M an entrepreneur, you won't know whether your business venture is economically feasible without a good understanding
Question:
M an entrepreneur, you won't know whether your business venture is economically feasible without a good understanding of financial statements. That's because your financial statements allow you to forecast your business venture's profits, its asset and financing requirements. and its cash flow—all critical elements in determining the profitability of your business. In the video segment, you'll meet Jim Schell. business owner. author, and small business advisor. Me says that if you ask an entrepreneur "How's business?' he or she invariably says, "Sales are up.' Me never hears the response 1 made a return on sales of 10 percent.' Schell's goal as an advisor is to get small business owners to measure their results in real numbers. and to know those numbers. the small business owner must know the company's financials. After years of observing and consulting, Schell realized that the majority of small business owners do not understand how to properly use their financial statements to manage and grow their business. He says the typical small business owner thinks that his or her greatest opportunities for improvement are in the day-to-day management of the business. such as dealing with employees or marketing the product or service. Few, if any, will mention learning how to use financial statements. Bankers. CPAs. and business consultants have a different perspective: they all agree that the small business owner's number one opportunity to improve day-to-day management is to learn how to better utilize the information in the company's financial statements. Having a certain level of financial literacy allows an entrepreneur to spot potential problems in the company and work more intelligently with his or her financial advisors. Docs having money in your checking account mean your business is profitable? Do you have a clear understanding of the difference between profit and cash? Which financial statement allows you to keep an eye on the financial trends of your business? You learn in this video segment that Schell wrote a book. entitled Understanding Your Financial Statements, to help small business owners. In the book. Schell starts with the basics: selecting a CPA, working with your banker, using your balance sheet to determine your business's solvency, using your profit and loss statement to manage your business's direction. understanding the concept of cash flow, and so on. The exercises below are designed to help you start thinking about, and practicing. the basics of finance.
Before answering the questions and working the activities, watch the video entitled "Understanding Financial Statements. Part 1 " What are the three parts of a financial statement? How does each part serve as a snapshot of your business in time?
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta