Financial management is the strategic planning and budgeting of corporate funds for current and future needs.

A financial manager, often the CFO of a corporation, assumes financial management responsibilities. Financial managers generally have an accounting background.

Financial management includes forecasting short- and long-term needs, developing budgets and plans to meet the forecasted needs, and establishing controls to ensure that the budgets and plans are being followed.

It may be necessary to obtain short-term financing if cash flow gaps are anticipated.

Factoring, selling accounts receivable to a commercial finance company, is an additional way of quickly turning current assets into cash.

Suppliers often offer trade credit, where payment is deferred for usually 30, 60, or 90 days.

Commercial banks are another source of short-term financing and offer services such as demand deposit accounts, credit cards, business lines of credit, and ­secured loans.

Commercial banks are financial institutions that make loans to companies, but they are not considered banks.

Commercial paper is an unsecured short-term debt instrument issued by large, established corporations.

Grants for small businesses are generally targeted for specific research and development or scientific and technical innovation. State and local governments are better sources for business grants, though often these grants are targeted toward specialized businesses that the state or local government are trying to develop, such as child care centers, businesses that improve tourism, or businesses developing energy-efficient products.

Large, capital-intensive projects require a different type of financing. Long-term financing is needed when companies take on expansion projects, such as securing new facilities, developing new products, or buying other companies.

Venture capitalists, borrowed funds, or raising owners’ equity are the primary means of obtaining large amounts of long-term financing.

Leverage is using debt to finance investments with the intent that the cost of debt will be less than the rate of return on the financed investment. Using leverage can be beneficial unless too much debt is taken on.

Financing with bonds allows a company to use money from investors to create or obtain business assets without diluting the firm’s ownership. If the interest rate of the bond is too high, it can increase the cost of the project to the point where it is not affordable or does not make economic sense.

Financing with equity allows a company to retain profits and cash rather than to make interest payments and to pay back debt. The biggest disadvantage of equity financing is the dilution of ownership.

Accounting tracks a business’s income and expenses by recording financial transactions.

Corporate accounting is the process of gathering and assembling data required for a firm’s key financial statements.

Managerial accounting is the process of gathering accounting information to help make decisions inside a company.

Financial accounting is the process of gathering accounting information to guide decision makers outside a company, such as investors and lenders.

Auditing is the process of reviewing and evaluating the accuracy of financial reports.

Government and not-for-profit accounting is required for organizations that are not focused on generating a profit.

Tax accounting involves preparing tax returns and giving advice on tax strategies.

Bookkeeping is a part of the accounting process that is the precise recording of financial transactions.

Following the concept of the fundamental accounting equation, where assets equal the sum of liabilities plus owners’ equity, bookkeepers use a double entry bookkeeping system.

Double entry bookkeeping assures that the accounts are kept in balance. For every transaction that affects an asset, an equal transaction must also affect a liability or owners’ equity.

The balance sheet is a snapshot of a business’s financial condition at a specific time. It reflects the business’s assets, liabilities, and owners’ equity.

The income statement reflects the profitability of a company by showing its revenue and operating expenses. The difference between the two is the firm’s profit or loss. The income statement shows how well a company minimizes its expenses while maximizing its profits.

A statement of cash flows is like a checkbook register and involves cash transactions only. It reveals important information about a company’s ability to meet its cash obligations, such as salaries and accounts payable.