Instructor’sm Manualm formFinancialm Managementm form Public,m Health,m and m Not-for-
Profitm Organizations1,m 2E
INTRODUCTION
Chapter 1 m
TO
FINANCIAL MA
m m
NAGEMENT
QuestionsmformDiscussion
1-
1. m Financialmmanagementm ism them subsetm ofmmanagementm thatm focusesmonmgeneratingmfinan
cialminformationm thatm canm improvem decisions. m Them decisionsm arem orientedm towardm achievi
ngm them variousm goalsm ofm them organizationmwhilemmaintainingmamsatisfactorymfinancialmsituati
on. mFinancialmmanagementmencompassesm thembroadmareasmofmaccountingmandmfinance.
1-2. m Inm proprietary, m orm for-
profit, m organizations, m anm underlyingm goalm ism tom maximizem them wealthm ofm them ownersmofmt
hemorganization.
1-
3. m Inm publicm servicem organizations, m decisionsm arem orientedm towardm achievingm them various
m goals m ofm them organizationmwhilemmaintainingmamsatisfactory mfinancial msituation.
1-
4. m Accountingm ism am systemmfor m keepingm trackm ofmthem financialmstatusm ofmanmorganizationman
dm them financialm resultsm ofm itsm activities. m Itm hasm oftenm beenm referredm tom asm them languagem o
fm business. m Them vocabularym usedmbymaccountingmismthemlanguagemofmnonbusinessmorganizat
ionsmasmwell.
1-
5. m Accountingm ism subdividedm intom twom majorm areas:m managerialm accounting m andm financial
m accounting. m Managerial m accountingm relates m tom generatingm any m financial m informationm th
atm managersm canm usem tom improvem them futurem resultsm ofm them organization. m Thism includesm
techniquesm designedm tom generatem anym financialmdatam thatm mightm helpmmanagersmmakemm
oremeffectivemdecisions. m Major maspectsmofmmanagerialm accountingm relatemtom makingmfinancia
lmplansmform themorganization, m implementingmthosemplans, m andmthenm workingm tom ensurem tha
tm them plansm arem achieved. m Somem examplesm ofm managerialm accountingm includem preparingm
annualm operatingm budgets, m generatingm informationm form usem inm makingm majorm investmen
tm decisions, m andm providingm them datam neededm tom decidem whetherm tom buym orm leasemam
major m piecem ofm equipment. m Financialmaccountingm providesm retrospectivem information.m Asm
eventsm thatm havem financialm implicationsmoccurm theymaremrecordedmbymthemfinancialmaccounti
,ngmsystem. mFrommtimemtomtimem(usuallym monthly, m quarterly, m orm annually), m themrecordedmdat
amaremsummarizedmandmreportedmtominterestedmusers. m Them usersm includem bothm internalm m
anagersm andm peoplem outsidem them organization. m Thosem outsidersm includem thosem whom hav
em lentm orm mightm lendm moneymtom them organizationm(creditors), m thosem whom mightm sellm things
m tom them organizationm (calledm suppliers m or m vendors), m andm other m interestedm parties. m These
m interestedmparties mmay mincludemthosemwithmamparticular minterestminmpublicmservicemorganizat
ions, msuchmasm regulators, m legislators,m andm citizens.m Financialmreportsm providem informationm o
nm them financialmstatusm ofm themorganizationmatm amspecificmpointm inmtime, masmwellmasmreporting
mthempastmresults mofmthemorganization‘s m operations m(i.e., mhow mwellmitmhasmdonemfrom mamfinan
cialmviewpoint).
,
, Chapterm 3:m Additional m Budgeting mConcept 3-2
s
1-
6. m Financemfocusesmonm themalternativemsourcesmandmusesmofm themorganization‘sm financialm r
esources. m Obtainingm fundsm whenmneededm frommappropriatem sourcesmandmthemdeploymentm
ofmresourcesmwithinmthem organizationm fallm underm thism heading. m Inm addition, m financem involv
esm them financialm marketsm (suchm asm stockmandmbondmmarkets)mthatmprovidemammeansmtomge
neratingmfundsmformorganizations.
1-
7. m Yes. m Achievingm them goalsm ofm them organizationm requiresm financialm planning. m Financialm
managementm providesm informationm form managersmtom usem inmmakingmtheirm decisions.m Itm h
elpsm managersm bym providingm informationm onm them likelym financialm impactm ofm eachm propose
dm alternative. m Itm alsom providesm informationmaboutmfinancialmstability,mefficiency, mandmeffectiv
eness.
1-
8. m Clearly, m wem mightm expectm somem publicm servicem organizationsm thatm arem proprietary, ms
uchm asm somem hospitals, mtom earnmprofits. m Butm whatm aboutm otherm publicmservicem organizatio
nsmsuchmasmcharities?mTheym shouldm makem am profitm asm well.m Profitsm providem am safetym marg
inm againstm unexpectedm costs, m providem resourcesmtom replacembuildingsmandmequipment, man
dmtomexpandmandmimprovemservices.
1-9. mm Federalmgovernmentm(seemtextmFigurem1-1)
◼ Individualmincomemtaxes
◼ Socialminsurancemtaxes
◼ Corporatemincomemtax
Statemandmlocalmgovernmentm(seemtextmFigurem1-4)
◼ Salesmandmgrossmreceiptsmtax
◼ Federalmgovernment
◼ Propertymtaxes
◼ Individualmincomemtaxes
Healthmsectorm(seemtextmFigurem1-6)
◼ Privateminsurance
◼ Medicare
◼ Medicaid
◼ Other mgovernmentmprograms
Not-for-profitmsectorm(seemtext)
◼ Privatempaymentsmformgoodsmandmservices
◼ Governmentmpaymentsmformgoodsmandmservices
Profitm Organizations1,m 2E
INTRODUCTION
Chapter 1 m
TO
FINANCIAL MA
m m
NAGEMENT
QuestionsmformDiscussion
1-
1. m Financialmmanagementm ism them subsetm ofmmanagementm thatm focusesmonmgeneratingmfinan
cialminformationm thatm canm improvem decisions. m Them decisionsm arem orientedm towardm achievi
ngm them variousm goalsm ofm them organizationmwhilemmaintainingmamsatisfactorymfinancialmsituati
on. mFinancialmmanagementmencompassesm thembroadmareasmofmaccountingmandmfinance.
1-2. m Inm proprietary, m orm for-
profit, m organizations, m anm underlyingm goalm ism tom maximizem them wealthm ofm them ownersmofmt
hemorganization.
1-
3. m Inm publicm servicem organizations, m decisionsm arem orientedm towardm achievingm them various
m goals m ofm them organizationmwhilemmaintainingmamsatisfactory mfinancial msituation.
1-
4. m Accountingm ism am systemmfor m keepingm trackm ofmthem financialmstatusm ofmanmorganizationman
dm them financialm resultsm ofm itsm activities. m Itm hasm oftenm beenm referredm tom asm them languagem o
fm business. m Them vocabularym usedmbymaccountingmismthemlanguagemofmnonbusinessmorganizat
ionsmasmwell.
1-
5. m Accountingm ism subdividedm intom twom majorm areas:m managerialm accounting m andm financial
m accounting. m Managerial m accountingm relates m tom generatingm any m financial m informationm th
atm managersm canm usem tom improvem them futurem resultsm ofm them organization. m Thism includesm
techniquesm designedm tom generatem anym financialmdatam thatm mightm helpmmanagersmmakemm
oremeffectivemdecisions. m Major maspectsmofmmanagerialm accountingm relatemtom makingmfinancia
lmplansmform themorganization, m implementingmthosemplans, m andmthenm workingm tom ensurem tha
tm them plansm arem achieved. m Somem examplesm ofm managerialm accountingm includem preparingm
annualm operatingm budgets, m generatingm informationm form usem inm makingm majorm investmen
tm decisions, m andm providingm them datam neededm tom decidem whetherm tom buym orm leasemam
major m piecem ofm equipment. m Financialmaccountingm providesm retrospectivem information.m Asm
eventsm thatm havem financialm implicationsmoccurm theymaremrecordedmbymthemfinancialmaccounti
,ngmsystem. mFrommtimemtomtimem(usuallym monthly, m quarterly, m orm annually), m themrecordedmdat
amaremsummarizedmandmreportedmtominterestedmusers. m Them usersm includem bothm internalm m
anagersm andm peoplem outsidem them organization. m Thosem outsidersm includem thosem whom hav
em lentm orm mightm lendm moneymtom them organizationm(creditors), m thosem whom mightm sellm things
m tom them organizationm (calledm suppliers m or m vendors), m andm other m interestedm parties. m These
m interestedmparties mmay mincludemthosemwithmamparticular minterestminmpublicmservicemorganizat
ions, msuchmasm regulators, m legislators,m andm citizens.m Financialmreportsm providem informationm o
nm them financialmstatusm ofm themorganizationmatm amspecificmpointm inmtime, masmwellmasmreporting
mthempastmresults mofmthemorganization‘s m operations m(i.e., mhow mwellmitmhasmdonemfrom mamfinan
cialmviewpoint).
,
, Chapterm 3:m Additional m Budgeting mConcept 3-2
s
1-
6. m Financemfocusesmonm themalternativemsourcesmandmusesmofm themorganization‘sm financialm r
esources. m Obtainingm fundsm whenmneededm frommappropriatem sourcesmandmthemdeploymentm
ofmresourcesmwithinmthem organizationm fallm underm thism heading. m Inm addition, m financem involv
esm them financialm marketsm (suchm asm stockmandmbondmmarkets)mthatmprovidemammeansmtomge
neratingmfundsmformorganizations.
1-
7. m Yes. m Achievingm them goalsm ofm them organizationm requiresm financialm planning. m Financialm
managementm providesm informationm form managersmtom usem inmmakingmtheirm decisions.m Itm h
elpsm managersm bym providingm informationm onm them likelym financialm impactm ofm eachm propose
dm alternative. m Itm alsom providesm informationmaboutmfinancialmstability,mefficiency, mandmeffectiv
eness.
1-
8. m Clearly, m wem mightm expectm somem publicm servicem organizationsm thatm arem proprietary, ms
uchm asm somem hospitals, mtom earnmprofits. m Butm whatm aboutm otherm publicmservicem organizatio
nsmsuchmasmcharities?mTheym shouldm makem am profitm asm well.m Profitsm providem am safetym marg
inm againstm unexpectedm costs, m providem resourcesmtom replacembuildingsmandmequipment, man
dmtomexpandmandmimprovemservices.
1-9. mm Federalmgovernmentm(seemtextmFigurem1-1)
◼ Individualmincomemtaxes
◼ Socialminsurancemtaxes
◼ Corporatemincomemtax
Statemandmlocalmgovernmentm(seemtextmFigurem1-4)
◼ Salesmandmgrossmreceiptsmtax
◼ Federalmgovernment
◼ Propertymtaxes
◼ Individualmincomemtaxes
Healthmsectorm(seemtextmFigurem1-6)
◼ Privateminsurance
◼ Medicare
◼ Medicaid
◼ Other mgovernmentmprograms
Not-for-profitmsectorm(seemtext)
◼ Privatempaymentsmformgoodsmandmservices
◼ Governmentmpaymentsmformgoodsmandmservices
