Unit 4: Accounting, Finance, and Banking
Every day, business owners make financial decisions that will affect every phase of the business operation, such as payroll, cash flow, and projecting future growth. A thorough understanding of accounting and financial management allows business owners to find the best sources and use of funds. For example, you can derive an accurate measure of the health of your business from the income statement, balance sheets, and financial ratios. We investigate financing options, how to analyze credit, and the time value of money. We also examine how banks, such as the U.S. Federal Reserve Bank, affect the ability of businesses to obtain financing.
Completing this unit should take you approximately 12 hours.
Upon successful completion of this unit, you will be able to:
- describe the role of accounting and finance in the business process;
- describe and analyze components of the income statement and balance sheet;
- differentiate between key financial ratios for making business decisions, including profit margin, return on equity, and debt to equity ratio;
- assess the implications of financial ratios for the future performance of a company;
- describe the roles of the Federal Reserve, banks, interest rates, and credit analysis with respect to decisions of financial lending;
- describe different options for financing;
- list and explain the tools available to the Federal Reserve during financial crises;
- analyze the causes and implications of the 2008 financial meltdown; and
- calculate the time value of money.
- describe the role of accounting and finance in the business process;
4.1: Business Accounting
Read this overview of accounting and the financial statements used by managers and financiers to determine the financial health of a business.
Now, read this section on the difference between managerial and financial accounting.
Read this section for an overview of the functions of the basic financial statements: income statement, balance sheet, and statement of owner's equity. These documents serve as guidelines for making intelligent business decisions.
4.2: Components of an Income Statement
Let's look at the income statement in more detail in this section. The income statement shows sales, expenses, and net profit or net loss.
Read the following sections to learn how to evaluate your company's success based on the income statement and ratio analysis. Focus on the income statement, and work through the business scenario with the College Shop. This activity will give you a chance to determine this company actually made any money.
4.3: Components of a Balance Sheet
Read about the balance sheet and answer the concept check questions. It is essential to understand financial analysis and be able to read a company's financial statement. It is also important to remember that financial ratio guidelines may be different in different industries.
4.4: Financial Ratio Analysis
Now that you've had a chance to look at the income statement and balance sheets and see some of the financial ratios that can be calculated from the individual statements, let's take a look at profitability ratios that can be developed by using data from both statements. Read this section and pay attention to the net profit margin, return on equity, and earnings per share.
4.5: The Role of Banks in Finance
Read this section about the Federal Reserve System and answer the concept check questions. As you answer these questions, consider the causes of the 2008 banking crisis. Also, what does the FDIC do for you if you deposit your money in a bank?
Read this section. What are the three tools used by the Federal Reserve System to regulate the money supply in the United States? How does the usage of these three tools affect you as a consumer? Who is at the head of the Federal Reserve Board?
Watch these two videos to bring it all together.
Review this section on customer satisfaction and quality. In an essay of 1,200 words, answer the critical thinking questions at the end of the case study.
4.6: Financing Options
Read this section to see where businesses can get capital to start up and operate their businesses.
Read this section to take a closer look at equity financing in the form of buying and selling stocks.
Read this section to look at the advantages and disadvantages of equity and debt financing.
This unit wouldn't be complete without giving you a look at how individuals manage their money. Read the entire section to see how you might be able to provide advice to someone who has too much debt or whose monthly bills are too high.
Unit 4 Assessment
- Receive a grade
Take this assessment to see how well you understood this unit.
- This assessment does not count towards your grade. It is just for practice!
- You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
- You can take this assessment as many times as you want, whenever you want.