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

Financial Education

Frank Albi

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

“Accounting 101”

•Basic Financial Statements •Beginning Accounting

Not for CPAs and CFOs

Qualifications

•MA in sociology •College accounting

(one semester ABA night school)

•NOT a CPA

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

•Balance Sheet ratios •Cost Accounting

•Balance Sheet •Income 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

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

E

arnings

B

efore

I

nterest,

T

axes,

D

epreciation, and

A

mortization

•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

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)

Assets - Liabilities = Net Worth

Assets = Liabilities + Net Worth

Balance Sheet

Assets

= Liabilities + Net Worth

Balance Sheet

Balance Sheet

Fixes (Long-Term) Assets

•Furniture •Leasehold Improvements •Real Estate •Shelving •Vehicles

Balance Sheet

•Customer Contracts (Fat Chance!)

Balance Sheet

Current Liabilities

•“Trade” Accounts Payable •Other 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

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 Earnings •Shareholder Distributions

•Net Income Current Period (YTD)

Balance Sheet

Net Worth (aka Equity)

•Stock

•Paid-In Capital

•Previous Retained Earnings •Shareholder Distributions

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 Earnings •Shareholder Distributions

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

•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

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

•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

Income Statement

-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

Non-Operating Revenue (Other Income)

6. Sub-Lease Income

7. Miscellaneous Other Income

Income Statement

Income Statement

3. General & Administrative (aka “Overhead”)

Income Statement

•Non-Operating Expenses

1. Allowance for Doubtful Accounts 2. Bad Debt

3. Key Associate Life Insurance Premiums

Income Statement

Income Statement

• It DOES cover Interest Expense • Does NOT cover

1. Income Tax

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.

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 expense •Principal—Paid out of Net Income

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

Basic Financial Statements

•Balance Sheet •Income 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

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!

Accounting is

ALIEN

Accounting is

A

LIEN

Accounting is

A

L

IEN

Assets Liabilities Income

Accounting is

ALI

E

N

Accounting is

ALIE

N

DB + A

E

DB

+ A

E

DB +

A

E

Type A L I E N Debit + + Credit

DB + A

E

DB + A

E

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