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Intro to Accounting   For startups and small business   Yair Flicker, Betamore, 3/19/13   http://smartlogicsolutions.com
What We’ll Cover• Legal decisions to make—and related tax  consequences• Accrual vs. Cash• Fundamental Accounting Reports•...
My Experience• SmartLogic Solutions—2005 to present • Maryland Nonstock LLC / s-corp• Bikemore—2012 to present • Maryland ...
My Experience• Took Intro to Accounting 10 years ago• Mostly self-taught or gleaned from my  accountants• NOT a tax profes...
My Credentials• Me with a yarmulke at the Western Wall
About the Accounting      Industry• Not the most progressive• Doesn’t change a whole lot• QuickBooks is the canonical tool...
Who’s in the Room?• Your Name• Company Name(s)• Stock / Nonstock?• S/C-Corp, Partnership, Sole Proprietor• Payroll?
Legal Decisions and Tax    Consequences
Why Incorporate?• Make money for shareholders• Do warm and fuzzy stuff• Make money for shareholders• Limit liability
Type of Maryland       Corporations• www.dat.state.md.us/sdatweb/  sdatforms.html• Limited Liability Corporation (LLC)• St...
S Corp vs. C Corp?•   Taxed once               •   Taxed at corporate level•   Pass-through income      •   Dividends get ...
Form 2553• States don’t care if you’re S corp or C corp• The IRS does! File Form 2553 ASAP if  you’re going S corp!
Section 83(b)• Applicable to stock corporations• Send to IRS• Protects you from recognizing income on  stock that is vesti...
Why Keep the Books in      Order?
Make Tax Filing Easy• But please don’t prepare your own  corporate returns
Make Informed         Decisions• How many more development  sprints do I have?• How will hiring this person  affect my mon...
Make Informed         Decisions• How will increasing  marketing spend to $XXX  affect my runway?• How urgently and  aggres...
How to Keep the     Books in Order?• Simple, repeatable, deterministic processes• Or pay someone
Accrual vs. Cash Basis
Two Styles of          Accounting• Cash basis: revenue is realized when you  get a check or cash• Accrual basis: income/ex...
SAAS Companies• Invoicing? Who does that any more?• You’ll probably collect money right away• Net effect: cash = accrual b...
Services Companies• Send out large invoices• Some clients pay when they want to• You still owe your creditors (credit card)
My Preference: Cash• I want to know how much  cash I have• Allows for safest decision  making• I still look at reports see...
Assets, Liabilities,    Equities
Remember this  EquationAssets = Liabilities + Equity
AssetsSomething that can be turned into cash
Current Assets• Something that can quickly be turned into  cash• Generally: • Bank Accounts • Undeposited Funds • Stocks
Fixed Assets• Not as quickly turned into cash• Generally: • Inventory • Furniture • Computers & Equipment• Note: fixed asse...
Accounts Receivable• Money owed to your company• Only shows on the balance sheet if using  accrual basis
Liabilities• Obligation of an entity stemming from past  transactions or events• Usually results in transfer of assets or ...
Remember this  EquationLiabilities = Assets - Equity
Sample Liabilities• Credit card• Bank loan• Line of credit• Expenses
Accounts Payable• Money you owe vendors• Only shows on the balance  sheet if recording on an  accrual basis
EquityAlternatively called Owners’ Equity, Stockholders’                     Equity, etc.
Equity• What people (you, family,VC’s) put in to  fund your company• Generally: • Capital Stock • Dividends • Retained Ear...
Remember this  EquationEquity = Assets - Liabilities
The Fundamental    Reports
The Balance Sheet• The 50,000’ view• Shows the “book value” for a specific  moment in time• Doesn’t tell you much about the...
The Balance Sheet• Shows Assets, Liabilities, Equity• Nothing about salaries, wages, marketing  expenses, conferences, eve...
Check out a Balance      Sheet
The P&L Statement• AKA Income Statement, Earnings  Statement, etc.• Shows income vs. expense over a period of  time• Group...
Operating IncomeIncome/expense as a result of your normal business                   operations
Other Income/Expense  Not a result of normal business operations (e.g.dividends from stocks, taxes to foreign governments ...
Common Income    Account Names• Service Revenue• Product Revenue• Write Offs• Cost of Good Sold
Example Expense       Accounts• Advertising• Insurance• Marketing• Office Equipment• Payroll Expenses• Professional Fees
Related P&L        Statements• P&L Detail Statement• P&L Comparison Statement
Check out a P/L  Statement
A/R Statement• Money owed to you by your clients• If recording on accrual basis A/R is an asset
A/R Questions• How much is my company owed?• How much credit have I extended to my  clients?• How good am I at collecting ...
A/R Questions• Is this client dissatisfied? They’re late on an  invoice, which is not a good sign.• Did they lose my invoic...
A/R Questions• Who do I need to sue (or at least threaten  legal action against)?• Is this client a deadbeat?• Is this cli...
A/R Statement for  Services Companies• Grouped by client• Further grouped by job
A/R Statements for  Product Companies• Not sure they make much sense if you’re  not issuing many invoices• 37signals isn’t...
Related A/R Statements• A/R Aging Summary• Collections Report
Check out an A/R   Statement
A/P Statement• Debts owed by you to vendors in exchange  for goods or services rendered by the  vendor to your business• Y...
A/P Questions• How much do I owe vendors?• When do I need to pay the vendors?• Can I cut some of these expenses?• Can I ne...
Check out an A/P  Statement? Nah, pretty much the same as A/R
Accounting Principles
Double-Entry System• All transactions are recorded  in TWO accounts• You increase one account• You decrease another  accou...
Double-Entry System• The system that has been used for years• Allows you to...account for everything!
T-Accounts• Account name at the top• Debits (Dr) are on the left• Credits (Cr) are on the right
DEBIT DOES NOT MEAN DECREASEAND CREDIT DOES   NOT MEAN    INCREASE
Recall Assets =Liabilities + Equity
T-Accounts / Assets• Debits INCREASE asset accounts• Credits DECREASE assets accounts• When cash hits your bank (an asset)...
T-Accounts / Liabilities     or Equities• Debits DECREASE the value of  liabilities and equities accounts• Credits INCREAS...
T-Accounts / Liabilities     or Equities• When you run up your credit card (i.e. use  your credit card to buy something), ...
T-Accounts / Liabilities     or Equities• When you put in personal money, e.g. when  you formed your company, you are addi...
Nifty Things Happen• Sum of all credits = Sum of all debits• Credits - Debits = 0• Sum up everything and it equals 0!!!• C...
Let’s do Some          Examples• Invest $10k into your company• Invoice a client for $2,400• Collect $2,000 of that in cas...
Let’s do those again in      Quickbooks
Tips• IRS is your friend• Don’t run payroll• Don’t file your own corporate returns
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Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses

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Check out Yair Flicker's intro to accounting. Perfect for startups and software development companies.

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Transcript of "Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses"

  1. 1. Intro to Accounting For startups and small business Yair Flicker, Betamore, 3/19/13 http://smartlogicsolutions.com
  2. 2. What We’ll Cover• Legal decisions to make—and related tax consequences• Accrual vs. Cash• Fundamental Accounting Reports• Principles of Accounting• Setting up a QuickBooks file
  3. 3. My Experience• SmartLogic Solutions—2005 to present • Maryland Nonstock LLC / s-corp• Bikemore—2012 to present • Maryland Nonstock Nonprofit Corp• TeamPassword—2013 to present • Maryland Stock Corp / s-corp
  4. 4. My Experience• Took Intro to Accounting 10 years ago• Mostly self-taught or gleaned from my accountants• NOT a tax professional
  5. 5. My Credentials• Me with a yarmulke at the Western Wall
  6. 6. About the Accounting Industry• Not the most progressive• Doesn’t change a whole lot• QuickBooks is the canonical tool for small operations• But accountants do know accounting really well
  7. 7. Who’s in the Room?• Your Name• Company Name(s)• Stock / Nonstock?• S/C-Corp, Partnership, Sole Proprietor• Payroll?
  8. 8. Legal Decisions and Tax Consequences
  9. 9. Why Incorporate?• Make money for shareholders• Do warm and fuzzy stuff• Make money for shareholders• Limit liability
  10. 10. Type of Maryland Corporations• www.dat.state.md.us/sdatweb/ sdatforms.html• Limited Liability Corporation (LLC)• Stock Corporation• Nonstock Corporation• Some others, but who cares
  11. 11. S Corp vs. C Corp?• Taxed once • Taxed at corporate level• Pass-through income • Dividends get taxed again (K1) • Can’t easily convert to S• Can convert to C Corp Corp relatively easily • No practical restrictions• < 100 shareholders on shareholders• One class of • Multiple classes of shareholders shareholders are okay
  12. 12. Form 2553• States don’t care if you’re S corp or C corp• The IRS does! File Form 2553 ASAP if you’re going S corp!
  13. 13. Section 83(b)• Applicable to stock corporations• Send to IRS• Protects you from recognizing income on stock that is vesting and increasing in value• Send it w/in 30 days of incorporation or you are screwed
  14. 14. Why Keep the Books in Order?
  15. 15. Make Tax Filing Easy• But please don’t prepare your own corporate returns
  16. 16. Make Informed Decisions• How many more development sprints do I have?• How will hiring this person affect my monthly burn?  I.e. can I hire this person.• Based off my runway, how urgently do I need to do the horse and pony show?
  17. 17. Make Informed Decisions• How will increasing marketing spend to $XXX affect my runway?• How urgently and aggressively do I need to collect on debts?• How much do I owe to creditors?
  18. 18. How to Keep the Books in Order?• Simple, repeatable, deterministic processes• Or pay someone
  19. 19. Accrual vs. Cash Basis
  20. 20. Two Styles of Accounting• Cash basis: revenue is realized when you get a check or cash• Accrual basis: income/expenses are realized when you issue/receive an invoice• Go cash basis.
  21. 21. SAAS Companies• Invoicing? Who does that any more?• You’ll probably collect money right away• Net effect: cash = accrual basis
  22. 22. Services Companies• Send out large invoices• Some clients pay when they want to• You still owe your creditors (credit card)
  23. 23. My Preference: Cash• I want to know how much cash I have• Allows for safest decision making• I still look at reports seeing how many invoices are outstanding (we’ll look at these shortly)
  24. 24. Assets, Liabilities, Equities
  25. 25. Remember this EquationAssets = Liabilities + Equity
  26. 26. AssetsSomething that can be turned into cash
  27. 27. Current Assets• Something that can quickly be turned into cash• Generally: • Bank Accounts • Undeposited Funds • Stocks
  28. 28. Fixed Assets• Not as quickly turned into cash• Generally: • Inventory • Furniture • Computers & Equipment• Note: fixed assets get depreciated
  29. 29. Accounts Receivable• Money owed to your company• Only shows on the balance sheet if using accrual basis
  30. 30. Liabilities• Obligation of an entity stemming from past transactions or events• Usually results in transfer of assets or services
  31. 31. Remember this EquationLiabilities = Assets - Equity
  32. 32. Sample Liabilities• Credit card• Bank loan• Line of credit• Expenses
  33. 33. Accounts Payable• Money you owe vendors• Only shows on the balance sheet if recording on an accrual basis
  34. 34. EquityAlternatively called Owners’ Equity, Stockholders’ Equity, etc.
  35. 35. Equity• What people (you, family,VC’s) put in to fund your company• Generally: • Capital Stock • Dividends • Retained Earnings
  36. 36. Remember this EquationEquity = Assets - Liabilities
  37. 37. The Fundamental Reports
  38. 38. The Balance Sheet• The 50,000’ view• Shows the “book value” for a specific moment in time• Doesn’t tell you much about the company’s operations
  39. 39. The Balance Sheet• Shows Assets, Liabilities, Equity• Nothing about salaries, wages, marketing expenses, conferences, events, travel, meals, etc.
  40. 40. Check out a Balance Sheet
  41. 41. The P&L Statement• AKA Income Statement, Earnings Statement, etc.• Shows income vs. expense over a period of time• Grouped by income and expense account
  42. 42. Operating IncomeIncome/expense as a result of your normal business operations
  43. 43. Other Income/Expense Not a result of normal business operations (e.g.dividends from stocks, taxes to foreign governments paid on those dividends, etc.)
  44. 44. Common Income Account Names• Service Revenue• Product Revenue• Write Offs• Cost of Good Sold
  45. 45. Example Expense Accounts• Advertising• Insurance• Marketing• Office Equipment• Payroll Expenses• Professional Fees
  46. 46. Related P&L Statements• P&L Detail Statement• P&L Comparison Statement
  47. 47. Check out a P/L Statement
  48. 48. A/R Statement• Money owed to you by your clients• If recording on accrual basis A/R is an asset
  49. 49. A/R Questions• How much is my company owed?• How much credit have I extended to my clients?• How good am I at collecting debts owed to me?• How much money can I expect to come in soon?
  50. 50. A/R Questions• Is this client dissatisfied? They’re late on an invoice, which is not a good sign.• Did they lose my invoice?• Are they incompetent?• Do they jerk around their vendors?
  51. 51. A/R Questions• Who do I need to sue (or at least threaten legal action against)?• Is this client a deadbeat?• Is this client running out of cash?Is my client financially distressed? Do I need to stop doing business with this client?
  52. 52. A/R Statement for Services Companies• Grouped by client• Further grouped by job
  53. 53. A/R Statements for Product Companies• Not sure they make much sense if you’re not issuing many invoices• 37signals isn’t looking at A/R statements• Create your own reports
  54. 54. Related A/R Statements• A/R Aging Summary• Collections Report
  55. 55. Check out an A/R Statement
  56. 56. A/P Statement• Debts owed by you to vendors in exchange for goods or services rendered by the vendor to your business• You record a debt to A/P when you get an invoice• If recording on an accrual basis A/P is a Liability on the balance sheet
  57. 57. A/P Questions• How much do I owe vendors?• When do I need to pay the vendors?• Can I cut some of these expenses?• Can I negotiate different payment terms?
  58. 58. Check out an A/P Statement? Nah, pretty much the same as A/R
  59. 59. Accounting Principles
  60. 60. Double-Entry System• All transactions are recorded in TWO accounts• You increase one account• You decrease another account• (Money doesn’t materialize out of thin air)
  61. 61. Double-Entry System• The system that has been used for years• Allows you to...account for everything!
  62. 62. T-Accounts• Account name at the top• Debits (Dr) are on the left• Credits (Cr) are on the right
  63. 63. DEBIT DOES NOT MEAN DECREASEAND CREDIT DOES NOT MEAN INCREASE
  64. 64. Recall Assets =Liabilities + Equity
  65. 65. T-Accounts / Assets• Debits INCREASE asset accounts• Credits DECREASE assets accounts• When cash hits your bank (an asset), add a Debit entry to an asset account• When you write a check from your bank, add a Credit entry to an asset account
  66. 66. T-Accounts / Liabilities or Equities• Debits DECREASE the value of liabilities and equities accounts• Credits INCREASE the value of liabilities and equities accounts
  67. 67. T-Accounts / Liabilities or Equities• When you run up your credit card (i.e. use your credit card to buy something), you are adding a Credit entry to a liability account• When you pay down your line of credit you are adding a Debit entry to a liability account
  68. 68. T-Accounts / Liabilities or Equities• When you put in personal money, e.g. when you formed your company, you are adding a Credit entry to an equity account• When you issue a dividend to stockholders you are adding a Debit entry to an equity account
  69. 69. Nifty Things Happen• Sum of all credits = Sum of all debits• Credits - Debits = 0• Sum up everything and it equals 0!!!• Corollary: if you sum up all your accounts and it’s not 0, you messed something up
  70. 70. Let’s do Some Examples• Invest $10k into your company• Invoice a client for $2,400• Collect $2,000 of that in cash• Buy a fancy iPad for $500• Lawyers invoice you $300• You pay that invoice by check
  71. 71. Let’s do those again in Quickbooks
  72. 72. Tips• IRS is your friend• Don’t run payroll• Don’t file your own corporate returns
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