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Canada (158,372)
Commerce (1,634)
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Commerce - Extra Notes.docx

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McMaster University
Rita Cossa

Working with the Budget Process  Budget: o Sets forth management’s expectations o Allocates use of specific resources throughout firm o Balance sheet, income statement, cash flow statement help this process  Operating (master) budget: o Projection of dollar allocations to costs/expenses need to run business given projected revenues o How much firm will spend on supplies, travel, rent, ads, research, etc.  Capital budget: o Highlights firm’s spending plans for major asset purchases o Buying property, buildings, equipment  Cash budget: o Estimates projected cash inflows and outflows o Firm can plan for cash shortages/surpluses o Want to maintain minimum cash balance (safety level) Establishing Financial Controls  Financial control: firm periodically compares actual revenues, costs, expenses with projected ones  Show what people/departments are varying from financial plans The Need For Funds Managing Day-to-Day Needs of the Business  Money is a time value (good to have now not later so can invest)  Interest gained on firm’s investments is important in maximizing profit company will gain  Firms should keep cash expenditures at a minimum  Want to free up funds for investment and interest-bearing accounts  Firms should pay bills as late as possible and collect what is owed to it as fast as possible Controlling Credit Operations  Businesses must make credit available to customers  Problems: o Assets tied up in credit accounts o Need to pay costs for making good/service sold on credit  Business can offer cash/quantity discounts to buyers who pay accounts by certain time  Can decrease risk by accepting credit cards o Bank has already checked customer’s credit rating o Have expertise in managing credit Acquiring Inventory  Must have enough inventory to satisfy customers  Inventory take up a lot of funds  Just-in-time inventory and knowing inventory turnover ratio can help control outflow of cash for inventory Making Capital Expenditures  Capital expenditures: major investments in tangible long-term assets (land, buildings, equipment) or intangible assets (patents, trademarks, copyrights)  Require huge portion of funds  Ex. need to increase production because of customer demand: o Could buy land and build new plant o Could rent or buy existing plant Commercial Banks and Other Financial Institutions  Banks reluctant to lend money to small, new businesses  Should send bank all firm’s financial statements so bank continues to supply funds  How much business borrows and for how long depends on type of business  Want to have good relationship with banker
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