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Chapter 1 Solutions - 1-1 Instructors Manual for Financial...

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1-1 Instructor’s Manual for Financial Management for Public, Health, and Not-for-Profit Organizations, 2E 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 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 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 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 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
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