Financial Education. Accounting 101. Qualifications 5/12/2015. Basic Financial Statements Beginning Accounting. Notfor CPAs and CFOs

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Financial Education

Frank Albi

Business Information Solutions Cincinnati, Ohio CEO @721-file.com

“Accounting 101”

Basic Financial StatementsBeginning Accounting

Not for CPAs and CFOs

Qualifications

MA in sociologyCollege accounting

(one semester ABA night school)

NOT a CPA

(2)

Qualifications

Owned and operated BiS since 1980Result is my favorite brag

Topics to be covered

Importance of basic financial

statements

Mechanics of basic statementsSecret of Accounting: it is ALIEN!

Topics NOT Covered

Balance Sheet ratiosCost Accounting

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Balance SheetIncome Statement

(aka Profit and Loss Statement or “P&L”)

Cash Flow Statement

Balance Sheet

Assets

What you OWN

Liabilities

What you OWE

Net Worth

What’s LEFT OVER

Balance Sheet is about

(4)

Income Statement

Revenue (aka “Top Line”)

What you’ve sold

Expenses

What you’ve spent

Net Income

What’s left over

Income Statement is about

Profit & Loss

Income Statement

What you’ve sold

Revenue

What you’ve spent

Expenses

What’s left over

Net Income

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E

arnings

B

efore

I

nterest,

T

axes,

D

epreciation, and

A

mortization

M&A guys care about itBankers care about itYOU should care about it

(more on that later)

Cash Flow Statement

What come INWhat goes OUTWhat’s the NET

Cash Flow Statement is about

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Basic Financial Statements

Balance Sheet

Income Statement Cash Flow Statement

Balance Sheet

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

Balance Sheet

Assets (What you OWN)Liabilities (What you OWE)Net Worth* (What’s LEFT OVER)

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Assets - Liabilities = Net Worth

Assets = Liabilities + Net Worth

Balance Sheet

Assets

= Liabilities + Net Worth

Balance Sheet

Current AssetsCashAccounts ReceivablePre-Paid ExpenseDeposits

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Balance Sheet

Fixes (Long-Term) Assets

FurnitureLeasehold Improvements Real EstateShelvingVehicles

Balance Sheet

Other AssetsNRC StockGoodwill

Customer Contracts (Fat Chance!)

Balance Sheet

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Current Liabilities

“Trade” Accounts PayableOther Accounts Payable

Taxes Payable (Payroll & Sales)Accrued Expenses

Line of Credit

Balance Sheet

Long-Term Liabilities

Unearned Revenue

Notes Payable (Bank Loans)Capital Leases

Stockholder Loans

Balance Sheet

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Balance Sheet

Net Worth (aka Equity)

Stock

Paid-In Capital

Previous Retained EarningsShareholder Distributions

Net Income Current Period (YTD)

Balance Sheet

Net Worth (aka Equity)Stock

Paid-In Capital

Previous Retained EarningsShareholder Distributions

Net Income Current Period (YTD)

Balance Sheet

Net Worth (aka Equity)

Stock

Paid-In Capital

Previous Retained EarningsShareholder Distributions

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Net Worth (aka Equity)

Stock

Paid-In Capital

Previous Retained Earnings

Shareholder Distributions

Net Income Current Period (YTD)

Balance Sheet

Net Worth (aka Equity)

Stock

Paid-In Capital

Previous Retained Earnings

Shareholder Distributions

Net Income Current Period (YTD)

Balance Sheet

Net Worth (aka Equity)

Stock

Paid-In Capital

Previous Retained EarningsShareholder Distributions

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Balance Sheet Assets Current Assets + Fixed Assets Total Assets Liabilities Current Liabilities + Long-Term Liabilities Total Liabilities Equity Total Equity

Total Liabilities & Equity

Balance Sheet

Assets = Liabilities + Net Worth

Total of Assets (at the Top)

Must Equal

Sum of Liabilities & Equity

(at the Bottom)

Balance Sheet Assets Current Assets + Fixed Assets Total Assets Liabilities Current Liabilities + Long-Term Liabilities Total Liabilities Equity Total Equity

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Balance Sheet

Income Statement

Cash Flow Statement

Income Statement

Net Income

The “Bottom Line”

Income Statement

Net Income

Operating Profit

+Other (Miscellaneous) Income Net Income Before Taxes

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Income Statement

Net Income

Operating Profit

+Other (Miscellaneous) Income Net Income BeforeTaxes

Income Statement

Net Income

Operating Profit

+Other (Miscellaneous) Income Net Income BeforeTaxes

Income Statement

Net Income

Operating Profit

+Other (Miscellaneous) Income Net Income Before Taxes

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Net Income

Operating Profit

+Other (Miscellaneous) Income Net Income Before Taxes

What the Tax Guys care about Income Taxes

Income Statement

Income Taxes

Federal (IRS)

State (Ohio Department of

Taxation)

Local (Cincinnati Income Tax

Division)

Income Statement

Revenue -Expenses Net Income

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Income Statement

Revenue

-Expenses Net Income

Income Statement

OperatingRevenue (Sales)

1. Hardcopy (Boxes) 2. Vault (Tape)

3. Destruction (Shredding) 4. Imaging (Scanning & Hosting)

Income Statement

Non-Operating Revenue (Other Income)

1. BAA Administrative or Notification Fees 2. Finance Charges Received

3. Fuel Surcharges 4. Out Charges 5. Recycling Income

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Non-Operating Revenue (Other Income)

6. Sub-Lease Income

7. Miscellaneous Other Income

Income Statement

Revenue -Expenses Net Income

Income Statement

OperatingExpenses 1. Personnel 2. Occupancy

3. General & Administrative (aka “Overhead”)

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Income Statement

Non-Operating Expenses

1. Allowance for Doubtful Accounts 2. Bad Debt

3. Key Associate Life Insurance Premiums

Income Statement

Revenue -Expenses Net Income

Income Statement

Net IncomeIs NOT Cash

It DOES cover Interest ExpenseDoes NOT cover

1. Income Tax

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Taxes

Payroll—Paid as personnel

expenses

Licenses—Paid as G&A

Business Activity—Paid as G&A

Income—Paid out of Net Income

Income Statement

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 pur-poses. Shareholders of S corporations report the flow-through 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 built-in gabuilt-ins and passive built-income at the entity level.

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Income Statement

Income Taxes

Federal (“Sub S” or “S Corp”)

State

Local

Income Statement

Income Taxes

Federal (“Sub S” or “S Corp”)State

Local

Income Statement

Debt Service

Interest—Paid as an expensePrincipal—Paid out of Net Income

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Debt Service

Interest—Paid as an expense

Principal—Paid out of Net Income

Income Statement

Sales Other Income & Expense Hardcopy Sales Miscellaneous Income Climate Control Sales Miscellaneous Expenses Disposal Sales Tot Oth Inc & Exp Imaging Sales

Company Total Sales EBITDA NRC Billings

Total Sales Interest & Depreciation Interest

Operating Expenses Depreciation

Total Personnel Expenses Tot Int & Depr Total Occupancy Expenses

Tot Gen & Admin Expenses Income Before Taxes Total Operating Expenses City Income Tax

Net Income

Income Statement

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

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Basic Financial Statements

Balance SheetIncome Statement

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

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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!

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Accounting is

ALIEN

Accounting is

A

LIEN

Assets

Accounting is

A

L

IEN

Assets Liabilities

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Assets Liabilities Income

Accounting is

ALI

E

N

Assets Liabilities Income Expense

Accounting is

ALIE

N

Assets Liabilities Income Expense Net Worth

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DB + A

&

E

DB

+ A

&

E

Type A L I E N Debit Credit

DB +

A

&

E

Type A L I E N Debit Credit

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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 Debit + + Credit + +

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Last Chance (before my

summary)!

Questions

Summary

Understand your statements.Accounting is ALIEN!

Profit is the business of business!!

Thank You

Frank Alb

i

www.721-file.com

CEO@ 721-file.com +1 513 721-3453 x401

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References

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