Franklyn A Plus Pass
Chapter 1: INTRODUCTION TO FINANCIAL MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial information
that can improve decisions. The decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation. Financial management encompasses the
broad areas of accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the
owners of the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial
results of its activities. It has often been referred to as the language of business. The vocabulary used by
accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting.
Managerial accounting relates to generating any financial information that managers can use to improve
the future results of the organization. This includes techniques designed to generate any financial data that
might help managers make more effective decisions. Major aspects of managerial accounting relate to
Fr
making financial plans for the organization, implementing those plans, and then working to ensure that
the plans are achieved. Some examples of managerial accounting include preparing annual operating
an
budgets, generating information for use in making major investment decisions, and providing the data
needed to decide whether to buy or lease a major piece of equipment. Financial accounting provides
retrospective information. As events that have financial implications occur they are recorded by the
kl
financial accounting system. From time to time (usually monthly, quarterly, or annually), the recorded
data are summarized and reported to interested users. The users include both internal managers and
yn
people outside the organization. Those outsiders include those who have lent or might lend money to the
organization (creditors), those who might sell things to the organization (called suppliers or vendors), and
other interested parties. These interested parties may include those with a particular interest in public
e
service organizations, such as regulators, legislators, and citizens. Financial reports provide information
on the financial status of the organization at a specific point in time, as well as reporting the past results of
the organization‗s operations (i.e., how well it has done from a financial viewpoint).
A
pl
1-6. Finance focuses on the alternative sources and uses of the organization‗s financial resources.
us
Obtaining funds when needed from appropriate sources and the deployment of resources within the
organization fall under this heading. In addition, finance involves the financial markets (such as stock and
bond markets) that provide a means to generating funds for organizations.
Pa
2|Page
ss
, Franklyn A Plus Pass
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management
provides information for managers to use in making their decisions. It helps managers by providing
information on the likely financial impact of each proposed alternative. It also provides information about
financial stability, efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some
hospitals, to earn profits. But what about other public service organizations such as charities? They should
make a profit as well. Profits provide a safety margin against unexpected costs, provide resources to
replace buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Fr
Individual income taxes
an
Health sector (see text Figure 1-6)
kl
Private insurance
yn
Medicare
Medicaid
e
Other government programs
A
pl
Not-for-profit sector (see text)
Private payments for goods and services
us
Government payments for goods and services
Pa
3|Page
ss
, Franklyn A Plus Pass
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government spending
was more than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For more up to date
information, examine the statistical tables of the most recent Economic Report of the President, which is
available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off
budget item that until recently raised more revenue than was spent on social security payments.
The surplus in this area offset other government losses, and even resulted in an overall surplus for the
federal government. This is no longer the case, and, over time, trust fund resources will be used up to
provide benefits. As the federal government will not have access to the excess resources from social
security, it will have to borrow and increase the total level of federal debt, unless revenues or spending are
changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition to its
mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve
suffering, promote the interests of the poor, protect the environment, provide basic social services, or
undertake community development" (World Bank Operational Directive 14.70). NGOs are quite similar
Fr
to the not-for-profit organizations. They are primarily mission-focused rather than profit- focused. NGOs
fall into three main categories: community-based, national, and international.
an
kl
Chapter 2 PLANNING FOR SUCCESS: BUDGETING
yn
Questions for Discussion
e
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change. This
is done by establishing specific goals and objectives, communicating those objectives to the individuals
A
who must achieve them, forecasting future events, developing alternatives, selecting from among
alternatives, and coordinating activities. The activities are summarized in a document called a budget. The
budget describes what we hope to achieve and the resources that will be used to carry out the
pl
organization‗s activities.
us
Pa
4|Page
ss
, Franklyn A Plus Pass
2-2. The organization‗s mission represents its reason for existence. For public, health, and not-for- profit
organizations, finances often become a means to an end, rather than the end itself. This mission cannot
solely be making profits. Financial management must help balance the focus on profit with the public
service elements of the organization‗s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches that
will be used to accomplish the mission, and a broad set of goals that need to be attained to achieve the
mission. Strategic plans set the organization‗s long-term direction. They often do not have specific
financial targets. However, they set the stage for the specific, detailed budgets that will be established to
achieve the organization‗s goals.
2-4. Whereas the strategic plan establishes goals, the long-range plan considers how to achieve those
goals. Long-range plans establish the major activities that will have to be carried out in the coming three
to five years. This process links the strategic plan to the day-to-day activities of the organization.
Organizations that do not prepare a long-range plan are often condemned to only sustain current activities,
at best.
2-5. Budgets establish the amount of resources that are available for specific activities. However, budgets
do not merely limit the resources that can be spent. They represent the detailed plan that supports the
organization‗s efforts to achieve its mission, and help the organization determine and achieve its goals
and objectives. The budgeting process is one of exploring possibilities. Organizations determine what
things they can and cannot do. They examine alternatives and choose those that are likely to yield the best
results. They become attuned to possible problems and can work to find solutions. Budgeting forces
managers to think ahead, to have clear expectations against which to measure performance, and to
coordinate the activities of the organization so that everyone is working toward a common purpose.
Budgets are also used to control results. That is, budgets not only create plans, but they are also used to
Fr
help accomplish those plans. This is done by comparing actual results to the budget. Looking at results,
we can assess what needs to be corrected. How good a job did the organization‗s management do? How
an
well did the organization itself do? In order to evaluate performance, one must have a standard or
benchmark to compare with actual results. The budget establishes the organization‗s expectations.
kl
yn
2-6. An organization may consider undertaking an activity that was not planned for when the annual
budget was prepared. At any time an organization can prepare a special budget for a specific purpose.
Appropriate approval should be obtained before implementing the budget.
e
A
2-7. An organization‗s budgets are often organized into a strategic plan, long-range plan, master budget,
and special purpose budgets.
pl
us
2-8. Budgets present specific, measurable goals. An individual is much more likely to work efficiently if
there is a target to shoot for, assuming that the target is not unrealistic.
Pa
5|Page
ss
Chapter 1: INTRODUCTION TO FINANCIAL MANAGEMENT
Questions for Discussion
1-1. Financial management is the subset of management that focuses on generating financial information
that can improve decisions. The decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation. Financial management encompasses the
broad areas of accounting and finance.
1-2. In proprietary, or for-profit, organizations, an underlying goal is to maximize the wealth of the
owners of the organization.
1-3. In public service organizations, decisions are oriented toward achieving the various goals of the
organization while maintaining a satisfactory financial situation.
1-4. Accounting is a system for keeping track of the financial status of an organization and the financial
results of its activities. It has often been referred to as the language of business. The vocabulary used by
accounting is the language of nonbusiness organizations as well.
1-5. Accounting is subdivided into two major areas: managerial accounting and financial accounting.
Managerial accounting relates to generating any financial information that managers can use to improve
the future results of the organization. This includes techniques designed to generate any financial data that
might help managers make more effective decisions. Major aspects of managerial accounting relate to
Fr
making financial plans for the organization, implementing those plans, and then working to ensure that
the plans are achieved. Some examples of managerial accounting include preparing annual operating
an
budgets, generating information for use in making major investment decisions, and providing the data
needed to decide whether to buy or lease a major piece of equipment. Financial accounting provides
retrospective information. As events that have financial implications occur they are recorded by the
kl
financial accounting system. From time to time (usually monthly, quarterly, or annually), the recorded
data are summarized and reported to interested users. The users include both internal managers and
yn
people outside the organization. Those outsiders include those who have lent or might lend money to the
organization (creditors), those who might sell things to the organization (called suppliers or vendors), and
other interested parties. These interested parties may include those with a particular interest in public
e
service organizations, such as regulators, legislators, and citizens. Financial reports provide information
on the financial status of the organization at a specific point in time, as well as reporting the past results of
the organization‗s operations (i.e., how well it has done from a financial viewpoint).
A
pl
1-6. Finance focuses on the alternative sources and uses of the organization‗s financial resources.
us
Obtaining funds when needed from appropriate sources and the deployment of resources within the
organization fall under this heading. In addition, finance involves the financial markets (such as stock and
bond markets) that provide a means to generating funds for organizations.
Pa
2|Page
ss
, Franklyn A Plus Pass
1-7. Yes. Achieving the goals of the organization requires financial planning. Financial management
provides information for managers to use in making their decisions. It helps managers by providing
information on the likely financial impact of each proposed alternative. It also provides information about
financial stability, efficiency, and effectiveness.
1-8. Clearly, we might expect some public service organizations that are proprietary, such as some
hospitals, to earn profits. But what about other public service organizations such as charities? They should
make a profit as well. Profits provide a safety margin against unexpected costs, provide resources to
replace buildings and equipment, and to expand and improve services.
1-9. Federal government (see text Figure 1-1)
Individual income taxes
Social insurance taxes
Corporate income tax
State and local government (see text Figure 1-4)
Sales and gross receipts tax
Federal government
Property taxes
Fr
Individual income taxes
an
Health sector (see text Figure 1-6)
kl
Private insurance
yn
Medicare
Medicaid
e
Other government programs
A
pl
Not-for-profit sector (see text)
Private payments for goods and services
us
Government payments for goods and services
Pa
3|Page
ss
, Franklyn A Plus Pass
Donations
1-10. Federal government spending exceeded $6 trillion in 2020 and state and local government spending
was more than $3 trillion in 2018. In contrast, the GDP was $21 trillion in 2020. For more up to date
information, examine the statistical tables of the most recent Economic Report of the President, which is
available online.
1-11. The reported surplus includes both on and off budget items. Social security taxes represent an off
budget item that until recently raised more revenue than was spent on social security payments.
The surplus in this area offset other government losses, and even resulted in an overall surplus for the
federal government. This is no longer the case, and, over time, trust fund resources will be used up to
provide benefits. As the federal government will not have access to the excess resources from social
security, it will have to borrow and increase the total level of federal debt, unless revenues or spending are
changed.
1-12. Sometimes gifts come with strings attached. If the conditions of the gift create a burden that the
organization does not want to accept, or somehow requires the organization to work in opposition to its
mission, it might turn down the gift.
1-13. The World Bank has defined NGOs as "private organizations that pursue activities to relieve
suffering, promote the interests of the poor, protect the environment, provide basic social services, or
undertake community development" (World Bank Operational Directive 14.70). NGOs are quite similar
Fr
to the not-for-profit organizations. They are primarily mission-focused rather than profit- focused. NGOs
fall into three main categories: community-based, national, and international.
an
kl
Chapter 2 PLANNING FOR SUCCESS: BUDGETING
yn
Questions for Discussion
e
2-1. Planning helps the organization by causing its employees to think ahead and anticipate change. This
is done by establishing specific goals and objectives, communicating those objectives to the individuals
A
who must achieve them, forecasting future events, developing alternatives, selecting from among
alternatives, and coordinating activities. The activities are summarized in a document called a budget. The
budget describes what we hope to achieve and the resources that will be used to carry out the
pl
organization‗s activities.
us
Pa
4|Page
ss
, Franklyn A Plus Pass
2-2. The organization‗s mission represents its reason for existence. For public, health, and not-for- profit
organizations, finances often become a means to an end, rather than the end itself. This mission cannot
solely be making profits. Financial management must help balance the focus on profit with the public
service elements of the organization‗s mission.
2-3. Strategic plans translate the mission of the organization into an approach or set of approaches that
will be used to accomplish the mission, and a broad set of goals that need to be attained to achieve the
mission. Strategic plans set the organization‗s long-term direction. They often do not have specific
financial targets. However, they set the stage for the specific, detailed budgets that will be established to
achieve the organization‗s goals.
2-4. Whereas the strategic plan establishes goals, the long-range plan considers how to achieve those
goals. Long-range plans establish the major activities that will have to be carried out in the coming three
to five years. This process links the strategic plan to the day-to-day activities of the organization.
Organizations that do not prepare a long-range plan are often condemned to only sustain current activities,
at best.
2-5. Budgets establish the amount of resources that are available for specific activities. However, budgets
do not merely limit the resources that can be spent. They represent the detailed plan that supports the
organization‗s efforts to achieve its mission, and help the organization determine and achieve its goals
and objectives. The budgeting process is one of exploring possibilities. Organizations determine what
things they can and cannot do. They examine alternatives and choose those that are likely to yield the best
results. They become attuned to possible problems and can work to find solutions. Budgeting forces
managers to think ahead, to have clear expectations against which to measure performance, and to
coordinate the activities of the organization so that everyone is working toward a common purpose.
Budgets are also used to control results. That is, budgets not only create plans, but they are also used to
Fr
help accomplish those plans. This is done by comparing actual results to the budget. Looking at results,
we can assess what needs to be corrected. How good a job did the organization‗s management do? How
an
well did the organization itself do? In order to evaluate performance, one must have a standard or
benchmark to compare with actual results. The budget establishes the organization‗s expectations.
kl
yn
2-6. An organization may consider undertaking an activity that was not planned for when the annual
budget was prepared. At any time an organization can prepare a special budget for a specific purpose.
Appropriate approval should be obtained before implementing the budget.
e
A
2-7. An organization‗s budgets are often organized into a strategic plan, long-range plan, master budget,
and special purpose budgets.
pl
us
2-8. Budgets present specific, measurable goals. An individual is much more likely to work efficiently if
there is a target to shoot for, assuming that the target is not unrealistic.
Pa
5|Page
ss
