, Instructor’sfManualfforfFinancialfManagementfforfPublic,fHealth,fandfNot-for-
ProfitfOrganizations1,f7Ed
INTRODUCTION
Chapter 1 f TO
f FINANCIALf MA
NAGEMENT
QuestionsfforfDiscussion
1-
1.f Financialfmanagementf isf thef subsetf offmanagementf thatf focusesfonfgeneratingffinancialfinformationf thatf canf
improvef decisions.f Thef decisionsf aref orientedf towardf achievingf thef variousf goalsf off thef organizationfwhilefma
intainingfafsatisfactoryffinancialfsituation.fFinancialfmanagementfencompassesf thefbroadfareasfoffaccountingfand
ffinance.
1-2.f Inf proprietary,f orf for-
profit,f organizations,f anf underlyingf goalf isf tof maximizef thef wealthf off thef ownersfofftheforganization.
1-
3.f Inf publicf servicef organizations,f decisionsf aref orientedf towardf achievingf thef variousf goalsf off thef organizati
onfwhilefmaintainingfafsatisfactoryffinancialfsituation.
1-
4.f Accountingf isfaf systemfforf keepingf trackf offthef financialfstatusf offanforganizationfandf thef financialf resultsf off it
sf activities.f Itf hasf oftenf beenf referredf tof asf thef languagef off business.f Thef vocabularyf usedfbyfaccountingfisfth
eflanguagefoffnonbusinessforganizationsfasfwell.
1-
5.f Accountingf isf subdividedf intof twof majorf areas:f managerialf accountingf andf financialf accounting.f Managerial
f accountingf relatesf tof generatingf anyf financialf informationf thatf managersf canf usef tof improvef thef futuref res
ultsf off thef organization.f Thisf includesf techniquesf designedf tof generatef anyf financialfdataf thatf mightf helpfmana
gersfmakefmorefeffectivefdecisions.f Majorfaspectsfoffmanagerialf accountingf relateftof makingffinancialfplansfforfth
eforganization,f implementingfthosefplans,f andfthenf workingf tof ensuref thatf thef plansf aref achieved.f Somef exa
mplesf off managerialf accountingf includef preparingf annualf operatingf budgets,f generatingf informationf forf usef i
nf makingf majorf investmentf decisions,f andf providingf thef dataf neededf tof decidef whetherf tof buyf orf leasefaf
majorf piecef off equipment.f Financialf accountingf providesf retrospectivef information.f Asf eventsf thatf havef financi
alf implicationsfoccurftheyfarefrecordedfbyftheffinancialfaccountingfsystem.fFromftimeftoftimef(usuallyf monthly,f qu
arterly,f orfannually),f thefrecordedfdatafarefsummarizedfandfreportedftofinterestedfusers.f Thef usersf includef bot
hf internalf managersf andf peoplef outsidef thef organization.f Thosef outsidersf includef thosef whof havef lentf orf mi
ghtf lendf moneyftof thef organizationf(creditors),f thosef whof mightf sellf thingsf tof thef organizationf (calledf suppliers
f orf vendors),f andf otherf interestedf parties.f Thesef interestedfpartiesfmayfincludefthosefwithfafparticularfinterestf
infpublicfserviceforganizations,fsuchfasf regulators,f legislators,f andf citizens.f Financialfreportsf providef informationf
onf thef financialfstatusf off theforganizationfatf afspecificfpointf inftime,f asfwellfasfreportingfthefpastfresultsfofftheforg
anization‘sf operationsf(i.e.,fhowfwellfitfhasfdoneffromfaffinancialfviewpoint).
,
, Chapterf3:fAdditionalfBudgetingfConcepts 3-2
1-
6.f Financeffocusesfonf thefalternativefsourcesfandfusesfoff theforganization‘sf financialf resources.f Obtainingf fun
dsf whenfneededf fromfappropriatef sourcesfandfthefdeploymentf offresourcesfwithinfthef organizationf fallf underf th
isf heading.f Inf addition,f financef involvesf thef financialf marketsf (suchf asf stockfandfbondfmarkets)fthatfprovidefaf
meansftofgeneratingffundsfforforganizations.
1-
7.f Yes.f Achievingf thef goalsf off thef organizationf requiresf financialf planning.f Financialf managementf providesf i
nformationf forf managersf tof usef inf makingf theirf decisions.f Itf helpsf managersf byf providingf informationf onf thef li
kelyf financialf impactf off eachf proposedf alternative.f Itf alsof providesf informationfaboutffinancialfstability,fefficiency,f
andfeffectiveness.
1-
8.f Clearly,f wef mightf expectf somef publicf servicef organizationsf thatf aref proprietary,fsuchf asf somef hospitals,
f tof earnf profits.f Butf whatf aboutf otherf publicfservicef organizationsf suchfasfcharities?fTheyf shouldf makef af profitf
asf well.f Profitsf providef af safetyf marginf againstf unexpectedf costs,f providef resourcesftofreplacefbuildingsfandf
equipment,fandftofexpandfandfimprovefservices.
1-9.ff Federalfgovernmentf(seeftextfFiguref1-1)
◼ Individualfincomeftaxes
◼ Socialfinsuranceftaxes
◼ Corporatefincomeftax
Statefandflocalfgovernmentf(seeftextfFiguref1-4)
◼ Salesfandfgrossfreceiptsftax
◼ Federalfgovernment
◼ Propertyftaxes
◼ Individualfincomeftaxes
Healthfsectorf(seeftextfFiguref1-6)
◼ Privatefinsurance
◼ Medicare
◼ Medicaid
◼ Otherfgovernmentfprograms
Not-for-profitfsectorf(seeftext)
◼ Privatefpaymentsfforfgoodsfandfservices
◼ Governmentfpaymentsfforfgoodsfandfservices
◼ Donations
1-
10.fFederalfgovernmentf spendingf exceededf $6f trillionfinf2020fandfstatefandflocalfgovernmentf spendingf wasf mor
ef thanf $3f trillionf inf 2018.f Inf contrast,f thef GDPf wasf$21f trillionfinf2020.f Forf moref upf tof datef information,f examin
ef thef statisticalf tablesf off thef mostf recentf Economicf Reportf offthef President,fwhichfisfavailablefonline.
1-
11.fThef reportedf surplusf includesf bothf onf andf offfbudgetf items.f Socialfsecurityftaxesf representf anfofff budgetf it
emf thatf untilf recentlyf raisedf moref revenuef thanf wasf spentf onf socialf securityf payments.
ProfitfOrganizations1,f7Ed
INTRODUCTION
Chapter 1 f TO
f FINANCIALf MA
NAGEMENT
QuestionsfforfDiscussion
1-
1.f Financialfmanagementf isf thef subsetf offmanagementf thatf focusesfonfgeneratingffinancialfinformationf thatf canf
improvef decisions.f Thef decisionsf aref orientedf towardf achievingf thef variousf goalsf off thef organizationfwhilefma
intainingfafsatisfactoryffinancialfsituation.fFinancialfmanagementfencompassesf thefbroadfareasfoffaccountingfand
ffinance.
1-2.f Inf proprietary,f orf for-
profit,f organizations,f anf underlyingf goalf isf tof maximizef thef wealthf off thef ownersfofftheforganization.
1-
3.f Inf publicf servicef organizations,f decisionsf aref orientedf towardf achievingf thef variousf goalsf off thef organizati
onfwhilefmaintainingfafsatisfactoryffinancialfsituation.
1-
4.f Accountingf isfaf systemfforf keepingf trackf offthef financialfstatusf offanforganizationfandf thef financialf resultsf off it
sf activities.f Itf hasf oftenf beenf referredf tof asf thef languagef off business.f Thef vocabularyf usedfbyfaccountingfisfth
eflanguagefoffnonbusinessforganizationsfasfwell.
1-
5.f Accountingf isf subdividedf intof twof majorf areas:f managerialf accountingf andf financialf accounting.f Managerial
f accountingf relatesf tof generatingf anyf financialf informationf thatf managersf canf usef tof improvef thef futuref res
ultsf off thef organization.f Thisf includesf techniquesf designedf tof generatef anyf financialfdataf thatf mightf helpfmana
gersfmakefmorefeffectivefdecisions.f Majorfaspectsfoffmanagerialf accountingf relateftof makingffinancialfplansfforfth
eforganization,f implementingfthosefplans,f andfthenf workingf tof ensuref thatf thef plansf aref achieved.f Somef exa
mplesf off managerialf accountingf includef preparingf annualf operatingf budgets,f generatingf informationf forf usef i
nf makingf majorf investmentf decisions,f andf providingf thef dataf neededf tof decidef whetherf tof buyf orf leasefaf
majorf piecef off equipment.f Financialf accountingf providesf retrospectivef information.f Asf eventsf thatf havef financi
alf implicationsfoccurftheyfarefrecordedfbyftheffinancialfaccountingfsystem.fFromftimeftoftimef(usuallyf monthly,f qu
arterly,f orfannually),f thefrecordedfdatafarefsummarizedfandfreportedftofinterestedfusers.f Thef usersf includef bot
hf internalf managersf andf peoplef outsidef thef organization.f Thosef outsidersf includef thosef whof havef lentf orf mi
ghtf lendf moneyftof thef organizationf(creditors),f thosef whof mightf sellf thingsf tof thef organizationf (calledf suppliers
f orf vendors),f andf otherf interestedf parties.f Thesef interestedfpartiesfmayfincludefthosefwithfafparticularfinterestf
infpublicfserviceforganizations,fsuchfasf regulators,f legislators,f andf citizens.f Financialfreportsf providef informationf
onf thef financialfstatusf off theforganizationfatf afspecificfpointf inftime,f asfwellfasfreportingfthefpastfresultsfofftheforg
anization‘sf operationsf(i.e.,fhowfwellfitfhasfdoneffromfaffinancialfviewpoint).
,
, Chapterf3:fAdditionalfBudgetingfConcepts 3-2
1-
6.f Financeffocusesfonf thefalternativefsourcesfandfusesfoff theforganization‘sf financialf resources.f Obtainingf fun
dsf whenfneededf fromfappropriatef sourcesfandfthefdeploymentf offresourcesfwithinfthef organizationf fallf underf th
isf heading.f Inf addition,f financef involvesf thef financialf marketsf (suchf asf stockfandfbondfmarkets)fthatfprovidefaf
meansftofgeneratingffundsfforforganizations.
1-
7.f Yes.f Achievingf thef goalsf off thef organizationf requiresf financialf planning.f Financialf managementf providesf i
nformationf forf managersf tof usef inf makingf theirf decisions.f Itf helpsf managersf byf providingf informationf onf thef li
kelyf financialf impactf off eachf proposedf alternative.f Itf alsof providesf informationfaboutffinancialfstability,fefficiency,f
andfeffectiveness.
1-
8.f Clearly,f wef mightf expectf somef publicf servicef organizationsf thatf aref proprietary,fsuchf asf somef hospitals,
f tof earnf profits.f Butf whatf aboutf otherf publicfservicef organizationsf suchfasfcharities?fTheyf shouldf makef af profitf
asf well.f Profitsf providef af safetyf marginf againstf unexpectedf costs,f providef resourcesftofreplacefbuildingsfandf
equipment,fandftofexpandfandfimprovefservices.
1-9.ff Federalfgovernmentf(seeftextfFiguref1-1)
◼ Individualfincomeftaxes
◼ Socialfinsuranceftaxes
◼ Corporatefincomeftax
Statefandflocalfgovernmentf(seeftextfFiguref1-4)
◼ Salesfandfgrossfreceiptsftax
◼ Federalfgovernment
◼ Propertyftaxes
◼ Individualfincomeftaxes
Healthfsectorf(seeftextfFiguref1-6)
◼ Privatefinsurance
◼ Medicare
◼ Medicaid
◼ Otherfgovernmentfprograms
Not-for-profitfsectorf(seeftext)
◼ Privatefpaymentsfforfgoodsfandfservices
◼ Governmentfpaymentsfforfgoodsfandfservices
◼ Donations
1-
10.fFederalfgovernmentf spendingf exceededf $6f trillionfinf2020fandfstatefandflocalfgovernmentf spendingf wasf mor
ef thanf $3f trillionf inf 2018.f Inf contrast,f thef GDPf wasf$21f trillionfinf2020.f Forf moref upf tof datef information,f examin
ef thef statisticalf tablesf off thef mostf recentf Economicf Reportf offthef President,fwhichfisfavailablefonline.
1-
11.fThef reportedf surplusf includesf bothf onf andf offfbudgetf items.f Socialfsecurityftaxesf representf anfofff budgetf it
emf thatf untilf recentlyf raisedf moref revenuef thanf wasf spentf onf socialf securityf payments.
