Entrepreneurial Management

1
Understanding Basic Accounting and Financial Management

Module 009 Understanding Basic

Accounting and Financial Management

At the end of this module, you are expected to:

1. Understand The Role of Finance in an Enterprise
2. Identify How Capital Management Works
3. Distinguish Financial Ration from Break-even Analysis

The Role of Finance in an Enterprise

Accounting keeps the score of company activities, while finance is bringing business
to life. Business and company decisions are usually dependent on data from
financial management.

Strategic Planning and Budgeting:

Clearly define and determine the business objectives while basing on the financial
aspect to know how much it will cost to attain the goals.
Strategic Plans and budgets always become the basis of capital spending, hiring
employees, and marketing campaigns.
Examples are:

1. Product Development -researching, developing, and launching

2. Operations - launching operations facilities like data centers

3. Capabilities - changes in process and technology in improving efficiency

Capital Management:
The finance management turns to the methods of funding the company operations
after creating the strategic plan.

Course Module
 current
liabilities

payables to
receivables
from bank,
working government,
clients capital employees, or
loans

current assets

Cash Management:
Financial Managers’ task is to ensure that the business is liquid enough to pay
suppliers and employees on time.
Entrepreneurs should keep in mind that excess idle cash is a drag on the business’
Return On Investment. This is basically like creating your budget expense.
Example:
CASH MANAGEMENT FOR 3-YEAR CASH FLOW

2018 2019 2020 2021

Starting Cash 40,000 37,553 25,408 17,938

Cash In 107,213 332,500 516,500 744,000

Earned 19,000 232,500 466,500 744,00

Contributed 88,213, 100,000 50,000

Cash Out 109,660 344,645 523,970 655,895

Operation 60,700 206,045 278,270 307,895

Cost of Goods 48,960 138,600 245,700 348,000

Ending Cash 37,553 25,408 17,938 106,043

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Understanding Basic Accounting and Financial Management

Profit Planning and Cost Controls

Business is about making a profit, and entrepreneurs should find a way to improve
profitability. Finance managers need to improve quality, price, and productivity in
manufacturing while finding cheap sources of materials.

FINANCIAL
ACCOUNTING

COST ACCOUNTING

MANAGEMENT
ACCOUNTING

Risk Management
Entrepreneurs should be concerned on the direction of interest rates, currency
fluctuations, commodity price changes and risks, international markets, and check
customers' credit standing. Financial Managers need to monitor, analyze and report
these areas.

Identify

Report Measure
Risk
Management
Framework

Monitor Manage

Course Module
Fund Uses and Sources
Primary categories of sources and funds statements:
• Beginning Cash Balances
• Ending Cash Balances
• Cashflow Finance activities
• Cashflow Investing activities
• Cashflow Operating activities

If all funds are accounted for, unlocated funds will be zero. If unlocated funds are not
zero, all cash is not accounted for. This is often the case if family living withdrawals
and income and self-employment taxes are not included in the statement.
The cash flow statement shows how a company acquired funds and how these funds
were used.
Cash received are called (inflows)
Cash spent are called (outflows)
A statement is created by indicating all the changes in every balance sheet item
between any two balance sheet dates.
The cash flow statement displays the changes in the balance sheet account and
shows how it affects the business’s available funds. Statement projections enable
businesses to plan short-term goals or investments as it shows the available amount
of cash.

Working Capital Management

Is the involvement of relationships between the short-term assets and short-term

liabilities of a company.
It aims to ensure the company’s ability to pursue operations while satisfying short-
term debt and operational expenses.

1. Firms on Holding Cash

Firms hold cash for speculation, precaution, and making transactions. If a company
possesses all three, then their cash flow is liquid.

a. Speculation Cash
This enables a firm to get opportunities that will favor them if acquired asap.

b. Precaution Cash
This is simply the company’s emergency fund.
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Understanding Basic Accounting and Financial Management

c. Transaction Cash
Businesses need transaction cash to satisfy the cash inflow and outflow
needs.

2. Managing Cash
Firms need to manage funds for all areas of operations. The goal is to receive cash
while creating a cash pay-out.

a. Sales
This aims to shorten the waiting time for the cash received.

b. Inventory
This sets aside the release of cash to enable the company in managing the
cash on hold.

Record Keeping: Financial Records and Reports

1. Financial Records
An entrepreneur needs to know where his company stands in terms of daily, weekly,
monthly, quarterly, and annually. He needs to know if his company is earning, are his
clients increasing or decreasing. Are the set goals of business being achieved? If a
businessman does not have knowledge of this, then they have no control over the business.
Knowledge needed is extended on the inventory at hand, orders, credits, supplies, and even
bank account balance.
Business financial statements bear its financial activities and conditions. This presents the
financial information of the company. Financial statements are cash flows, income
statements, balance sheets, and retained earnings. Government agencies and accountants
audit these statements for taxing purposes.
Major Financial Statement Reports

a. Balance Sheet
This gives a summary of stockholders' equity, assets, and liabilities. The dates tell
when the snapshot was taken.

Course Module
Balance Sheet Equation
Liabilities + Stockholders' Equity = Assets

• Identifies the funding of assets.

• Assets are for liquidity
• Liabilities are for payments

Figure 1 Photo by: https://i1.wp.com/marketbusinessnews.com/wp-content/uploads/2016/09/A-balance-

sheet.jpg?fit=616%2C659&ssl=1 23 July 23, 2019

b. Income Statement
Income statement covers annual financial statements and quarterly financial
statements. It provides a summary of revenues, net income, and expenses.
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Understanding Basic Accounting and Financial Management

Figure 2 Photo by: https://www.accountingcoach.com/wp-content/uploads/2013/10/03X-table-04@2x.png

July 23, 2019

c. Cash Flow Statement

Fuses the balance sheet and the income statement. This statement merges three
major business activities; operations, investment, and financing activities.
Operating activities: regular business operations.
Investing activities: acquiring and disposing of assets
Financing activities: debt and equity investment capital.

Figure 3 Photo by: https://www.patriotsoftware.com/accounting/training/blog/wp-

content/uploads/2016/12/indirect-cash-flow-statement-example.jpg July 23, 2019

Course Module
 2. Record Keeping
Record keeping allows entrepreneurs to keep track of the company’s performance
and maximize profits.
This becomes the source of documents, it specifies transaction dates and amounts as
well as legal agreements.

This benefits business:

• generating reports
• managing risks
• measuring profit and performance
• meeting legal requirements
• meeting tax requirements
• planning and working more efficiently
• protecting rights

3. Basic records or Reports

• cash receipts and payments
• deposit or cheque books and bank statements
• benefits, leave, termination and employment, workers’ details, hours of work,
overtime, remuneration.
• occupational training records
• sales records: credit card/notes, invoice and receipt books, and cash register
tapes.
• proof of purchases: credit card statements, invoices, cheque butts, petty cash
system, receipts
• work, health, and safety records

Book of Accounts
Companies are required to keep a daily record of business transactions called “book of
accounts” which needs to be registered annually.

Types of Book of Accounts Registration:

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Understanding Basic Accounting and Financial Management

1. Manual
These can be bought in a book or office supplies store: journal, ledger, and columnar books.
This is the traditional recording meaning; it is handwritten. This costs less and is easy to
register with BIR.

figure 4 Photo by: https://mpm.ph//wp-content/uploads/2017/01/Sample-Contentmagnified-e1484387841920.jpg July

23, 2019

2. Loose-leaf
These are done using spreadsheets like Microsoft Excel; examples are printed and bounded
journals and ledgers.

figure 5 Photo by: http://elsikbluecetane.com/wp-content/uploads/2018/05/bir-book-of-accounts-format-5.jpg July 23,

2019

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3. Computerized
This uses accounting programs or applications. It facilitates effective, efficient, and fast
record keeping.

Figure 5 Photo by: https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcQHQqJcfvMHjM-

gfOqcBU79mRogvzXMJo3GUPAsurMoySEn6aIT July 23, 2019
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Understanding Basic Accounting and Financial Management

Valuing Assets

Valuation is estimating what something is worth. In business, it determines if something is

a financial asset or liability.

Valuations are needed in capital budgeting, investment analysis, merger and acquisition
transactions, and financial reporting.

Valuation Models:

1. Absolute Value

This type of value determines an asset’s present value.

2. Relative Value

This type of model determines the value by observing market prices.

3. Option Pricing

is used for warrants, employee stock options, and investments.

Fair Value

are bought or sold assets through determined parties. Fair value can also be
transferred to an equivalent party. These assets are used when the carried value’s
basis is market-to-market valuations.

Appraised Value

Is an expert’s opinion on the market price of an item and are commonly used in art,
rare books, antiques, and real estate

Figure 6 Photo by: https://cdn.corporatefinanceinstitute.com/assets/valuation-methods-diagram.png

July 23, 2019

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Financial Ratio and Break-even Analysis

1. Financial ratio

Uses numerical values from financial statements for quantitative analysis and assessment
of the business’ liquidity, growth, leverage, profitability, margins, rates of return and
valuation

Ratio Analysis’ Purposes:

Tracking Company Performance:

Period individual ratios and tracking the change in a company’s values determine the
trends developed by the company.

Comparative judgments on performance

Comparing financial ratios with competitors identifies the company’s performance in the
industry.

Financial Ratio Users; External and Internal Parties:

External:
• Competitors
• Creditors
• Financial Analysts
• Industry Observers
• Regulatory Authorities
• Retail Investors
• Tax Authorities

Internal:
• Employees
• Management or Admin
• Owners

Financial ratios are grouped into the following categories:

• Efficiency
• Leverage
• Liquidity
• Market value
• Profitability

a. Liquidity ratios are the measurement of a company’s ability to repay obligations.

a1. Current ratio is the measurement of a company’s ability to pay short-term

liabilities using current assets:
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Understanding Basic Accounting and Financial Management

Current assets / Current liabilities

Year 1 Year 2 Year 3

Current Php9,000,000 Php17,456,000 Php13,567,893

assets

Current Php4,000,000 Php11,650,000 Php9,587,345

liabilities

Current 2.3:1 1.5:1 1.4:1

ratio

a2. Acid-test ratio the company’s ability of paying short-term liabilities using quick
assets:

Current assets + Inventories / Current liabilities

Php45,221 + 23,894 + 13,120 + 21,713 / Php136,357 = 0.76 ATR

THE GOLDEN COMPANY, INC. BALANCE SHEET AS OF APRIL 4, 2018

Cash and cash equivalents Php45,221
Short-term marketable securities 23,894
Accounts receivable 13,120
Inventories 7,458
Vendor non-trade receivables 21,713
Other current assets 12,087
Total current assets Php131,399

Accounts payable Php46,792

Long-term debt 89,565
Total current liabilities Php136,357

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 a3. Cash ratio is the ability of a company on paying short-term liabilities using cash
and cash equivalents:

Cash and Cash equivalents / Current Liabilities

Example: The Golden Company has Php200,000 of cash and Php600,000 of cash
equivalents on its balance sheet at the end of May. On that date, its current
liabilities are Php2,000,000. Its cash ratio is:

(Php200,000 Cash + Php600,000 Cash equivalents) ÷ Php2,000,000 Current liabilities

= 0.4:1 Cash ratio

a4. Operating cash flow ratio is the number of times a company pays current
liabilities using certain cash generated.

Operating cash flow / Current liabilities

Nikon, as of Dec. 27, 2018 had current liabilities of Php17.8 billion, as of their most
recent quarter. Over the trailing of 12 months, Nikon had generated Php6 billion.

Php6,000,000,000 / Php17,800,000,000 = 0.33 cash flow ratio

b. Leverage ratios are the amount of capital acquired from debt and are used in
evaluating a company’s debt levels.

b1. debt ratio is the amount measurement of the company’s assets provided from
debt:

Total liabilities / Total assets

Calculating the total debt weight and Shareholder’s Equity of financial liabilities or
Debt to Equity Ratio

Total liabilities / Shareholder’s equity

Obins labs corp. listed Php0 in short-term and current portion of long-term debt on
its balance sheet for the fiscal year ended November 1, 2018, and
Php4,217,000,600 in long-term debt. The company's total assets were
Php15,769,000,000.

Php4,217,000,600 / Php15,769,000,000 = 0.2674 or 26.74% debt ratio

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Understanding Basic Accounting and Financial Management

Calculating the total debt weight and Shareholder’s Equity of financial

liabilities or Debt to Equity Ratio

4,217,000,600 / 11,551,999,400 = 0.365 or 36.5% debt ratio

b2. interest coverage ratio determines the company’s capacity of paying interest
expenses

Operating income / Interest expenses

CD Project Red’s earnings during a given quarter are Php889,000, and that it has
debts upon which it is liable for payments of Php30,000 every month.

Php889,000 / Php90,000 = 9.98 Interest coverage ratio

b3. debt service coverage ratio determines the company’s ability of paying
acquired debt obligations

Operating income / Total debt service

The Story Circle indicates that their net operating income will be Php2,300,000 per
year and the lender notes that debt service will be Php420,000 per year. The DSCR
can thus be calculated as 5.48x, which should mean the borrower can cover his debt
service more than six times over given his operating income.

Php2,300,000 / Php420,000 = 5.48 DSCR

Course Module
c. Efficiency ratios measure the company’s utilization of assets and resources.

c1. The asset turnover ratio is the measurement of a company’s ability to

generate sales from assets:

Net sales / Total assets = Asset turnover ratio

Square Enix is looking for new investors and has a meeting with an angel
investor. The investor asks for the company’s financial statements.

Here is what the financial statements reported:

• Beginning Assets: Php70,000

• Ending Assets: Php100,000
• Net Sales: Php40,000

Average Total Assets = (Php70,000 + Php100,000) / 2 = Php85,000

Php40,000 / Php85,000 = 0.47 Asset turnover ratio

c2. inventory turnover ratio measures how many times a company’s inventory is
sold and replaced over a given period:

Inventory turnover ratio = Cost of goods sold / Average inventory

During the current year, Star Labs Corp. reported the cost of goods sold on its
income statement of Php11,000,000. Star Labs Corp. beginning inventory was
Php12,000,000, and its ending inventory was Php18,000,000.

Average inventory = (Php12,000,000 + Php18,000,000) / 2 = Php15,000,000

Php11,000,000 / Php15,000,000 = 0.73 Inventory turnover ratio

c3. The accounts receivable turnover ratio measures how many times a
company can turn receivables into cash over a given period:

Receivables turnover ratio = Net credit sales / Average accounts receivable

Fitness First offers accounts to all of its main customers. Fitness First’s balance
sheet shows Php50,000 in accounts receivable, Php98,000 of gross credit sales, and
Php41,000 of returns. Last year’s balance sheet showed Php15,000 of accounts
receivable.
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Understanding Basic Accounting and Financial Management

Net credit Sales = Php98,000 - Php41,000 = Php50,000

Average account receivable = (Php50,000 + Php15,000) / 2 = Php32,500

Php50,000 / Php32,500 = 1.54 accounts receivable turn-over ratio

c4. days sales in inventory ratio measure the average number of days that a
company holds onto its inventory before selling it to customers:

Days sales in inventory ratio = 365 days / Inventory turnover ratio

Star Labs Corp in the previous year had an inventory turnover ratio of 9. Using 360
as the number of days in the year, the company's days' sales in inventory was 40 days.

360 / 9 = 40

d. Profitability Ratios is the measurement of a company’s ability of generating

income relative to revenue, operating costs, balance sheet assets, and equity.

d1. gross margin ratio

Gross profit / Net sales = Gross margin ratio

Tamiya Inc. spent Php100,000 on inventory for the year and was able to sell
this inventory for Php500,000. Unfortunately, Php50,000 of the sales were
returned by customers and refunded.
Php450,000 - Php100,000 / Php500,000 - Php50,000 = .78 or 78% gross
margin ratio

d2. operating margin ratio

Operating income / Net sales = operating margin ratio

Rakk Gears sells computer peripherals to companies over the country. Rakk
Gears reports the following numbers on their financial statements:

Course Module
 • Cost of Goods Sold: Php500,000
• Net Sales: Php1,000,000
• Rent: Php15,000
• Wages: Php100,000
• Other Operating Expenses: Php25,000

operating income = Php1,000,000 - Php640,000 = Php360,000

Php360,000 / Php1,000,000 = .36 Operating margin ratio

d3. return on assets ratio

Net income / Total assets = Return on assets ratio

Freelite Polycarbonate company has a balance sheet shows beginning assets
of Php1,000,000 and an ending balance of Php2,000,000 of assets. During the
current year, the company had a net income of Php20,000,000.
Average total assets = (Php1,000,000 + Php2,000,000) / 2 = 1,500,000
Php20,000,000 / Php1,500,000 = Php13.33 or 1,333.3% Return on assets
ratio

d4. Return on equity ratio measures how efficiently a company is using its
equity to generate profit:

Net income / Shareholder’s equity = Return on equity ratio

Benro Equipment Corp. reported a net income of Php100,000 and issued
preferred dividends of Php10,000 during the year. The company also had
10,000. Php5 per common shares outstanding during the year.
Php90,000 / Php5,000 = Php1.8 Return on Equity Ratio

e. Market Value Ratios is the evaluation of the company’s shared price.

e1. book value per share ratio

Shareholder’s equity / Total shares outstanding = Book value per share ratio
Endevor International has Php30,000,000 of stockholders' equity,
Php6,000,000 of preferred stock, and and an average of 4,000,000 shares
outstanding during the measurement period. The calculation of its book
value per share is:
(Php30,000,000 - Php6,000,000) / 4,000,000 = Php6 Book Value per
common share
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e2. dividend yield ratio

Dividend per share / Share price = Dividend Yield Ratio

Marby Silver Works is listed on a smaller stock exchange, and the current
market price per share is Php15. As of last year, Marby Silver Works paid
Php15,000 in dividends with 1,000 shares outstanding.
Php15 / Php15 = Php1 Divident yield ratio

e3. earnings per share ratio

Net earnings / Total shares outstanding = Earnings per share ratio

Old Valley Bakery has net income during the year of Php50,000. Since it is a
small company, there are no preferred outstanding shares. Old Valley Bakery
had 5,000 weighted average shares outstanding during the year.
(Php50,000 - Php0) / Php5,000 = Php10 Eearnings per share

e4. price-earnings ratio

Share price / Earnings per share = Price-earnings ratio

Premier Corporation stock is currently trading at Php50 a share and its
earnings per share for the year is 5 dollars.
Php50 / Php5 = Php10 Price earnings ratio

Course Module
 2. Break-even Analysis

Is used to determine what needs to be sold monthly or annually to be able to cover the
costs of doing business.

Assumptions

a. Average per-unit sales price

The price received per unit of sales.

b. Average per-unit cost:

This is the incremental or variable cost in each unit of sales.

c. Monthly fixed costs:

Technically, a break-even analysis defines fixed costs as costs that would continue even if
you went broke. Instead, we recommend that you use your regular running fixed costs,
including payroll and normal expenses (total monthly operating expenses). This will give
you a better insight into financial realities.

Classification of Cost

1. Cost Classification by Nature

a. Material Cost:

These are the cost of materials for product or service production. It includes the cost of
procurement, freight inwards, taxes and duties, and insurance.

b. Labor Cost:

These are salaries and wages paid to employees.

c. Expenses:

Are costs involved in an activity such as expenditure on utilities or bought-out services.

2. Classification of Cost in Relation to Cost Centre

a. Direct Costs:

These costs are called ‘traceable costs’ and are identified easily with a unit of operation
or costing unit. These are directly allocated or identified with particular cost centers
and will be directly charged to such cost centers or cost units.

b. Direct Material:
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Understanding Basic Accounting and Financial Management

can be identified easily with a unit of operation or costing unit, or cost center. The
direct material costs are directly allocated for direct charging.

c. Direct Labour:

are incurred on the employees engaged directly in production.

d. Direct Expenses:

Are specific expenses incurred and charged for a specific or particular job.

e. Indirect Costs:

This cost cannot be allocated but can be apportioned to cost units; these are
untraceable.

f. Indirect Material:

These are costs that cannot be traced to the end product and the material.

g. Indirect Labour:

These are salaries and wages paid to the staff for the purpose of carrying and tasks
incidental to goods or services provided.

h. Indirect Expenses:

These are incurred by carrying out a company’s total business activities and cannot be
allocated to job, process, cost units.

3. Cost Classification by Time:

a. Historical Cost:

These are financial accounts based on historical valuations, this costs must be adjusted to
reflect current and future price levels.

b. Predetermined Cost:

Are computed in advance prior to production based on specific factors that affect cost and
cost data.

c. Standard Cost:

Course Module
 Is a calculation of costs needed in specified working conditions. It is made up from assessing
the value of cost elements and correlates technical specifications. This also includes the
quantification of materials, labor, and other usage rates.

d. Estimated Cost:

a predetermined cost based on past performance adjusted to the anticipated changes in

business situations that do not require accurate cost.

4. Cost Classification for Decision Making:

a. Marginal Cost:

An amount at any given output volume that aggregate costs that are changed when the
volume of output is increased or decreased by one unit.

b. Differential Cost:

This is called ‘incremental cost’ as the difference in total cost arises from selecting one
alternative to the other.

c. Opportunity Cost:

This is the maximum amount that an entrepreneur can obtain whenever a resource
becomes sold or used at any given point in time.

d. Relevant Cost:

This aids in creating specific management decisions that involves planning for the future
and alternative courses of action.

e. Sunk Cost:

These are expenditures that took place in the past. These are the finances that have been
invested in a project and are not recoverable once the project is terminated.

f. Replacement Cost:

These are identical materials used to replace purchases at the date of valuation as it also
replaces assets given at any point of time whether in the present or future.

g. Normal Cost:

The expenses occur in the normal production process.

h. Abnormal Cost:
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Understanding Basic Accounting and Financial Management

These are expenditures when there are irregular and unexpected production situations
that need to be dealt with.

i. Avoidable Cost:

These are logically associated with activities or situations that are ascertained by the actual
cost difference between the situation and the normal cost.

j. Unavoidable Cost:

This occurs when an expenditure is over the limits or norms provided.

k. Pre-Production Cost:

These are expenses made before the production or expenses from project initiation up to
the formal commercial production.

l. Product Cost:

These are aggregated costs associated with a product unit, it may or may not include
overhead, but it depends if it’s absorption or direct.

m. Period Cost:

These costs are unaffected by changes in the level of activity during a certain period, this is
associated with a time period and are deducted as expenses during the current period
without being classified as product costs.

n. Traceable Cost:

This are easily identified with a unit of operation, including direct material, direct labor,
and direct expenses.

o. Common Cost:

These are not allocated, but they are apportioned to cost centers, and these are not
traceable.

p. Controllable Cost:

These are expenses influenced by the actions of the person in control of the center.

q. Uncontrollable Cost:

Course Module
The control of cost depends on the level of responsibility under consideration. These are
expenses or costs beyond the control.

r. Short-Run Cost:

These are outputs that vary when a fixed plant and capital equipment remain the same,
thus, it becomes relevant when the company decides to produce or not produce products in
the future.

s. Long-Run Cost:

The output varies when all input factors vary and it only becomes relevant when the
company decides to set up a new plant or expand the existing one.

t. Past Cost:

This is contained in the financial accounts and contains a report of past events; these are
important as they serve as a guide for future course of action.

u. Future Cost:

These are relevant for managerial decision-making in introducing new products, cost
control, capital expenditure appraisal, profit projections, expansion programs, and pricing.

v. Explicit Cost:

This doesn’t necessitate a corresponding outflow of cash and involves cash outlay or
payment to other parties. It is vital in the decision-making problems on the fluctuation of
prices during the recession and makes or buy decisions.

w. Implicit Cost:

These costs don’t involve actual cash outlay and are used in decision-making and
performance evaluation. A common type of implicit cost is interest in the capital.

x. Book Cost:

These do not require current cash payments. These costs can be converted into out-of-
pocket costs through selling assets and have them for hire. Depreciation and interest are
replaced by rent.

y. Shutdown Cost:

These are related to the temporary closing of an enterprise or its division. These costs are
defined as incurrences of suspension of operation.
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z. Abandonment Cost:

Abandonment arises when there is a complete cessation of activities and creates a problem
as to the disposal of assets. This occurs when an enterprise shutdown and withdraws
product or ceases to operate in a particular sales territory. The abandonment costs are the
cost of retiring a plant from service altogether.

aa. Urgent Cost:

The urgent costs are those which must be incurred in order to continue operations of the
firm. For example, the cost of material and labor must be incurred if production is to take
place.

Ab. Postponable Cost:

The postponable cost is that cost that can be shifted to the future with little or no effect on
the efficiency of current operations. These costs can be postponed at least for some time,
e.g., maintenance relating to building and machinery.

Ac. Conversion Cost:

It is the cost incurred to convert raw materials into finished goods. It is the sum of direct
wages, direct expenses, and manufacturing overheads.

5. Cost Classification by Nature of Production Process:

a. Batch Cost:

Aggregates cost unit consisted of a group with similar articles that maintains identity
throughout one or more stages of production.

b. Process Cost:

The process cost per unit = process cost/number of units produced in the process.

c. Operation Cost:

This involves production process in distinctly separate operations involved in a process,

such as cost for each operation that have an effective control mechanism.

d. Operating Cost:

These are cost of undertakings that do not manufacture any product but provides services.

Course Module
 e. Contract Cost:

These are costs and conditions between the contractee and the contractor and are implied
to major long-term contracts.

f. Joint Cost:

These are facilities or services employed from the output of two or more simultaneously
produced that are related to operations, commodities, or services.

Budgeting

Budgeting is the planning of how one spends money. The spending plan is called a budget.
This allows an entrepreneur to determine if there will be enough money to do the things
for the business.

Importance of Budgeting

It ensures that the business will always have enough money and will also keep it out of
debt or help the business work its way out of debt.

Budget Forecasting and Planning

Extending the budget into the future allows the company to forecast how much money will be
saved for important things. A realistic budget can forecast spending can help with long-term
financial planning.

Determine
Timeline

Implement
Agree on Goals
Budget

Understand
Document
Current
Budget Decision
Financial Status

Agree on Budget
Approve Budget
Approach

Develop Draft Develop Draft

Income Budget Expense Budget
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References and Supplementary Materials

Books and Journals
1. William G. Droms, Jay O. Wright; 2015; Finance and Accounting for Nonfinancial
Managers: All the Basics You Need to Know 7th ed. Edition; New York City, New York,
United States; Basic Books.
2. Eddie McLaney, Peter Atrill; 2016; Accounting and Finance: An Introduction 8th
edition (8th Edition); London, United Kingdom; Pearson.
Online Supplementary Reading Materials
1. Role in Finance Business https://smallbusiness.chron.com/role-finance-business-
290.html October 16, 2018
2. Sources and Uses of Funds Statement
https://ag.purdue.edu/commercialag/Pages/Resources/Finance/Financial-
Statements/Sources-and-Uses-of-Funds-Statement.aspx October 16, 2018
3. What are the books of account
https://mpm.ph/what-are-the-books-of-account/ October 17, 2018
5. Records https://www.business.qld.gov.au/running-business/finances-cash-
flow/records October 17, 2018
6. Why it is important to keep financial records
https://gatewaycfs.com/bff/why-important-keep-financial-records October 17,
2018
7. Valuing of Assets
https://courses.lumenlearning.com/boundless-accounting/chapter/valuing-of-
assets/ October 17, 2018
8. Financial Ratios
https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-
ratios/ October 17, 2018
9. Break Even Analysis https://articles.bplans.com/break-even-analysis/ October 17,
2018
10. Classification of Costs http://www.accountingnotes.net/cost-accounting/cost-
classification/classification-of-costs-5-types-accounting/10178 October 17, 2018
11. What is Budget Planning and Forecasting
https://www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting
October 17, 2018
Online Instructional Videos
1. Learn Accounting in 1 HOUR First Lesson: Debits and Credits
https://www.youtube.com/watch?v=ii91oi0OpXM October 17, 2018
2. INTRODUCTION TO FINANCIAL MANAGEMENT new
https://www.youtube.com/watch?v=qrs3taWpuD8 October 17, 2018

Course Module