Demystifying Accounting - A MaRS Presentation


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This year, Welch LLP & MaRS partnered up to give a three-hour workshop/presentation dedicated to demystifying the principles of accountancy – specifically designed for start-ups! Managing your cash flow, understanding financial statements and choosing your accounting software are just some of the subjects addressed.

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  • Can you get the 2 bullets to fly in separately
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  • Demystifying Accounting - A MaRS Presentation

    2. 2. What we will cover today… • Key Terms (30 min) • Bookkeeping & Financial Statements (55min) • Break (15 min) • Cash Flows Strategy & Maintaining (30 min) • How & When to engage an accountant (20 min) • Questions (30 min)
    3. 3. Key Terms – “Pop Quiz”
    4. 4. Bookkeeping + - ACCRUAL LEDGER
    5. 5. What is Bookkeeping? 1. Gathering the source documents 2. Entering information from the source documents into journals & accounts 3. Performing end of period procedures 4. Closing the books for that period
    6. 6. Goals of good bookkeeping • Understandable data, cross referenced & easy access to supporting documents for: o internal analysis and review purposes o support for possible audits o Support for financing and investment sources
    7. 7. Bookkeeping Software • Wave Accounting • Sage 50 Accounting (formerly Simply Accounting) • • • • QuickBooks QuickBooks online Freshbooks Sage 300 (formerly Accpac) • …
    8. 8. “Bookkeeping in the Cloud” There are pro’s and con’s and you need to consider your company’s unique situation and risk appetite!
    9. 9. Bookkeeping VS. Accounting • Bookkeeping is record keeping/ data entry. • Accounting is can include bookkeeping, but also infers tasks such as preparing financial statements from the bookkeeping records, tax planning, advisory and assurance work.
    11. 11. Financial Statements Financial Statements are a tool to analyze your company’s performance.
    12. 12. FS – Internal VS. External o Internal reporting is flexible and you can create reports in the format that best suits your needs. They can be weekly, monthly, quarterly or annually o External reporting is more structured and there are rules that govern their preparation and presentation, to increase the comparability between companies.
    13. 13. FS – External • External users may include CRA, bank/ other lenders, investors, potential lenders/ investors… • They tend to be annually although may also be quarterly (required quarterly for public companies). • You might have an external accountant or auditor report on the statements (usually only for the annual statements). • You have to choose one set of accounting standards (ASPE, IFRS, Accrual/ tax basis).
    14. 14. FS - Components • Financial statements always include: – A balance sheet – An income statement and statement of retained earnings. • But can also include: o A statement of cash flows, o A report on the statements (by external accountant) o Notes to the financial statements.
    15. 15. Balance Sheet Critical “what do we have” statement. Assets = Liabilities + Equity (hence “balance” sheet)
    16. 16. Assets o Definition of ‘Asset’? • Generally intuitive • Assets can be valued at cost or at FMV and GAAP provides rules as to which value can be used and when. This is one of your Accounting Policy Choices.
    17. 17. Liability o Definition of ‘Liability’? • Also generally instinctive • Like assets, what is considered a liability by GAAP is generally the same as what you would instinctively consider a liability.
    18. 18. GAAP based variances o Certain items may have value to you, but you may not be allowed to record them as an asset. o Intangible assets are an example of this. They must meet the following criteria in order to be recorded as an asset. They must be o Identifiable, o The company must control them, and o There must be a future economic benefit. Is it Eligible? Patent Workforce Know-how -
    19. 19. GAAP based variances o A finance lease is another good example of a GAAP based variance. o Here although there is no obligation to pay the balance of the lease currently, o The underlying reality of the finance lease arrangement is that you have purchased the asset and the seller is financing the purchase. o Therefore GAAP requires you to record the asset & liability at the present value of the minimum lease payments.
    20. 20. Equity • What is equity? o Capital stock o Retained earnings o Other
    21. 21. Income Statement • The “what did we do” statement. o Income – expenses = net income. o Some different presentations possibilities
    22. 22. Retained Earnings • Sometimes this statement is part of the Income Statement, • Sometimes it is an entirely separate statement (for IFRS it is required to be separate). • The closing retained earnings is a cumulative tally of all previous years’ income, less any dividends paid out of the earnings and any adjustments, since the inception of the company – hence its name.
    23. 23. Accountant’s Report • For general purpose Financial Statements an accountant can issue: – An Independent auditor’s report, – A review engagement report, or – A notice to reader. • The report will state the accounting standards applied (IFRS/ ASPE/ accrual/ cash…) • The report will also state any qualifications & what they mean.
    24. 24. Financial Statements: Notes • Purpose: o To give background & added disclosure which is not required (or would be too cumbersome) in the statements themselves. The notes are a required part of GAAP. o This includes disclose the accounting policies, Related Party Transactions and their impact, loans payable details, capital assets, income taxes, capital stock, commitments… o Without the notes, there can be a great amount of interpretation to some the details. The notes help to provide context to increase comparability between one set of financial statements and another.
    25. 25. Break – 15 min
    26. 26. Cash Flows Strategy & Maintenance Demands for cash means you need to plan & manage it to a high degree to make it effective. o Too much cash is a waste as you will not be earning anything with it and could be earning if it is invested. o Too little cash and you won’t be able to pay your bills as they come due and will incur interest and penalties. o Consider maintaining rolling cash flow projection
    27. 27. Cash Flows Strategy & Maintenance What do these statements tell you for budgeting and cash flow management purposes? • Cash flow statement • Balance sheet
    28. 28. Prioritizing Cash Flows Step 1: Set out a hierarchy of payment streams. Items to consider: o Interest rates o Penalties for late payments o Any borrowing covenants
    29. 29. Prioritizing Cash Flows Step 2: Review the payment terms: o If there is a discount period, consider if it is worth taking advantage of. o If not, consider the payment period and plan when you are going to pay (i.e. at the end of the period).
    30. 30. Prioritizing Cash Flows Step 3: Consider other non-monetary factors
    31. 31. Weekly Rolling Cash Flow Template o 45 days; 60 days; 90 days o Update weekly (Monday morning?) o Excellent Management Tool; Reflects the best guess of actual cash available o Shows you when a “cash crunch” is coming
    32. 32. Accountants: How & When to Engage Who is your accountant to you? o A service provider or o A strategic partner
    33. 33. A Few Notes of Caution… The old adage: a penny wise pound foolish. • Some tax planning may not be possible if you wait too long or it may be significantly more costly to restructure. o QSBC (Qualifying Small Business Corporation) – sale of business – up to 200K in tax savings, but some of the steps need to be in place 2 years in advance! o Holding corporation and share structure that is beneficial to you as well as your investors.
    34. 34. A Few Notes of Caution… Be clear what role you want your accountant to play. • It can be beneficial to have someone who can grow with you and becomes a key partner in your business.
    35. 35. A Few Notes of Caution… You don’t know what you don’t know. o GST/ HST – If I make a sale to someone in Manitoba what rate do I charge? o GST/ HST – Am I eligible for the quick method? • Generally a fair bit of savings if you do, but only if you elect ahead of time. o Tax credits – SRED (Scientific Research & Experimental Development), ODMTC (Ontario Digital Media Tax Credits), Apprenticeship Tax Credits, …
    36. 36. Video
    37. 37. Questions?