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Finance for Non-Financial Professionals



Lessons

There are two equally important attributes of every financial transaction, the amount and the date it occurred.  Both are required for financial reporting and analysis.

Revenue is the amount of money that a company receives for selling its goods and services.  Profit is the amount of money that a company earns after it has paid all its expenses.

The Earnings Statement is a financial report that shows business profitability over some time period.

The Balance Sheet is the financial report that shows what the business is worth at some instant in time.

The Cash Flow Statement is a financial report that shows how well the company was able to convert business activity into cash over some time period.

Each of the financial statements provides insight on an aspect of the business financial status and structure. These accounts across the statements are related, and changes to values will likely impact multiple statements.

When calculating profitability, the different profit measures provide insight into the most significant factors that are creating corporate profit or loss. 

Return ratios are normally used for comparing companies or comparing the past performance of a company with its present performance.

It is important to know what category of account you are working with when budgeting and tracking spending.  The different categories of accounts behave differently so knowing which category you are working with will provide insight into the budgeting and tracking process.

Estimating is used when planning and budgeting business costs or revenues. The estimate needs to include both the amount and the timing of the transaction.

Whenever a company purchases an asset with long term value, it must be capitalized. Every asset that is capitalized is then depreciated, which is special form of amortization. 

If you capitalize a fixed asset, you are required to depreciate it on the business financial books.

Budget baselines should be used if costs must be controlled within a department or on a project. 

The business case provides the business rationale, normally in financial terms, of why a project should be done.

The business financial system records costs based upon the cost account type.  The costs are often accrued near the end of fiscal quarter or year.

Cost variance reporting is the calculation and reporting of costs that are different than what was expected by the budget or standard.

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