1. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 1 A. The Purpose of This Policy The purpose of this policy is to provide those who perform the Company's accounting activities with basic information about accounting principles. B. Assets, Liabilities and Net Worth Businesses own assets and have debts. Debts are listed as liabilities. The values of assets and liabilities are reported based as their values in money. The difference between assets and liabilities equals the net worth (sometimes called "equity") of a business. Expenses result in reduced net worth, because they reduce assets or increase liabilities. Continue ► 7100. General Accounting Procedures, 7102 Business Accounting Basics

2. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 2 C. Ledger Accounts To record information on a business's financial position, separate accounts are set up for each income source, expense, asset and liability. Increases and decreases are recorded for each account. When set up in columns, increases are usually in the left column and decreases are in the right. Each increase and decrease to an account is a transaction. Each transaction should include the following information:  The date of the transaction  The transaction reference number (if possible, depending on the software program) Continue ► 7100. General Accounting Procedures, 7102 Business Accounting Basics

3. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 3 C. Ledger Accounts (cont.)  A description of the transaction  The amount of the increase or decrease  The new account balance Continue ► 7100. General Accounting Procedures, 7102 Business Accounting Basics

4. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 4 D. Debits and Credits Debits increase an asset account or expense account and decrease a liability account, owner's equity or revenue. Credits decrease an asset account or expense and increase a liability account, owner's equity or revenue. Debits are recorded in a left column of a journal, and credits are recorded in the right. Continue ► 7100. General Accounting Procedures, 7102 Business Accounting Basics

5. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 5 E. Accrual and Cash Accounting Methods There are two commonly used accounting methods, "accrual" and "cash”. Users of the accrual accounting method allocate revenues to the financial periods for which goods and services were delivered to customers; and they allocate expenses to the financial periods in which the business used the goods and services. Users of the cash accounting method allocate revenues to the financial periods for which they received payments, and they allocate expenses to the financial periods for which they made payments. The accrual accounting method provides more accurate reports on the financial performance and condition of a company; so most large and mid-sized companies use the accrual method. The cash accounting method is easier; so some very small companies use the cash method of accounting. Continue ► 7100. General Accounting Procedures, 7102 Business Accounting Basics

6. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 6 F. Paper Trail A "paper trail" is the condition of having on-file a document to support every posted transaction, including multiple papers for transactions with multiple entries. Of course, the “paper” may be an electronic image, such as a PDF file of a document. Keeping a paper trail is one of the most fundamental practices of good accounting procedures. End 7100. General Accounting Procedures, 7102 Business Accounting Basics

7. FINANCIAL MANAGEMENT GUIDE © Marin Management, Inc. 7 7100. General Accounting Procedures, 7102 Business Accounting Basics