Financial Education Frank Albi Business Information Solutions Cincinnati, Ohio CEO @721-file.com Accounting 101 Basic Financial Statements Beginning Accounting Notfor CPAs and CFOs Qualifications MA in sociology College accounting (one semester ABA night school) NOT a CPA Never been a CFO 1
Qualifications Owned and operated BiS since 1980 Result is my favorite brag Topics to be covered Importance of basic financial statements Mechanics of basic statements Secret of Accounting: it is ALIEN! Topics NOT Covered ratios Cost Accounting Come Back Next Year 2
Basic Financial Statements (aka Profit and Loss Statement or P&L ) Cash Flow Statement Assets What you OWN Liabilities What you OWE Net Worth What s LEFT OVER is about Wealth 3
Revenue (aka Top Line ) What you ve sold Expenses What you ve spent Net Income What s left over is about Profit & Loss What you ve sold Revenue What you ve spent Expenses What s left over Net Income What about EBITDA? 4
EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization M&A guys care about it Bankers care about it YOU should care about it (more on that later) Cash Flow Statement What come IN What goes OUT What s the NET Cash Flow Statement is about Where It Went 5
Basic Financial Statements Cash Flow Statement Most current at the top Assets and liabilities that are reasonably expected to be converted into cash within one year in the normal course of business. Least current at the bottom Assets (What you OWN) Liabilities (What you OWE) Net Worth* (What s LEFT OVER) *Aka Equity 6
Assets - Liabilities = Net Worth Assets = Liabilities + Net Worth Assets = Liabilities + Net Worth Current Assets Cash Accounts Receivable Pre-Paid Expense Deposits 7
Fixes (Long-Term) Assets Furniture Leasehold Improvements Real Estate Shelving Vehicles Other Assets NRC Stock Goodwill Customer Contracts (Fat Chance!) Assets = Liabilities + Net Worth 8
Current Liabilities Trade Accounts Payable Other Accounts Payable Taxes Payable (Payroll & Sales) Accrued Expenses Line of Credit Long-Term Liabilities Unearned Revenue Notes Payable (Bank Loans) Capital Leases Stockholder Loans Assets = Liabilities + Net Worth 9
Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) 10
Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) Net Worth (aka Equity) Stock Paid-In Capital Previous Retained Earnings Shareholder Distributions Net Income Current Period (YTD) 11
Assets Current Assets + Fixed Assets Total Assets Liabilities Current Liabilities + Long-Term Liabilities Total Liabilities Equity Total Equity Total Liabilities & Equity Assets = Liabilities + Net Worth Total of Assets (at the Top) Must Equal Sum of Liabilities & Equity (at the Bottom) Assets Current Assets + Fixed Assets Total Assets Liabilities Current Liabilities + Long-Term Liabilities Total Liabilities Equity Total Equity Total Liabilities & Equity 12
Basic Financial Statements Cash Flow Statement Net Income The Bottom Line Net Income Operating Profit +Other (Miscellaneous) Income Net Income Before Taxes 13
Net Income Operating Profit +Other (Miscellaneous) Income Net Income Before Taxes Net Income Operating Profit +Other (Miscellaneous) Income Net Income Before Taxes Net Income Operating Profit +Other (Miscellaneous) Income Net Income Before Taxes What the TaxGuyscare about 14
Net Income Operating Profit +Other (Miscellaneous) Income Net Income Before Taxes What the Tax Guys care about Income Taxes Income Taxes Federal (IRS) State (Ohio Department of Taxation) Local (Cincinnati Income Tax Division) Revenue -Expenses Net Income 15
Revenue -Expenses Net Income Operating Revenue (Sales) 1. Hardcopy (Boxes) 2. Vault (Tape) 3. Destruction (Shredding) 4. Imaging (Scanning & Hosting) Non-Operating Revenue (Other Income) 1. BAA Administrative or Notification Fees 2. Finance Charges Received 3. Fuel Surcharges 4. Out Charges 5. Recycling Income 16
Non-Operating Revenue (Other Income) 6. Sub-Lease Income 7. Miscellaneous Other Income Revenue -Expenses Net Income Operating Expenses 1. Personnel 2. Occupancy 3. General & Administrative (aka Overhead ) 17
Non-Operating Expenses 1. Allowance for Doubtful Accounts 2.Bad Debt 3. Key Associate Life Insurance Premiums Revenue -Expenses Net Income Net Income Is NOT Cash It DOES cover Interest Expense Does NOT cover 1. Income Tax 2. Debt Service (principal payments) 18
Taxes Payroll Paid as personnel expenses Licenses Paid as G&A Business Activity Paid as G&A Income Paid out of Net Income Income Taxes Federal ( Sub S or S Corp ) S Corporations S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flowthrough of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain builtin gains and passive income at the entity level. 19
Income Taxes Federal ( Sub S or S Corp ) State Local Income Taxes Federal ( Sub S or S Corp ) State Local Debt Service Interest Paid as an expense Principal Paid out of Net Income 20
Debt Service Interest Paid as an expense Principal Paid out of Net Income Sales Hardcopy Sales Climate Control Sales Disposal Sales Imaging Sales Company Total Sales NRC Billings Total Sales Operating Expenses Total Personnel Expenses Total Occupancy Expenses Tot Gen & Admin Expenses Total Operating Expenses Other Income & Expense Miscellaneous Income Miscellaneous Expenses Tot Oth Inc & Exp EBITDA Interest & Depreciation Interest Depreciation Tot Int & Depr Income Before Taxes City Income Tax Net Income Sales Other Income & Expense Hardcopy Sales 59 Miscellaneous Income 6 Climate Control Sales 11 Miscellaneous Expenses (1) Disposal Sales 157 Tot Oth Inc & Exp 5 Imaging Sales 7 Company Total Sales 94 EBITDA 25 NRC Billings Total Sales 94 Interest & Depreciation Interest 4 Operating Expenses Depreciation 2 Total Personnel Expenses 40 Tot Int & Depr 6 Total Occupancy Expenses 19 Tot Gen & Admin Expenses 15 Income Before Taxes 19 Total Operating Expenses 74 City Income Tax 2 Net Income 17 21
Basic Financial Statements Cash Flow Statement Cash Flow Statement A cash flow statement, also known as statement of cash flows is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. The cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying changes in the balance sheet. Cash Flow Statement Ending Cash - Beginning Cash Change in Cash 22
Cash Flow Statement Net Income + Adjustments Operating Cash + Investment Cash - Financing Cash Change in Cash Cash Flow Statement Cash Flows from operating activities Cash Flows from Investing Net Income $34,887.60 Net cash used in investing 0.00 Adjustments to reconcile net income to Cash Flows from Financing net cash provided by operating activities Proceeds from Investing 0.00 Accum Depr--Computers 580.81 Used For Accum Depr--Furn & Equipment 501.59 Key Truck Lease to June, 2019 (862.62) Accum Depr--L/H Improvements 620.59 Shareholder Distributions (15,000.00) Accum Depr--Shelving 1,046.04 Net cash used in financing (15,862.62) Accum Depr--Trans Equipment 440.17 Accum Depr--Site Improvements 418.30 Net increase <decrease> in cash $54,492.10 Accum Depr--Imaging Equipment 254.57 Accounts Receivable 7,939.25 Accounts Receivable--Other (235.22) Prepaid Insurance 1,781.06 COLI--Cash Value (1,979.47) Summary Accounts Payable 2,908.19 Cash Balance at End of Period $95,174.74 Accounts Payable--Other 2,523.92 Cash Balance at Beg of Period (40,682.64) Sales Tax Payable (679.05) Accrued Payroll Taxes--BWC (2,575.47) Net Increase <Decrease> in Cash $54,492.10 Accrued Professional Fees 650.00 Accrued Leadership Bonuses 13,000.00 Accrued QG Real Estate Tax 2,287.48 Accrued TS Real Estate Tax 1,227.34 Accrued Payroll 5,770.73 Unearned Revenue--8Q36 (1,013.71) Total Adjustments 35,467.12 Net Cash provided by Operations 70,354.72 Accounting is alien! Questions 23
Accounting is ALIEN Accounting is ALIEN Assets Accounting is ALIEN Assets Liabilities 24
Accounting is ALIEN Assets Liabilities Income Accounting is ALIEN Assets Liabilities Income Expense Accounting is ALIEN Assets Liabilities Income Expense Net Worth 25
DB + A & E DB+ A& E Type Debit Credit A L I E N DB + A& E Type Debit Credit A L I E N 26
DB +A& E Type A L I E N Debit + + Credit DB + A& E Type A L I E N Debit + + Credit DB + A& E Type A L I E N Debit + + Credit + + + 27
Last Chance (before my summary)! Questions Summary Understand your statements. Accounting is ALIEN! Profit is the business of business!! Thank You Frank Albi www.721-file.com CEO@ 721-file.com +1 513 721-3453 x401 28