The ABC s of 123 s. (The Simple Secrets to Accounting Wisdom.)

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "The ABC s of 123 s. (The Simple Secrets to Accounting Wisdom.)"

Transcription

1 The ABC s of 123 s (The Simple Secrets to Accounting Wisdom.) Thank You for attending our QuickBooks seminar today. Your time is valuable and our goal is to make sure it is well spent. QuickBooks is a wonderfully simple accounting program for the typical small business; but, to get the most out of your QuickBooks, it is important that you understand the basic accounting concepts that QuickBooks automates for you behind the pretty screens used for data entry. Let QuickBooks do the bookkeeping so that you are free to do what you do best run your business! The basic accounting concepts presented here are affectionately referred to as The ABC s of 123 s. It generally will surprise the non-accountant to learn that there are only three places to post a bookkeeping entry. If you can count to three, you can do your own bookkeeping and business related accounting! The purpose of an accounting system in business, whether it s QuickBooks or another program, is to track the flow of money in your business. Money is always flowing, from point A to point B, like the currents of a river. In fact, that s why money is referred to as currency. So QuickBook s main purpose is to track the flow of your money in your business. Naturally, the hope of all entrepreneurs is that more money flows into your business than out of your business! There are two sides to each and every business transaction. For example, you pay the rent the money flows out of your hands into the hands of the landlord. Your hands and the hands of the landlord are the two sides to that particular transaction. Let s say you sell flowers. Someone buys the flowers from you the money flows into your hands out of the customer s hands the two sides to the transaction. When you pay your suppliers for the flowers you sold, the process continues. QuickBooks simplifies the bookkeeping of the two sides of each business transaction. When you make a sale, typically the money goes into your checking account (one side of the transaction) and is also recorded as a sale on your books (the other side of the transaction). When you purchase something for your business, the money usually comes out of your checking account (one side of the transaction) and is recorded as an expense on your books (the other side of the transaction). That s a simplified look at the two sides of any given transaction. Now let s explore the idea mentioned earlier that there are only three places to bookkeep any business transaction. The three places to bookkeep any transaction in business are,, and. If this were Harvard Business School, and this were the first day of class, the following formula would be on the board: = +. Please don t be intimidated by the math or the fancy words the concept is really quite simple and will be explained below. However,,, and are the ONLY three places a bookkeeping entry can be posted in an accounting system, and the formula presented above is the universal business formula, I

2 whether you are talking Wall Street or Main Street. Once the terms are properly defined, you will quickly see the simplicity and meaning behind a set of books. An Asset, simply put, is any thing of value in a business that typically lasts for one year or more. For arguments sake, let s define of value as any single item that costs at least $500 or more. Likewise, if you spend $500 on office supplies that will be used up in 90 days to 6 months, the expected life span of the supplies is less than 1 year and would therefore NOT qualify as an asset. Office supplies, in fact, are typically expensed when purchased. A Liability, simply put, is where a business (or individual) owes another entity, typically a creditor such as a bank, a credit card company, or a supplier, a stated amount of principal, to be paid back over a given time period, at an agreed upon interest rate. Monthly bills such as utilities and general operating expenses are not considered liabilities or debt. are defined by the intention of borrowing money or incurring debt for a specific purpose, typically to finance equipment, buildings, and possibly inventory. And, simply put, reflects the net amount of ownership interest a business owner has in the of the business. The simplest example, to which most people can readily relate, is the a person has in his or her home. It is calculated easily by taking the appraised value of the home, say $300,000 in this example, and subtracting the outstanding balance of any mortgages on the home, say $175,000 in this example. Using the values provided, the in the home would be $300,000 - $175,000 = $125,000. If the owner were to sell the home, and pay off the mortgages, then the owner would have $125,000 in cash left over at the end of the day that cash left over reflects the owner s equity in the home. So whenever you see the classic business formula = +, you now know the big picture verity of business accounting. The Home ($300,000) = the Mortgage ($175,000) + the ($125,000); and these three places,,, and, are the ONLY three places that a business transaction can be bookkeep or posted to an accounting system, such as QuickBooks. Also, the big picture formula depicted above, ( = + ), is a common business report, generated by all accounting systems, known as the Balance Sheet. The reason it s called the Balance Sheet is because the left side of the formula (in this example, $300,000) must ALWAYS equal (or be in balance with) the right side of the formula (in this example, $175,000 + $125,000). From now on, when you see a Balance Sheet, ask yourself these two questions: First, what are the of the business (there will be a list of things the business owns); then Second, ask yourself, where did the come from? The Asset list will tell you what the are, the will show what part or portion of the were provided by creditors through financing, and the will reflect that net portion of the owned free and clear by the owner(s) of the business. II

3 Another way to look at a Balance Sheet is as follows: First, as above, what are the of the business (there will be a list of things the business owns); then Second, ask yourself, who can stake a legal claim to the of the business. Financial accounting records (the Balance Sheet), if properly compiled, should reflect the legal financial position of the business in the marketplace, according to the tenants of business law, at any given point in time. So, when looking at a Balance Sheet, ask the question, what are the of the business, and who can legally stake a claim to those in the unlikely event of a dissolution of the business? The creditors, the, are typically in the first, or majority position; while the owner(s), the, are in a second, or subordinate position. If the business should fail, the would be sold, the would be satisfied to the extent possible, and perhaps there might be something left in the form of for distribution to the owner(s). Now, let s run through some basic transactions common to most businesses on a routine basis. We will post or bookkeep the transactions to our paper accounting system and see the impact or effect of those transactions on the books of the business. The transactions outlined herein will be duplicated in the QuickBooks seminar, so you will not only get a theoretical accounting presentation in this summary, but you will also see how these transactions are actually entered into QuickBooks and the resulting financial statements generated there from. On any given day, most businesses will perform the following four transactions: Make Deposits, Write Checks, Invoice Customers, and Post Vendor Bills. The first two activities (Making Deposits & Writing Checks) are commonly related to businesses which operate from their check books only, then need a way to post the activity data to QuickBooks after-the-fact. This form of accounting is often referred to as Cash Basis or shoe box accounting. By Shoe Box accounting, imagine putting all incoming receipts in a shoe box, then pay all bills out of the shoe box at the end of the year, what s left in the shoe box is how much money the business made. The second two activities (Invoicing Customers & Posting Vendor Bills) are generally defined as Accrual Basis accounting. There can be a debate as to which form of accounting is more accurate Cash Basis vs. Accrual but, one thing that is clear, Accrual Basis reflects where your business stands legally, according to the tenants of business law, in the market place at any given point in time, which is the goal of financial accounting. Using Accrual Basis accounting, a business owner would invoice its customers once a product has been sold or a service rendered. On the date that a business has fulfilled its duty in a contract, a sale is recorded on the books (one side of the business transaction) and an Accounts Receivable (often referred to as an A/R) is also established on the books (the other side of the business transaction). The sale is recorded once the money is III

4 earned, even if the money is not paid (in hand) at the date the sale is complete. Similarly, on the date that a business has become obligated in a purchase activity or transaction, once the vendor or supplier has fulfilled its duties in the contractual relationship, the business should recognize on the books the fact that it has incurred an expense (one side of the transaction) and simultaneously incurred a liability (the other side of the transaction) in the form of an Accounts Payable (often referred to as an A/P). So let s see what happens when we make the initial deposit into a business to open our doors. Basically, all that happens is that the owner opens up a checking account and places some money, referred to as Initial Capital, into the account. Let s assume our owner places $10,000 into the checking account. Here s what the books would look like immediately after the account is open. (Cash) $10,000 = (None) + (Initial Capital) $10,000 Shown another way, stating the SAME concept, we could say: Cash $10,000 Total $10,000 Total $00.00 Total $10,000 The up and down presentation is typically how financial statements are presented in the world of business, so let s gravitate that way for our purposes as well. Whether up or down, or side to side, the concept is the same: The of a business will always equal the of a business plus the of the business that is the big picture accounting verity (immutable truth) of any bookkeeping system. The formula will always be true, no matter what! Another important concept to share here and now is the fact that once a business owner places the initial capital into a business, it is assumed the initial capital always stays in the business. So in this example, since our owner placed $10,000 into the business as startup capital, that $10,000 is assumed to always stay in the business as startup capital. That way, the owner can always look at the books and see where the business started as compared to where the business stands today or some other date in the future. IV

5 Now let s assume the owner decides to rent some space for the business. The owner would probably write a check to the landlord to pay the rent. Let s assume the rent is $1,000. After writing the check, the books would look as follows: Cash $9.000 Total $9,000 Total $00.00 Total $9,000 You will notice here, that as the owner spent the $1,000 to pay the rent, the owner s equity, or initial capital, in the business was reduced or decreased by the expenditure. Simply put, as the owner makes decisions to spend money to operate the business, those decisions will have an impact on the business, and the impact will be a reduction in the owner s capital in the business. V

6 Now let s assume the owner decides to have the lights turned on and pays $500 to the local electric company. After the expenditure, the books would look as follows: Cash $8,500 Total $8,500 Total $00.00 Total $8,500 Once again, notice how the owner equity goes down, or is reduced, to the extent of, or by, the expenditure. When an owner spends money, the net capital goes down, there is no other choice on the books. VI

7 Now let s assume the business owner is ready to open the doors of the business and starts making sales. Further assume that on the first day of the business, things went great and $4,000 in sales were made! Once the doors were closed at the end of the day, our owner immediately took the daily sales receipts of $4,000 to the bank and deposited the funds into the checking account. Here s what the books would look like after the close of business on the first day: Cash $12,500 Total $12,500 Total $00.00 Plus: Sales Revenue +$4,000 Total $12,500 Notice how, in the above example, the money deposited into the bank (one side of the transaction) is offset by the increase in the owner s equity due to the sales revenue recorded (the other side of the transaction). In short summation, notice how the owner s equity in the business goes UP (increases) each time a sale is made, and also notice how the owner s equity in the business goes DOWN (decreases) each time an expense is incurred. That s pretty much it, in a nutshell, as far as cash basis accounting goes. Money into the checking account from sales increases the owner s equity in the business. Money out of the checking account from expenses decreases the owner s equity in the business. VII

8 Now let s examine Accrual Based accounting examples to see what happens to the books when we post an Account Receivable A/R) and also an Account Payable (A/P). Remember, in business, it is important to record the fact that a customer owes us money once we have completed our part of the bargain in a sales transaction. It is common that a customer may pay later for goods or services already delivered, but we want to keep track of the fact that the customer owes us the money. Also remember, in business, it is important to record the fact that we owe a vendor or supplier money once the vendor or supplier has completed its part of the bargain in a purchase transaction. It is common that a business owner may pay later for goods or services already received or delivered, but we want to keep track of the fact that we owe the vendor or supplier the money. So let s assume we make a $100 sale on account we delivered the goods or services today, but expect to get paid later. We have completed our part of the bargain, fulfilled our duties in the contract, but will be paid at a future date. We want to record the sale today, because that s when it was made, but we did not get the cash today. So on the books, we record the sale today (one side of the transaction) and also record simultaneously an account receivable (the other side of the transaction) because the customer still owes us the money. Here s what the books would look like after the above: Cash $12,500 Accounts Receivable $100 Total $12,600 Total $00.00 Plus: Sales Revenue +$4,100 Total $12,600 VIII

9 Once again, notice how the increase in assets in the form of an account receivable is offset by an increase in the equity of the business due to a sale. Even though the money was not collected at the time the sale was made, we still record the sale (because the money was earned) and show the offset as an account receivable. Later when the customer pays, here s what the books would look like: Cash $12,600 Accounts Receivable $00.00 Total $12,600 Total $00.00 Plus: Sales Revenue +$4,100 Total $12,600 Especially notice here, when the $100 is paid, we did NOT record the sale a second time. When the money was paid by the customer, a deposit was made into the checking account and the cash balance went up; and at the same time, the accounts receivable balance went down or was reduced to the extent of the payment. IX

10 To wrap up our examples of accrual based accounting, let s assume we have an account at Office Depot. When we buy office supplies there, we place the charge on our account and they bill us later. Further, let s assume we spend $200 on office supplies one day, and we intend to pay for those supplies sometime in the near future, when the bill becomes due. Here s what the books would look like immediately after we bought the supplies and owed Office Depot $200: Cash $12,600 Accounts Receivable $00.00 Total $12,600 Accounts Payable $200 Total $ Plus: Sales Revenue +$4,100 Office Supplies ($200) Total $12,400 Notice in this example how the liabilities went up (increased) to the extent of the account payable (one side of the transaction) while simultaneously the owner equity went down to the extent of the office supplies purchased (the other side of the transaction). In this case, the owner bought the office supplies even though payment was not made at the time of purchase. But, the owner owed the money at that point in time, so we want the books to show both facts: the business owed the money; and simultaneously, the business incurred an expense! X

11 To complete our example of owing the money for office supplies purchased at a prior date, let s assume we make payment to Office Depot once the bill comes due. Here s what the books would look like immediately after making payment: Cash $12,400 Accounts Receivable $00.00 Total $12,400 Accounts Payable $00.00 Total $00.00 Plus: Sales Revenue +$4,100 Office Supplies ($200) Total $12,400 Here, please notice that the cash balance decreased by the $200 paid (one side of the transaction) and simultaneously the accounts payable balance also went down by $200 (the other side of the transaction). Especially note that when the $200 was paid, we did NOT record the payment as an expense at that time. The expense was recorded earlier when the account payable was initially put on the books! Congratulations! The above synopsis covers everything you need to know before coming to class. In fact, it hopefully summarizes everything you need to know about accounting and bookkeeping for a small business! I look forward to meeting you at the QuickBooks seminar and please try to bring a USB memory stick to class if you want to back up the practice data file we will create together. XI

Financial. Management FOR A SMALL BUSINESS

Financial. Management FOR A SMALL BUSINESS Financial Management FOR A SMALL BUSINESS 1 Agenda Welcome, Pre-Test, Agenda, and Learning Objectives Benefits of Financial Management Budgeting Bookkeeping Financial Statements Business Financing Key

More information

Financial. Management FOR A SMALL BUSINESS

Financial. Management FOR A SMALL BUSINESS Financial Management FOR A SMALL BUSINESS Welcome 1. Agenda 2. Ground Rules 3. Introductions FINANCIAL MANAGEMENT 2 Objectives Explain the concept of financial management and its importance to a small

More information

Accounting 101 you don t have to be an accountant to run MYOB Your Daily Lives Cash vs. Accrual Accounting

Accounting 101 you don t have to be an accountant to run MYOB Your Daily Lives Cash vs. Accrual Accounting MYOB US, Inc. April 2002 Accounting 101 Like all small business owners, you went into business with a dream: to sell your unique product or services and make a living for you, your family, and your employees.

More information

Understanding Accounting Reports. www.brightpearl.com

Understanding Accounting Reports. www.brightpearl.com Understanding Accounting Reports Whats inside You ll often hear the term management accounts - but how often do you use this information to actually manage your business on a day to day basis? It may well

More information

The Basics of Accounting ACCT 201

The Basics of Accounting ACCT 201 The Basics of Accounting ACCT 201 Content Accounting definition Accounting equation Accounting elements Asset, Liabilities, & Equity Transactions Accounts Receivable vs Accounts Payable Retained Earnings

More information

Accounting Self Study Guide for Staff of Micro Finance Institutions

Accounting Self Study Guide for Staff of Micro Finance Institutions Accounting Self Study Guide for Staff of Micro Finance Institutions LESSON 2 The Balance Sheet OBJECTIVES The purpose of this lesson is to introduce the Balance Sheet and explain its components: Assets,

More information

Glossary of Accounting Terms Peter Baskerville

Glossary of Accounting Terms Peter Baskerville Glossary of Accounting Terms Peter Baskerville Account for or 'bring to account': An accounting phrase used to describe the recording of a financial transaction that is required under the generally accepted

More information

Introduction to Accounting

Introduction to Accounting Introduction to Accounting Text File Slide 1 Introduction to Accounting Welcome to SBA s online training course, Introduction to Accounting. This program is a product of the agency s Small Business Training

More information

A Simple Model. Introduction to Financial Statements

A Simple Model. Introduction to Financial Statements Introduction to Financial Statements NOTES TO ACCOMPANY VIDEOS These notes are intended to supplement the videos on ASimpleModel.com. They are not to be used as stand alone study aids, and are not written

More information

In this chapter, we build on the basic knowledge of how businesses

In this chapter, we build on the basic knowledge of how businesses 03-Seidman.qxd 5/15/04 11:52 AM Page 41 3 An Introduction to Business Financial Statements In this chapter, we build on the basic knowledge of how businesses are financed by looking at how firms organize

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

ACS 1803 Accounting SUPPLEMENTARY NOTES prepared by E. Kaluzniacky & K. Augustine. Computerized Accounting - The General Ledger System

ACS 1803 Accounting SUPPLEMENTARY NOTES prepared by E. Kaluzniacky & K. Augustine. Computerized Accounting - The General Ledger System ACS 1803 Accounting SUPPLEMENTARY NOTES prepared by E. Kaluzniacky & K. Augustine Computerized Accounting - The General Ledger System Every business must keep track of financial information that relates

More information

BACKGROUND KNOWLEDGE for Teachers and Students

BACKGROUND KNOWLEDGE for Teachers and Students Pathway: Business, Marketing, and Computer Education Lesson: BMM C6 4: Financial Statements and Reports Common Core State Standards for Mathematics: N.Q.2 Domain: Quantities Cluster: Reason quantitatively

More information

Understanding A Firm s Financial Statements

Understanding A Firm s Financial Statements CHAPTER OUTLINE Spotlight: J&S Construction Company (http://www.jsconstruction.com) 1 The Lemonade Kids Financial statement (accounting statements) reports of a firm s financial performance and resources,

More information

TREASURER S DIRECTIONS ACCOUNTING LIABILITIES Section A3.2 : Accounts Payable and Accrued Expenses

TREASURER S DIRECTIONS ACCOUNTING LIABILITIES Section A3.2 : Accounts Payable and Accrued Expenses TREASURER S DIRECTIONS ACCOUNTING LIABILITIES Section A3.2 : Accounts Payable and Accrued Expenses STATEMENT OF INTENT Complete and accurate information on accounts payable and accrued expenses enables

More information

LIABILITIES. Liabilities are claims against your Assets. They are something that you have to repay to someone else.

LIABILITIES. Liabilities are claims against your Assets. They are something that you have to repay to someone else. Accounting 101 ASSETS An Asset is something that you own, that has value, and will generate a future benefit. Assets are good. Eg.) Cash, accounts receivable, GST receivable, inventory, equipment, land,

More information

CASH FLOW STATEMENT (AND FINANCIAL STATEMENT)

CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) CASH FLOW STATEMENT (AND FINANCIAL STATEMENT) - At the most fundamental level, firms do two different things: (i) They generate cash (ii) They spend it. Cash is generated by selling a product, an asset

More information

Navigating within QuickBooks

Navigating within QuickBooks Navigating within QuickBooks The simplest way to navigate within QuickBooks is to work from the home page. Looking at the home page, you will notice the most common functions within QuickBooks are represented

More information

Assets, Liabilities, and Net Worth

Assets, Liabilities, and Net Worth Assets, Liabilities, and Net Worth C H A P T E R 3 OVERVIEW Assets, liabilities, and net worth are part of the language of finance. As such, it is important to understand both their composition and how

More information

STATEMENT OF CHANGES IN FINANCIAL POSITION

STATEMENT OF CHANGES IN FINANCIAL POSITION Home Page - Statement of Changes in Financial Position STATEMENT OF CHANGES IN FINANCIAL POSITION by Dr. J. Herbert Smith/ACOA Chair Technology Management and Entrepreneurship Faculty of Engineering University

More information

BASIS OF ACCOUNTING WHICH ONE SHOULD YOU USE?

BASIS OF ACCOUNTING WHICH ONE SHOULD YOU USE? From time to time a question is raised by managers and board members regarding the basis of accounting that should be used when preparing interim financial statements for a homeowners association. Before

More information

ACCOUNTANTS DO MORE THAN COUNT BEANS

ACCOUNTANTS DO MORE THAN COUNT BEANS ACCOUNTANTS DO MORE THAN COUNT BEANS By Gerald G. Kepner, Jr. All Rights Reserved 2012 Gerald G Kepner Jr ACCOUNTANTS DO MORE THAN COUNT BEANS Accountants are a dime a dozen, so choosing the right accountant

More information

National Association of Certified Public Bookkeepers. Accounting Basics for QuickBooks Proficiency Test

National Association of Certified Public Bookkeepers. Accounting Basics for QuickBooks Proficiency Test National Association of Certified Public Bookkeepers Accounting Basics for QuickBooks Proficiency Test Accounting Basics for QuickBooks Proficiency Test Table of Contents Accounting Basics for QuickBooks

More information

Double-Entry Bookkeeping: Assets and Liabilities

Double-Entry Bookkeeping: Assets and Liabilities Double-Entry Bookkeeping: Assets and Liabilities The purpose of this chapter is to introduce the fundamentals of double-entry bookkeeping and its role in accounting for business. The objectives of accounting

More information

What is a business plan?

What is a business plan? What is a business plan? A business plan is the presentation of an idea for a new business. When a person (or group) is planning to open a business, there is a great deal of research that must be done

More information

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf

Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Ipx!up!hfu!uif Dsfeju!zpv!Eftfswf Credit is the lifeblood of South Louisiana business, especially for the smaller firm. It helps the small business owner get started, obtain equipment, build inventory,

More information

THEME: ACCRUAL VS. CASH

THEME: ACCRUAL VS. CASH THEME: ACCRUAL VS. CASH By John W. Day, MBA ACCOUNTING: Accrual Basis This is the method by which revenues are recorded when earned, and expenses are recorded when they are incurred, as opposed to a cash-basis

More information

ACCOUNTING 1 (ACN101- M)

ACCOUNTING 1 (ACN101- M) 1 ACCOUNTING 1 (ACN101- M) STUDY UNIT 1: THE NATURE AND FUNCTION OF ACCOUNTING DEFINITION: Accounting can be defined as the orderly & systematic recording of the monetary values of financial transactions

More information

Equity Value, Enterprise Value & Valuation Multiples: Why You Add and Subtract Different Items When Calculating Enterprise Value

Equity Value, Enterprise Value & Valuation Multiples: Why You Add and Subtract Different Items When Calculating Enterprise Value Equity Value, Enterprise Value & Valuation Multiples: Why You Add and Subtract Different Items When Calculating Enterprise Value Hello and welcome to our next tutorial video here. In this lesson we're

More information

Guide to Financial Statements Study Guide

Guide to Financial Statements Study Guide Guide to Financial Statements Study Guide Overview (Topic 1) Three major financial statements: The Income Statement The Balance Sheet The Cash Flow Statement Objectives: Explain the underlying equation

More information

A = L + OE. Transaction 1 Assets = Liabilitites + Owners equity + 1,000,000 Cash + 1,000,000 Common stock

A = L + OE. Transaction 1 Assets = Liabilitites + Owners equity + 1,000,000 Cash + 1,000,000 Common stock FINANCIAL STATEMENT ANALYSIS Henry Jarva Aalto University, Spring 2015 Student name: EXERCISE 1. Provide journal entries for Transactions 5 8, Adjusting Entries 2 7, and prepare Exhibit 1. 2. Calculate

More information

CHAPTER 3 ACCOUNTING AND BOOKKEEPING

CHAPTER 3 ACCOUNTING AND BOOKKEEPING CHAPTER 3 ACCOUNTING AND BOOKKEEPING Most operators of a new and growing business have a flair for the environment in which the business operates. They may be a great salesperson, an outstanding mechanic,

More information

1 Money and income Currency currency notes (banknotes) coins cash bank deposits BrE: note or banknote; on paper AmE: bill

1 Money and income Currency currency notes (banknotes) coins cash bank deposits BrE: note or banknote; on paper AmE: bill 1 A B Money and income Currency The money used in a country euros, dollars, yen, etc. is its currency. Money in notes (banknotes) and coins is called cash. Most money, however, consists of bank deposits:

More information

how to prepare a cash flow statement

how to prepare a cash flow statement business builder 4 how to prepare a cash flow statement zions business resource center zions business resource center 2 how to prepare a cash flow statement A cash flow statement is important to your business

More information

How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute

How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute How to Assess Your Financial Planning and Loan Proposals By BizMove Management Training Institute Other free books by BizMove that may interest you: Free starting a business books Free management skills

More information

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for.

Accounts payable Money which you owe to an individual or business for goods or services that have been received but not yet paid for. A Account A record of a business transaction. A contract arrangement, written or unwritten, to purchase and take delivery with payment to be made later as arranged. Accounts payable Money which you owe

More information

Definition of Accounting

Definition of Accounting SOLUTIONS TO EXERCISES Lesson 1: Definition of Accounting 1. What is accounting? What are its main functions? Accounting is the process of financially measuring, recording, summarizing and communicating

More information

Chapter 6 Statement of Cash Flows

Chapter 6 Statement of Cash Flows Chapter 6 Statement of Cash Flows The Statement of Cash Flows describes the cash inflows and outflows for the firm based upon three categories of activities. Operating Activities: Generally include transactions

More information

Financial Statements and Ratios: Notes

Financial Statements and Ratios: Notes Financial Statements and Ratios: Notes 1. Uses of the income statement for evaluation Investors use the income statement to help judge their return on investment and creditors (lenders) use it to help

More information

Preparing Agricultural Financial Statements

Preparing Agricultural Financial Statements Preparing Agricultural Financial Statements Thoroughly understanding your business financial performance is critical for success in today s increasingly competitive agricultural environment. Accurate records

More information

Capital Source Solutions 3115 S. Grand Blvd, Suite 350E St. Louis, MO 63118 Phone: 314-226- 3663 Fax: 314-584- 2085 Web: www.capitalsolutionsstl.

Capital Source Solutions 3115 S. Grand Blvd, Suite 350E St. Louis, MO 63118 Phone: 314-226- 3663 Fax: 314-584- 2085 Web: www.capitalsolutionsstl. Capital Source Solutions 3115 S. Grand Blvd, Suite 350E St. Louis, MO 63118 Phone: 314-226- 3663 Fax: 314-584- 2085 Web: www.capitalsolutionsstl.com Working Capital Best Practices If you are in business

More information

Review of the Accounting Process THE BASIC MODEL

Review of the Accounting Process THE BASIC MODEL THE BASIC MODEL The accounting information system is designed to collect and organize data into information that is useful for stakeholders. The Accounting Equation The basic accounting equation is what

More information

Keeping The Books With

Keeping The Books With Keeping The Books With Table of Contents Account Types The Accounting Equation Double Entry Bookkeeping Accounts Transactions Balance Sheet Income Statement The Accounting Cheat Sheet Summary 2 Account

More information

CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS

CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS C H 2 3, P a g e 1 CH 23 STATEMENT OF CASH FLOWS SELF-STUDY QUESTIONS (note from Dr. N: I have deleted questions for you to omit, but did not renumber the remaining questions) 1. The primary purpose of

More information

4 Fourth Quarter Transactions

4 Fourth Quarter Transactions 4 Fourth Quarter Transactions In Chapter 4 of Accounting Fundamentals with QuickBooks Online Essentials Edition, you will record transactions for the fourth quarter of the year: October, November and December.

More information

What is a Balance Sheet?

What is a Balance Sheet? What is a Balance Sheet? A Balance Sheet is a financial statement which shows the ASSETS, LIABILITIES and CAPITAL of a business on a particular date. Assets Are Are items owned by by the the business or

More information

Accounting Practice Questions

Accounting Practice Questions Accounting Practice Questions 1) The fundamental accounting equation states that: a) assets = liabilities + owner s equity b) assets = liabilities + drawings c) assets = liabilities + net income d) assets

More information

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements

UNDERSTANDING WHERE YOU STAND. A Simple Guide to Your Company s Financial Statements UNDERSTANDING WHERE YOU STAND A Simple Guide to Your Company s Financial Statements Contents INTRODUCTION One statement cannot diagnose your company s financial health. Put several statements together

More information

Copyright Virtual University of Pakistan 1

Copyright Virtual University of Pakistan 1 Learning Objective Lesson-1 The objective of this lecture is to introduce the subject Financial Accounting to the students and give them an idea as to how did accounting develop. What is Financial Accounting?

More information

In the event of a tie, the score on the last ten questions will be used as a tie-breaker.

In the event of a tie, the score on the last ten questions will be used as a tie-breaker. NEW YORK STATE ASSOCIATION FUTURE BUSINESS LEADERS OF AMERICA SPRING DISTRICT MEETING ACCOUNTING I 2010 TEST DIRECTIONS 1. Complete the information requested on the answer sheet. PRINT your name on the

More information

COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS

COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS COMPANIES INCOME TAX COMPUTATION AND TREATMENT IN FINANCIAL STATEMENTS PRESENTED BY OLUFUNKE SODIPO TAX MANAGER: PEAK PROFESSIONAL SERVICES IN HOUSE SEMINAR SERIES NO 4 PEAK PROFESSIONAL SERVICES (CHARTERED

More information

Accounting Basics. Prepared for First Year MBA

Accounting Basics. Prepared for First Year MBA Accounting Basics Prepared for First Year MBA Overview S No Particulars 01 Introduction to Accounting 02 Accounting Equation 03 Types of Transactions 04 Purchase and Sales 05 Types of Accounts 06 Golden

More information

FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING FINANCIAL ACCOUNTING FORMATION 2 EXAMINATION - AUGUST 2012 NOTES: You are required to answer Question 1. You are also required to answer any three out of Questions 2 to 5. (If you provide answers to all

More information

Guide to Accrual Accounting for Ohio s Rural Transit Systems

Guide to Accrual Accounting for Ohio s Rural Transit Systems Guide to Accrual Accounting for Ohio s Rural Transit Systems March 2009 Prepared For The Ohio Department of Transportation (ODOT) Office of Transit Prepared By Table of Contents Page No. Section 1 Why

More information

ACS-1803 Introduction to Information Systems. Functional Area Systems. Lecture 4

ACS-1803 Introduction to Information Systems. Functional Area Systems. Lecture 4 ACS-1803 Introduction to Information Systems Instructor: David Tenjo Functional Area Systems Lecture 4 1 Overview Overview of Functional Areas in the organization Functional Area: Accounting Accounting

More information

18 BUSINESS ACCOUNTING STANDARD FINANCIAL ASSETS AND FINANCIAL LIABILITIES I. GENERAL PROVISIONS

18 BUSINESS ACCOUNTING STANDARD FINANCIAL ASSETS AND FINANCIAL LIABILITIES I. GENERAL PROVISIONS APPROVED by Resolution No. 11 of 27 October 2004 of the Standards Board of the Public Establishment the Institute of Accounting of the Republic of Lithuania 18 BUSINESS ACCOUNTING STANDARD FINANCIAL ASSETS

More information

Introduction to QuickBooks Online Edition Course Manual

Introduction to QuickBooks Online Edition Course Manual Introduction to QuickBooks Online Edition Course Manual Module 8 End of Period Activities and Financial Statements Copyright Notice. Each module of the Introduction To QuickBooks Course Manual may be viewed

More information

Adjusting and Closing Entries

Adjusting and Closing Entries Adjusting and Closing Entries Adjusting and Closing entries tend to be difficult to grasp at first. A reason for this might be due to the type of transactions requiring adjustment, which tend to be unfamiliar.

More information

THEME: ACCOUNTS PAYABLE

THEME: ACCOUNTS PAYABLE THEME: ACCOUNTS PAYABLE By John W. Day, MBA ACCOUNTING TERM: Accounts Payable An account payable is normally an unsecured, non-interest bearing current liability, owed by the company to a vendor for the

More information

Welcome to the financial reports topic. 5-1-1

Welcome to the financial reports topic. 5-1-1 Welcome to the financial reports topic. 5-1-1 We will explore the effect of standard processes in SAP Business One on Financial Reports: such as the Balance Sheet, the Trial Balance, and the Profit and

More information

Chapter 2: Debits and Credits. 2012 Educating Bookkeepers for Business, Inc.

Chapter 2: Debits and Credits. 2012 Educating Bookkeepers for Business, Inc. Chapter 2: Debits and Credits Think through and record transactions (write sentences) using T-accounts and journal entries. Debits and Credits Every transaction (sentence in the story of what happened

More information

ACCT1115. Review Package - Midterm SOLUTION Fall 2013

ACCT1115. Review Package - Midterm SOLUTION Fall 2013 ACCT1115 Review Package - Midterm SOLUTION Fall 2013 Part I Multiple Choice 1) How should you record the purchase of an expensive automobile? a) Decrease cash, increase assets b) Decrease cash, increase

More information

Introduction to Accounts

Introduction to Accounts Introduction to Accounts Copyright statement Sage (UK) Limited, 2012. All rights reserved We have written this guide to help you to use the software it relates to. We hope it will be read by and helpful

More information

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased.

Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Payable are the total amounts your business owes its suppliers for goods and services purchased. Accounts Receivable are the total amounts customers owe your business for goods or services sold

More information

ACCOUNTING TIPS For Business Owners. November 20, 2014 Tel: 905.862.4166 Website: lisaritchie.ca

ACCOUNTING TIPS For Business Owners. November 20, 2014 Tel: 905.862.4166 Website: lisaritchie.ca ACCOUNTING TIPS For Business Owners November 20, 2014 Tel: 905.862.4166 Website: lisaritchie.ca Overview Business Owners Are Busy Why Is Accounting Important? Tips for Recordkeeping Account Types Balance

More information

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information.

Learning Objectives: Quick answer key: Question # Multiple Choice True/False. 14.1 Describe the important of accounting and financial information. 0 Learning Objectives: 14.1 Describe the important of accounting and financial information. 14.2 Differentiate between managerial and financial accounting. 14.3 Identify the six steps of the accounting

More information

Sri Lanka Accounting Standard-LKAS 7. Statement of Cash Flows

Sri Lanka Accounting Standard-LKAS 7. Statement of Cash Flows Sri Lanka Accounting Standard-LKAS 7 Statement of Cash Flows CONTENTS SRI LANKA ACCOUNTING STANDARD-LKAS 7 STATEMENT OF CASH FLOWS paragraphs OBJECTIVE SCOPE 1 3 BENEFITS OF CASH FLOW INFORMATION 4 5 DEFINITIONS

More information

C&I LOAN EVALUATION UNDERWRITING GUIDELINES. A Whitepaper

C&I LOAN EVALUATION UNDERWRITING GUIDELINES. A Whitepaper C&I LOAN EVALUATION & UNDERWRITING A Whitepaper C&I Lending Commercial and Industrial, or C&I Lending, has long been a cornerstone product for many successful banking institutions. Also known as working

More information

ACCOUNTING III Cash Flow Statement & Linking the 3 Financial Statements. Fall 2015 Comp Week 5

ACCOUNTING III Cash Flow Statement & Linking the 3 Financial Statements. Fall 2015 Comp Week 5 ACCOUNTING III Cash Flow Statement & Linking the 3 Financial Statements Fall 2015 Comp Week 5 CODE: CA$H Administrative Stuff Send an email to trentnelson@college.harvard.edu if you have not been added

More information

13:11. Statement of Cash Flows. Chapter. Illustration. Statement of Cash Flows- summary. Overview

13:11. Statement of Cash Flows. Chapter. Illustration. Statement of Cash Flows- summary. Overview Overview Statement of Cash Flows Chapter 23 BECAUSE of the SCF, users of the financial statements get the best of both worlds! SCF bridges the gap created by paper income resulting from applying an accrual

More information

Accounting 101 slides. From Lynn Cherny & Greg Raiz s workshop on consulting

Accounting 101 slides. From Lynn Cherny & Greg Raiz s workshop on consulting Accounting 101 slides From Lynn Cherny & Greg Raiz s on consulting Accounting 101 From the Bookkeeping for Dummies workbook 2 Accounting Basics I am not an accountant, and you should hire one, at least

More information

14. Calculating Total Cash Flows.

14. Calculating Total Cash Flows. 14. Calculating Total Cash Flows. Greene Co. shows the following information on its 2008 income statement: Sales = $138,000 Costs = $71,500 Other expenses = $4,100 Depreciation expense = $10,100 Interest

More information

Accounting Norms and Principles January 7, 2003

Accounting Norms and Principles January 7, 2003 1 Accounting Norms and Principles January 7, 2003 The purpose of an accounting system is to provide credit union management with complete and accurate financial information that can be used to operate

More information

This week its Accounting and Beyond

This week its Accounting and Beyond This week its Accounting and Beyond Monday Morning Session Introduction/Accounting Cycle Afternoon Session Tuesday The Balance Sheet Wednesday The Income Statement The Cash Flow Statement Thursday Tools

More information

What is a home equity line of credit?

What is a home equity line of credit? Page 1 of 5 ESPAÑOL (Revision forthcoming) If you are in the market for credit, a home equity plan is one of several options that might be right for you. Before making a decision, however, you should weigh

More information

Cash in bank checking account $22,500 U.S. treasury bills 5,000 Cash on hand 1,350 Undeposited customer checks 1,840 Total $30,690 Requirement 2

Cash in bank checking account $22,500 U.S. treasury bills 5,000 Cash on hand 1,350 Undeposited customer checks 1,840 Total $30,690 Requirement 2 Chapter 7 Solutions EXERCISES Exercise 7 2 Cash and cash equivalents includes: Cash in bank checking account $22,500 U.S. treasury bills 5,000 Cash on hand 1,350 Undeposited customer checks 1,840 Total

More information

Management & Principles of Accounting Date: 09/11/2015 Introduction to financial accounting Basic concepts and tools

Management & Principles of Accounting Date: 09/11/2015 Introduction to financial accounting Basic concepts and tools Management & Principles of Accounting Date: 09/11/2015 Introduction to financial accounting Basic concepts and tools Patrizia Tettamanzi Sophie Goodman Source: Kimmel/Weygandt/Kieso Financial Accounting

More information

Understanding Financial Statements. For Your Business

Understanding Financial Statements. For Your Business Understanding Financial Statements For Your Business Disclaimer The information provided is for informational purposes only, does not constitute legal advice or create an attorney-client relationship,

More information

Financial Management for a Small Business

Financial Management for a Small Business Table of Contents Welcome... 3 What Do You Know? Financial Management for a Small Business... 4 Pre-Test... 5 Benefits of Financial Management... 7 Budgeting... 7 Discussion Point #1: Budgeting... 7 Bookkeeping...

More information

Involve- Bookkeeper/Accountant

Involve- Bookkeeper/Accountant Involve- Bookkeeper/Accountant This article will describe: What accountancy is Why accountancy is so important to community and voluntary organisations The accounting cycle: o Recording business transactions

More information

The Nature of Accounting Systems

The Nature of Accounting Systems Basic Accounting & Budgeting February 4, 2009 The Nature of Accounting Systems Accounting is the process of recording, classifying, summarizing, reporting and interpreting information about the economic

More information

Preparing a Successful Financial Plan

Preparing a Successful Financial Plan Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

More information

Accepting Credit Cards

Accepting Credit Cards Accepting Credit Cards When we accept credit cards for payment we need to record the income, however at the same time we do not have the cash, so we need to record it as money that is owed to us, in Accounts

More information

Interest Expense Principal

Interest Expense Principal ACCOUNTING BY THE LESSOR AND LESSEE A lease is a contract between a lessor (the owner of the property) and a lessee (the user of the property). Normally the lessee makes periodic payments in exchange for

More information

Your Guide to Profit Guard

Your Guide to Profit Guard Dear Profit Master, Congratulations for taking the next step in improving the profitability and efficiency of your company! Profit Guard will provide you with comparative statistical and graphical measurements

More information

Billing Matters Accounting Sunset

Billing Matters Accounting Sunset WHITE PAPER Billing Matters Accounting Sunset May 2013 Introduction... 2 Key Differences in Process... 2 How to Transition... 3 QuickBooks Setup... 4 What Do I Need... 4 QuickBooks Installation and Creation

More information

Bookkeeping Tips & T Accounts Prepared by Accomp Services (www.accompservices.ca)

Bookkeeping Tips & T Accounts Prepared by Accomp Services (www.accompservices.ca) Bookkeeping Tips & T Accounts Prepared by Accomp Services (www.accompservices.ca) Further valuable accounting and bookkeeping website resources are listed at the end of this document. A business is one

More information

What is a home equity line of credit?

What is a home equity line of credit? More and more lenders are offering home equity lines of credit. By using the equity in your home, you may qualify for a sizable amount of credit, available for use when and how you please, at an interest

More information

SESSION 07 INTERPRETATION OF FINANCIAL STATEMENTS PART 1. GDM Managing Finance

SESSION 07 INTERPRETATION OF FINANCIAL STATEMENTS PART 1. GDM Managing Finance SESSION 07 INTERPRETATION OF FINANCIAL STATEMENTS PART 1 GDM Managing Finance Accounting Management Accounting Financial Accounting Session 07 Synopsis 1. Objective of accounting 2. Users of accounting

More information

Accounting Methods 4 Methods

Accounting Methods 4 Methods Accounting Methods 4 Methods WHEN to Recognize (or report) Profit and Loss on Your Income Statement 1: Cash 2: Accrual 3: Completed Contract 4: Percentage of Completion 1 - CASH METHOD: Report Revenues

More information

I. GENERAL PROVISIONS II. KEY DEFINITIONS

I. GENERAL PROVISIONS II. KEY DEFINITIONS APPROVED by Resolution No. 1 of 18 December 2003 of the Standards Board of the Public Establishment the Institute of Accounting of the Republic of Lithuania (Revised version of Order No. VAS-5 of 29 June

More information

Course 4: Managing Cash Flow

Course 4: Managing Cash Flow Excellence in Financial Management Course 4: Managing Cash Flow Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides an introduction to cash flow management. This course is recommended for 2

More information

Financial Statements Tutorial

Financial Statements Tutorial Financial Statement Review: Financial Statements Tutorial There are four major financial statements used to communicate information to external users (creditors, investors, suppliers, etc.) - 1. Balance

More information

Accounting Principles Critical to Success Presented By: C. P. Krishnan. www.cakintl.com

Accounting Principles Critical to Success Presented By: C. P. Krishnan. www.cakintl.com Accounting Principles Critical to Success Presented By: C. P. Krishnan Basic Accounting You Need to Know Assets, Liabilities, Equity, Income, & Expenses Assets Includes what you have and what people owe

More information

2 Transaction Analysis

2 Transaction Analysis 29366_06_ch2_p053-110 12/12/07 5:50 PM Page 53 2 Transaction Analysis SPOTLIGHT A P P L E C O M P U T E R, I N C. How do you manage your music library? You may use Apple Computer s itunes, which along

More information

Chapter 1. Introduction to Accounting and Business

Chapter 1. Introduction to Accounting and Business 1 Chapter 1 Introduction to Accounting and Business Learning Objective 1 Describe the nature of a business, the role of accounting, and ethics in business. Nature of Business and Accounting A business

More information

Analyzing Cash Flows. April 2013

Analyzing Cash Flows. April 2013 Analyzing Cash Flows April 2013 Overview Introductions Importance of cash flow in underwriting decisions Key attributes to calculating cash flow Where to obtain information to calculate cash flows Considerations

More information

Cash budget Predict the movements of cash received and paid for over a period of time. Financial statements

Cash budget Predict the movements of cash received and paid for over a period of time. Financial statements Achievement Standard 90976 Demonstrate understanding of accounting concepts for small entities ACCOUNTING. Externally assessed 3 credits Accounting 90976 (Accounting.) involves the recognition, definition

More information