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The Business Entrepreneur Seminars (Module 5 of 16)

This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here:
http://flevy.com/browse/business-document/the-business-entrepreneur-seminars-module-5-of-16-1306

BENEFITS OF DOCUMENT

1. To learn the three fundamental ?scorecards? for keeping track of money in a business and to show how each operates.

2. To master the basic transactions that any business encounters/To show you how to create and understand the balance sheet, income statement, and cash flow statements.

3. To learn ways to manage cash and its flow through your business, as well as, dealing with large costs.

DOCUMENT DESCRIPTION

Accounting 101
149 Animated Slides
Approx. Hours

Take command of a bookstore and coffee bar and see how money moves in and out of a business learning the fundamentals of accounting at the same time. This course provides an in-depth look at each of the primary accounting transactions used in a business demonstrating how "the language of business" works. Without using any accounting jargon to begin with, the course demonstrates how to keep score in a business through a simple scorecard approach. When you are finished, you are shown that each of your scorecards represents one of the three primary financial statements used in managing a business.

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The Business Entrepreneur Seminars (Module 5 of 16)

  1. 1. ™ Accounting 101: The Fundamentals By: Enrique R. Suarez http://www.wix.com/suarezenrique/delta suarezenrique@yahoo.com
  2. 2. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 4 of 150 The Language Of Business This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  3. 3. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 7 of 150 Why you must understand it… § It’s easy to just say, “I’m a craftsperson and I know my craft and that’s all I need to know. I’ll just hire someone to take care of the numbers for me.” § The bottom line is this: Whoever is making the decisions for the business needs to understand the basics of accounting and what each of the financial reporting statements mean. § If you are going to let the person taking care of your numbers make all of the decisions then you’ll be fine. § But let’s face it. You are most likely the one is who’s going to make many of the critical decisions facing the business. This is probably why you got into business in the first place—to call the shots. Therefore, you need to at least understand the numbers even if you let someone else keep the books for you. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  4. 4. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 10 of 150 Operating a simulated business… § Throughout this course you are going to get the opportunity to operate a fictional bookstore and coffee bar. § This business will allow you the chance to experience first-hand how accounting is performed and how the results can be used in the decision-making process. § The important thing is that it allows you to learn the concepts of accounting in a safe environment before implementing them in the real world. § For many different kinds of transactions you are going to get to see how money moves in and out of a business and how this movement is recorded using the principles of accounting. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  5. 5. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 13 of 150 Your first scorecard… § To better understand how money moves in and out of your business, you need a scorecard that shows two things: STUFF YOU HAVE and WHO OWNS IT. § A simple scorecard you might use would look something like this: Who Owns ItStuff You Have This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  6. 6. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 16 of 150 The first entry… § Since the $10.00 is yours that means it goes on the left side of the scorecard as $10.00 in Cash. § But it also goes on the right side since you own the $10.00. Let’s call this money “Your Investment” § Your scorecard would now look something like this: Stuff You Have Who Owns It Cash Your Investment$10.00 $10.00This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  7. 7. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 19 of 150 Taking in more cash… § Your family decides to match your original investment with a $10.00 loan to your business. § So what did you get from your family? Cash right? How much? $10.00. § So how much total cash do you have so far? $20.00. § On the right side of your scorecard, who owns that cash? Well, you own $10.00 of it from your original investment and your family owns $10.00 of the cash. § Let’s take a look how this would look on your scorecard… This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  8. 8. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 22 of 150 The inventory transaction… § Ask yourself, “I just bought $12.00 worth of what?” Books of course. § These books are now “stuff you have.” And how much is this stuff worth. $12.00. So we can now add these books to the left side of your scorecard: Stuff You Have Who Owns It Cash Someone Else Books You Total Total $20.00 $10.00 $32.00 $20.00 $10.00 $12.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  9. 9. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 25 of 150 Now let’s buy some coffee… § It’s hard to run a bookstore and coffee bar with only books, so you are going to need to buy some coffee too. § Let’s buy a pound of coffee which will cost you about $6.00. OK, this is not the best coffee mind you—but hey—money’s tight. § See if you can figure out what you need to do to get your scorecard to equal or balance. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  10. 10. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 28 of 150 Money Coming In This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  11. 11. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 31 of 150 Taking in the cash… § You now have an additional $10.00 of cash so your new cash balance is $12.00. Remember, you had $2.00 already in cash before this. § But now your scorecard doesn’t balance… Stuff You Have Who Owns It Cash Someone Else Books You Coffee Total Total $12.00 $10.00 $30.00 $20.00 $10.00 $12.00 $6.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  12. 12. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 34 of 150 Balancing your scorecard… § Your new scorecard therefore looks like this. Notice that it does indeed balance with both sides being equal once again. Earnings (profit)Coffee TotalTotal YouBooks Someone ElseCash Who Owns ItStuff You Have $12.00 $10.00 $26.00 $26.00 $10.00 $8.00 $6.00 $6.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  13. 13. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 37 of 150 Reducing the inventory… § Recall that you sold 2 cups of coffee which cost you $.10 a cup. Therefore, you need to reduce your inventory by $.20. You used to have $6.00 of coffee so now you have $5.80 as follows: Stuff You Have Who Owns It Cash Someone Else Books You Coffee Earnings (profit) Total Total $13.00 $10.00 $26.80 $26.00 $10.00 $8.00 $5.80 $6.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  14. 14. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 40 of 150 The second scorecard… § As we have concluded, your first scorecard doesn’t tell you everything that happens in your business. § For instance, can you tell by looking at your first scorecard what your total sales were for the entire first day? Does it tell you what the costs of providing your product were? Does it tell you how you made your earnings? The answer is of course, “No.” § Would a business want to know all of these things? Of course it would. So we need to create one more scorecard. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  15. 15. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 43 of 150 What the new scorecard tells you… § As you can see, your second scorecard tells you how you arrived at your earnings found on your first scorecard. § It tells you the cost structure of your business and ultimately if its making money or not. § We will return to this second scorecard in the next section as we encounter another kind of cost in operating your business. § But for now, let’s look at another way in which money can come into your business—that being a new loan. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  16. 16. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 46 of 150 Taking in the proceeds from a loan… § Let’s add the loan proceeds of $20.00 to your scorecard. So you get what in? Cash. And whose money is it? Remember, the money is not yours. It’s someone else's. So your scorecard should look like this: Stuff You Have Who Owns It Cash Someone Else Books You Coffee Earnings (profit) Total Total $33.00 $10.00 $46.80 $46.80 $30.00 $8.00 $5.80 $6.80 + $20.00 + $20.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  17. 17. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 49 of 150 Money Going Out This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  18. 18. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 52 of 150 Selecting your inventory… § You decide that you are fine on coffee for now, but you feel you could do better with your book sales if you had a wider selection. § You decide to purchase 5 more books. If you recall, the publisher charges you $4.00 per paperback so the new books will cost you $20.00 in total. (5 times 4) § Remember, you are essentially just turning some cash into inventory—changing one type of asset into another. Therefore, all of your scorecard entries will take place on the left side of the card. Let’s look at these changes… This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  19. 19. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 55 of 150 The expense transaction… § Let’s say the rent for the space you are renting for your bookstore comes due and its $5.00. You would complete this transaction as follows to get your scorecard to balance: Stuff You Have Who Owns It Cash Someone Else Books Equity Coffee Earnings (profit) Total Total $13.00 $15.00 $46.80 $46.80 $30.00 $28.00 $5.80 $1.80 - $5.00 - $5.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  20. 20. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 58 of 150 Adding your expenses… § Why do we call your new total “gross profit” you might ask. Because we haven’t taken out all of the costs of doing business yet. Once we subtract your expenses (the cost of being in business) you then arrive at your “net profit” which is sometimes referred to as “the bottom line” shown below: Sales $11.00 minus Cost of Sales $4.20 equals Gross Profit $6.80 minus Expenses equals Net Profit This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  21. 21. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 61 of 150 Making payments to satisfy debt… § Another way that money can go out of your business is to satisfy the payment of a debt you owe, sometimes called a “liability.” § If you recall, you were able to build-up your inventory by borrowing $20.00 from the bank and from an initial loan from your family for $10.00. § Let’s say your family is happy for now (you’ve got to love family) but the banker on the other hand is ready to start receiving a portion of the loan you owe him. § Remember, the banker expects not only his original principal back ($20.00) but also a fee for using his money called “interest.” The banker is expecting you to pay $1.20 back at this time. The $1.00 will go toward paying back the original loan and the additional $.20 will go toward the interest you owe. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  22. 22. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 64 of 150 Subtracting the interest expense… § Let’s remove the interest expense of $.20 from your profits as follows. Notice your new net profit balance of $1.60. Sales $11.00 minus Cost of Sales $4.20 equals Gross Profit $6.80 minus Expenses -Rent $5.00 -Interest $.20 equals Net Profit $1.60 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  23. 23. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 67 of 150 Adjusting your earnings… § Since these profit distributions come out of your earnings let’s first subtract them from your income scorecard: Sales $11.00 Cost of Sales $4.20 Gross Profit $6.80 Expenses -Rent $5.00 -Interest $.20 -Owner Distributions $.60 Net Profit $1.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  24. 24. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 70 of 150 When might money be owed to you? § In certain instances you may decide to offer “credit” to your customers. § Basically, this means that the customer receives your product or service now but agrees to pay you at a later date. § Now, why would you do such a thing? One reason is simple: giving your customer flexibility in making payments can increase the sale of your products and services. It’s as simple as that. § Certain kinds of customers such as businesses usually request such payment terms to help them balance the flow of money coming into and going out of their businesses. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  25. 25. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 73 of 150 Accounting for the cash… § Next, let’s add your new earnings to your scorecard. Also, remember, both John and Paul paid cash, so you need to increase your cash by $20.00: Stuff You Have Who Owns It Cash Someone Else Books Equity Coffee Earnings (profit) Total Total $31.20 $15.00 $65.00 $57.00 $29.00 $28.00 $5.80 $13.00 + $20.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  26. 26. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 76 of 150 Accounting for the sales… § You start this transaction the same way you did when you received cash from John and Paul. Let’s account for these sales and costs on the income scorecard: Sales $51.00 Cost of Sales $20.20 Gross Profit $30.80 Expenses -Rent $5.00 -Interest $.20 -Owner Distributions $.60 Net Profit $25.00 2 books @ $10.00 = + $20.00 2 books @ $4.00 = + $8.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  27. 27. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 79 of 150 Balancing the scorecard… § By adding the accounts receivable amount of $20.00 to the left side of your scorecard, it again balances: Accounts Rec. Earnings (profit)Coffee TotalTotal EquityBooks Someone ElseCash Who Owns ItStuff You Have $15.00 $69.00 $29.00 $25.00 + $20.00 $31.20 $69.00 $12.00 $5.80 $20.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  28. 28. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 82 of 150 Money You Owe This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  29. 29. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 85 of 150 Accounts Rec. Earnings (profit)Coffee TotalTotal EquityBooks Someone ElseCash Who Owns ItStuff You Have Adding the new inventory… § Since you are gaining 4 books of inventory at $16.00 you need to increase your book inventory by this amount. Your scorecard will now be out of balance: $15.00 $69.00 $29.00 $25.00 $51.20 $85.00 $28.00 $5.80 $0.00 + $16.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  30. 30. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 88 of 150 Balancing your scorecard… § To pay your supplier you need to reduce both cash and your accounts payable by $16.00 as shown below: Accounts PayableAccounts Rec. Earnings (profit)Coffee TotalTotal EquityBooks Someone ElseCash Who Owns ItStuff You Have $35.20 $69.00 $28.00 $5.80 $0.00 $15.00 $69.00 $29.00 $25.00 $0.00 - $16.00 - $16.00 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  31. 31. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 91 of 150 Your cash scorecard… § We are going to keep your cash scorecard somewhat simple. In fact, we are going to set it up in a similar way to your checking account register. § In a nutshell, we are going to start with your beginning cash balance, add any cash taken in, and then subtract any cash going out. § The difference between what you take in and what goes out we’ll call your “cash flow.” § If you take your cash flow number and add it to your beginning cash balance number you will have you ending cash balance. § This ending cash balance then becomes the beginning cash balance for the next period. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  32. 32. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 94 of 150 Next, lets’ add any cash in… § Cash comes into your business in one of several ways: – Cash Sales – Accounts Receivable Collections – New Loans – New Investment § Let’s start with any cash sales…This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  33. 33. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 97 of 150 Your new loans… § During the two days you have been open you have taken in two loans as follows: – $10.00 from your family, and – $20.00 from the bank § These loans total $30.00. We’ll enter this into your cash scorecard: Add Cash In -Cash Sales $31.00 -Accounts Receivable Collections $20.00 -New Loans $30.00 -New Investment This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  34. 34. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 100 of 150 Inventory you have left… § After selling your merchandise you still have $33.80 worth of inventory left in stock that you have paid for. § We’ll enter this into your cash scorecard: Minus Cash Out -Expenses Paid $26.00 -Inventory On Hand $33.80 -Principal Payments This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  35. 35. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 103 of 150 Notice the ending balance… § The ending cash balance of $35.20 is significant. § If you look back at your original scorecard, you will see that your cash balance is exactly this amount. § The cash scorecard is how you keep track of this balance over a period of time as we’ve just done. § From now on going forward, your ending cash balance of $35.20 will now become your beginning cash balance and you would just repeat the exercise.This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  36. 36. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 106 of 150 Figuring “depreciation”… § Taking a large cost such as that of a piece of expensive equipment and expensing it across it’s useful life is called “depreciation.” § To see how this works, let’s return to the example of your bookstore and coffee bar. Let’s say you are interested in buying a new coffee maker that will cost you $24.00. § You conclude that this coffee maker will probably last you two years. So instead of just expensing the entire coffee maker at the time you make the purchase, it makes more sense to spread its cost out over the 2 years it will produce value for you. § One simple way to do this is to just take the $24.00 and divide it by the two years which gives you $12.00 of expense to depreciated each year for the next two years. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  37. 37. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 109 of 150 Adjust your cash score card… § Your cash scorecard would now be something like: Beginning Cash Balance $0.00 Add Cash In -Cash Sales $31.00 -Accounts Receivable Collections $20.00 -New Loans $30.00 -New Investment $15.00 Minus Cash Out -Equipment Purchased $24.00 -Expenses Paid $26.00 -Inventory On Hand $33.80 -Principal Payments $1.00 Equals Ending Cash Balance $11.20 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  38. 38. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 112 of 150 Making the scorecard balance… § In order to make your scorecard balance, it’s necessary to make one last entry. § Remember, depreciation is the reduction in the cost of your coffeemaker due to wear and tear over the the passage of time. § Once you expense depreciation on your income scorecard and you remove the amount from your earnings over time, then you need to reduce the value of this asset. § The way to do this is set-up one final account on your scorecard where you can keep track of any depreciation. Your depreciation is used to reduce the value of your coffeemaker—at least on paper. Let’s take a look at this final transaction… This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  39. 39. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 115 of 150 The double-entry system… § One other thing you might have noticed when working with your scorecard is that whenever you made one transaction entry, you always had to make a second entry to make your scorecard equal or balance. § This is known as the “double-entry” system of accounting. § Today, many computerized accounting systems such as QuickBooks and PeachTree allow you to make one entry. The accounting system then actually makes the second entry for you. This is called a “single-entry” accounting system. § While a single-entry system makes your life much easier, you still need to remember the double-entry nature of accounting that you learned when creating your scorecard—you need to know what is going on behind-the-scenes. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  40. 40. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 118 of 150 The first scorecard… § As you may recall, the main scorecard you used in running your bookstore and coffee bar was this one. In accounting, this scorecard is called the “Balance Sheet.” Accounts Payable $0.00 Earnings (profit) $24.00 Total $68.00 Equity $15.00 Someone Else $29.00 Depreciation -$1.00 Coffeemaker $24.00 Accounts Rec. $0.00 Coffee $5.80 Total $68.00 Books $28.00 Cash $11.20 Who Owns ItStuff You Have This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  41. 41. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 121 of 150 Grouping your assets… § Adding the Current and Fixed Asset categories would look something like this: -Depreciation -$1.00 -Coffeemaker $24.00 Total $68.00 Fixed Assets Assets Current Assets -Coffee $5.80 -Books $28.00 -Accounts Rec. $0.00 -Cash $11.20 Accounts Payable $0.00 Earnings (profit) $24.00 Total $68.00 Equity $15.00 Someone Else $29.00 Who Owns It This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  42. 42. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 124 of 150 Let’s group the right side… § Grouping the right side of your balance sheet into liabilities and equity would look like this: -Earnings (profit) $24.00 -Equity $15.00 Total $68.00 Owner’s Equity Liabilities -Accounts Payable $0.00 -Notes Payable $29.00 Liabilities & Equity -Depreciation -$1.00 Current Assets -Coffee $5.80 -Books $28.00 -Accounts Rec. $0.00 -Coffeemaker $24.00 Total $68.00 Fixed Assets -Cash $11.20 Assets This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  43. 43. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 127 of 150 The second scorecard… § The second scorecard we created was used to track your sales and expenses. It resulted in the amount of earnings shown on your balance sheet. § We called this scorecard your income scorecard. In accounting, this scorecard is called an “Income Statement.” § An income statement, sometimes called a profit and loss statement (P&L), is a financial document which shows income earned and expenses incurred. § The resulting difference between your income and your expenses is called your net profit—what is often referred to as the “bottom line.” § This statement tells you if your business is profitable or not. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  44. 44. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 130 of 150 The money you earned goes at top… § An income statement begins with money that you have earned from selling something. § There are several different names given to the money you make selling stuff. Some companies call it “revenue.” Some call it “sales.” Some call it “income.” § Whatever title is used it is almost always found at the top of any income statement. § The important thing to remember is that it is not in all cases cash in hand. Sales are monies you have earned but not necessarily collected if you offer any kind of credit to your customers. For you bookstore and coffee bar you earned $51.00. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  45. 45. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 133 of 150 The costs of being in business… § Right after the gross margin is presented, your income statement then shows your business expenses, sometimes called fixed expenses. § Fixed expenses are the costs of being in business. § They usually do not vary with the sales level of your business. For instance, whether you decide to open for business or not today, you still owe rent. § Examples of fixed expenses include such things as salaries, insurance, rents, advertising, utilities, and interest payments. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  46. 46. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 136 of 150 Profitability over a period of time… § It’s important to remember that your income statement presents sales and expense activity over a period of time as opposed to your balance sheet which shows your financial condition at a point in time. § In our scenario, your bookstore and coffee bar was open for two days. Therefore, your income statement represents activity for that two day period. § Your balance sheet, on the other hand, shows your financial condition at the end of the second day. This is important to remember. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  47. 47. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 139 of 150 The format of the cash flow statement… § In its simplest form, a cash flow statement is presented in the following format: – Beginning Cash Balance – Plus Cash Inflows – Minus Cash Outflows – Equals Ending Cash Balance This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  48. 48. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 142 of 150 Beginning cash balance… § The cash flow statement works in a similar fashion to the register of your checkbook. § You start with a balance of money. You add any deposits and then figure your new cash balance. You also subtract any checks written and once again figure your new cash balance. § Since your bookstore and coffee bar was a start-up business, you actually had a zero beginning balance of cash. So this is where we came up with the $0.00 beginning cash balance. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  49. 49. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 145 of 150 The ending cash balance… § The ending cash balance shown on any cash flow statement is carried over as the cash balance to your balance sheet. § This number is calculated by taking the beginning cash balance for the accounting period, adding any sources of cash, and then subtracting any uses of cash. § This number is not to be confused with the “cash flow of the business. The cash flow is simply the difference between your cash inflows for the period and your cash outflows. This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  50. 50. Accounting 101: The Fundamentals ™ | COURSE OUTLINE Slide 148 of 150 The flow of cash over time… § As a last point, it’s important to remember that your cash flow statement also presents activity over a period of time: Cash Flow Statement for January 1 – January 2 Beginning Cash Balance $0.00 Cash In -Cash Sales $31.00 -Accounts Receivable Collections $20.00 -New Loans $30.00 -New Investment $15.00 Cash Out -Equipment Purchased $24.00 -Expenses Paid $26.00 -Inventory On Hand $33.80 -Principal Payments $1.00 Ending Cash Balance $11.20 This document is a partial preview. Full document download can be found on Flevy: http://flevy.com/browse/document/the-business-entrepreneur-seminars-module-5-of-16-1306
  51. 51. 1 Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com

This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here: http://flevy.com/browse/business-document/the-business-entrepreneur-seminars-module-5-of-16-1306 BENEFITS OF DOCUMENT 1. To learn the three fundamental ?scorecards? for keeping track of money in a business and to show how each operates. 2. To master the basic transactions that any business encounters/To show you how to create and understand the balance sheet, income statement, and cash flow statements. 3. To learn ways to manage cash and its flow through your business, as well as, dealing with large costs. DOCUMENT DESCRIPTION Accounting 101 149 Animated Slides Approx. Hours Take command of a bookstore and coffee bar and see how money moves in and out of a business learning the fundamentals of accounting at the same time. This course provides an in-depth look at each of the primary accounting transactions used in a business demonstrating how "the language of business" works. Without using any accounting jargon to begin with, the course demonstrates how to keep score in a business through a simple scorecard approach. When you are finished, you are shown that each of your scorecards represents one of the three primary financial statements used in managing a business.

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