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Financial Planning
It is a concept that includes budgeting,
saving, and debt management.
Budget: is a financial plan for a defined period, often one year. It
may also include planned sales volumes and revenues, costs
and expenses, assets, liabilities and cash flows.

Balanced Budget: is a budget that is equal to expenditures. Thus, neither

be a budget deficit nor a budget surplus exists.
 Financial Statements
 Financial statements are written records that convey the business
activities and the financial performance of a company.
◇ Assets: are things that a company owns that have value.

◇ Liabilities: are amounts of money that a company owes to others.

◇ Equity: a capital or net worth of a company.

◇ Revenue: income generated from selling of goods or services.

◇ Expenses: costs incurred from buying of goods or services.

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 ◇ Assets: are things that a company owns that have value.

Asset = Liabilities + Equity

Examples of assets include:

 Cash
 Inventory
 Investments
 PPE (Property, Plant, and Equipment)
 Vehicles
 Furniture
 Patents (Intangible asset)

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 Assets: If assets are classified based on their convertibility into cash, assets are
classified as either current assets or fixed or non-current assets.

Current assets are assets that can be easily converted into cash and cash
equivalents. Some examples of current assets include:
 Cash
 Accounts receivables
 Inventory
 Office supplies
 Stock shares

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 Non-current assets are assets that cannot be easily and readily converted into cash and
cash equivalents. These are:

 Land
 Building
 Machinery
 Equipment
 Patents
 Trademarks

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 Liabilities: are amounts of money that a company owes to others. Accordingly, liability
is divided in to two. Current liabilities and long-term liabilities.

Current Liabilities: current liabilities are those that are due within a year. The
most common current liabilities are:

 Accounts Payable: these are the unpaid bills to the company’s vendors.
 Income taxes payable: The income tax amount owed by a company to the
government.
 Short term loans: Loans with a maturity of one year or less.

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 Long-term liabilities: long-term liabilities are those that are due after more than one
year. Long-term liabilities include:

 Bonds Payable: The amount of outstanding bonds with a maturity of over one year
issued by a company.

 Tax liabilities: arise from the difference between the recognized tax amount and the
actual tax amount paid to the authorities.

 Capital lease: are recognized as a liability when a company enters into a long-term
rental agreement for equipment.

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 Equity: a capital or net worth of a company. There are generally two types of equity value:
Book value and Market Value.

Book Value: the book value of equity is determined by the balance sheet equation.

Assets = Equity + Liabilities

Equity = Assets – Liabilities

Market Value: which may be materially higher or lower than the book value. Market value
is usually calculated as below.

Equity = Share Price x No. of Shares

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 Revenue: Income generated from selling of goods or services. Let us see
sources of revenues in personal, corporate, and public finance.

Personal Finance Public Finance Corporate Finance

 Salaries  Direct Tax  Sale of goods

 Personal Income Tax
 Bonuses  Withholding Tax  Sale of services
 Share Dividends  Business Income Tax
 Share Dividends
 Rental Tax
 Interest  Interest
 Rental Income
 Indirect Tax
 Value Added Tax
 Customs Duty
 Excise Tax
 Turnover Tax
 Export Tax
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 Expenses: costs incurred from buying of goods or services. There two 16
major
categories of expenses: Operating vs non-operating and fixed vs
variable.
Operating Costs: are the expenses which are related to the operation of a business,
or to the operation of a material or facility.

 Raw material cost

 Salaries, benefits, and wages
 Rent and insurance
 Depreciation and amortization

Non-Operating Costs: is an expense incurred from activities unrelated to core operations.

 Interest
 Taxes