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Asset=Liabilities + Owner’s equity

1.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 ASSETS A resource with economic value that an individual,
corporation or business owns or controls with the expectation
that it will provide future benefit.

 LIABILITY A company's legal debts or obligations that arise


during the course of business operations. Liabilities are
settled over time through the transfer of economic
benefits including money, goods or services.

1.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 represents the owner's investment in the business
minus the owner's draws or withdrawals from the
business plus the net income (or minus the net loss)
since the business began. Mathematically, the
amount of owner's equity is the amount of assets
minus the amount of liabilities

1.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Accounting is the recording of financial
transactions plus storing, sorting, retrieving,
summarizing, and presenting the information
in various reports and analyses.

1.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Financialaccounting is a specialized branch
of accounting that keeps track of a
company's financial transactions. Using
standardized guidelines, the transactions are
recorded, summarized, and presented in
a financial report or financial statement
such as an income statement or a balance
sheet.

1.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Definition:Management accounting
involves preparing and providing timely
financial and statistical information to
business managers so that they can make
day-to-day and managerial decisions.

1.6 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Management accounting (also known as
managerial or cost accounting) is
different from financial accounting, in
that it produces reports for a company’s
internal stakeholders, as opposed to
external stakeholders. The result of
management accounting is periodic
reports for e.g. the company’s department
managers, chief executive officer, etc.

1.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Financial Accounting  Managerial Accounting
1. Financial accounts 1. Management accounts
describe the are used to help
performance of a management record,
business over a specific plan and control the
period and the state of activities of a business
affairs at the end of that and to assist in the
period. The specific decision-making process.
period is often referred They can be prepared
to as the "Trading Period" for any period (for
and is usually one year example, many retailers
long. The period-end prepare daily
date as the "Balance management information
Sheet Date" on sales, margins and
stock levels).

1.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
3.Companies that are incorporated  There is no legal
under the Companies ordinance requirement to prepare
1984 are required by law to management accounts,
prepare and publish financial although few (if any)
accounts. The level of detail
required in these accounts reflects  well-run businesses can
the size of the business with survive without them.
smaller companies being required
to prepare only brief accounts.
 There is no pre-
determined format for
4.The format of published financial
accounts is determined by several management accounts.
different regulatory elements: They can be as detailed or
· Company Law brief as management
· Accounting Standards wish.
· Stock Exchange
1.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
5.Financial accounts concentrate  Management accounts
on the business as a whole rather
than analyzing the component can focus on specific
parts of the business. For areas of a business'
example, sales are aggregated to
provide a figure for total sales activities. For
rather than publish a detailed example, they can
analysis of sales by product, provide insights into
market etc.
performance of:
 · Products
 · Separate business
locations (e.g. shops)
 · Departments /
divisions

1.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
6.Most financial  Management accounts
accounting information is usually include a wide
of a monetary nature variety of non-financial
information. For
example, management
accounts often include
analysis of:
 - Employees (number,
costs, productivity etc.)
 - Sales volumes (units
sold etc.)
 - Customer transactions
(e.g. number of calls
received into a call
centre)

1.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
7.By definition,  Management
financial accounts accounts largely
present a historic focus on analyzing
perspective on the historical
financial performance performance.
of the business However, they also
usually include
some forward-
looking elements -
e.g. a sales budget;
cash-flow forecast.

1.12 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Planning
The first of the managerial functions is planning. In this step the manager
will create a detailed action plan aimed at some organizational goal.
Planning is an ongoing step and can be highly specialized based on
organizational goals, division goals, departmental goals, and team goals. It
is up to the manager to recognize which goals need to be planned within his
or her individual area.

1.13 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Organizing
The second of the managerial functions is organizing. This step
requires to determine how to distribute resources and organize
employees according to the plan. It will need to identify different
roles and ensure that it assigns the right amount of employees to
carry out plan. It will also need to delegate authority, assign work,
and provide direction so that team representatives can work
towards higher targets without having barriers in their way.

1.14 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Leading
The third function of management is leading.
In this step, Manager should spend
time connecting with his employees on an
interpersonal level. This goes beyond simply
managing tasks; rather, it involves
communicating, motivating, inspiring, and
encouraging employees towards a higher level
of productivity.

1.15 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Controlling
Controlling is the final function of
management. Once a plan has been carried out
the manager evaluates the results against the
goals. If a goal is not being met, the manager
must also take any necessary corrective
actions to continue to work towards that goal.

1.16 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
 Management Accounting is finally concerned
about decision making

1.17 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.18 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.19 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.20 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Concerns the acquisition, financing,
and management of assets with some
overall goal in mind.

1.21 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Most important of the three decisions.

• What is the optimal firm size?


• What specific assets should be acquired?
• What assets (if any) should be reduced or
eliminated?

1.22 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Determine how the assets (LHS of
balance sheet) will be financed (RHS
of balance sheet).
• What is the best type of financing?
• What is the best financing mix?
• What is the best dividend policy (e.g.,
dividend-payout ratio)?
• How will the funds be physically
acquired?
1.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
• How do we manage existing assets
efficiently?
• Financial Manager has varying degrees of
operating responsibility over assets.
• Greater emphasis on current asset
management than fixed asset
management.

1.24 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.25 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.26 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.27 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.28 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.29 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.30 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.31 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.32 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
1.33 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.