement A-thons (jog-a-thon; budget swim-a-thon; bike-a- thon) Special needs Bake/food sales Precautions Car washes Institutional Celebrity events, such as policies golf tournaments Parental Raffles permission (in Summer sports camps schools) Yard work projects Money collection Yard sales procedures Fund Raising Assignment State appropriations for high school sports have not kept up with rising operational costs. The athletic director (who also is a coach) and other coaches have been asked by the principal to reduce the budget for the overall program by $25,000, develop plans for raising this amount of money, or identify two sports for boys and two sports for girls that will have to be dropped. Since as a group you do not want to cut the already small team budgets or eliminate teams, you choose to raise the needed funds. Develop plans for the fund raising projects that will be undertaken to raise $25,000. By School Board policy, you may not directly solicit gifts or donations from individuals or businesses.
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