1. Financial Bootcamp – Module 1 Financial Basics

2. Objectives
Introduce the basic, core concepts of financial management and accounting
Explain certain financial concepts in the context of a Habitat affiliate
Present basic accounting and financial management ideas for future reference

3. Basic Definitions
Accounts Payable (AP) – Money you owe to someone else (e.g., construction material suppliers, the power company, etc.)
Accounts Receivable (AR) – Money someone else owes to you (e.g., rent, mortgage principal payments, etc.)
Amortization – The systematic write-off of the cost of an asset (home) over its economic life
Assets – Things you own that have monetary value

4. Basic Definitions Books – The record of financial transactions (slang)
Capital – Assets, including cash, land, vehicles, etc.
Credit – Left side of a double-entry ledger
Debit – Right side of a double-entry ledger
Depreciation – The systematic reduction in value of an asset over time

5. Basic Definitions
Equity – Value of assets after liabilities have been paid
Expenses – The costs of doing business
Liabilities – Money owed to a creditor
Liquidity – The ability to convert an asset into cash
Profit – The excess of revenue after subtracting expenses

6. Basic Definitions
Revenue – Income into the organization such as cash or accounts receivable
All Habitat affiliate Board members should be familiar with these basic accounting terms. If they are not, take the time to educate them—it will greatly benefit the affiliate.

7. Basic Principles You cannot spend what you do not have
Everything must be accounted for
All transactions must be above-board and reviewed by an independent, external agent (auditor)

8. Generally Accepted Accounting Principles (GAAP)
Provides standard framework for affiliate accounting
Required by HFHI
The typical methods for keeping track of an affiliate’s finances

9. Journals & Ledgers
Ledgers contain accounts (e.g., AR, sales, equipment, etc.)
Journal is where a transaction is entered before being posted (recorded) in the appropriate account

10. Journals (Books)
Keeping hand-written journals and ledgers is no longer an acceptable practice for Habitat affiliates
Software (Quickbooks, Excel, etc.) allows for digital journals and ledgers that can be safely stored and readily accessible
Journals and ledgers should be backed up to a remote storage location (Google Drive, Dropbox, etc.) every day

11. Chart of Accounts
List of accounts used by an affiliate to categorize and classify each item for which money is spent or received
Examples: depreciation, fixed assets, equipment, etc.
Affiliates are encouraged to use a standard chart of accounts

12. Double-Entry Bookkeeping
The standard means of accounting for financial transactions
Involves using credits and debits as a way to account for the addition to or subtraction of value to the affiliate through a transaction
Every transaction will have both a credit to (at least) one account and a debit to (at least) one other account
The amount of a debit should be the same amount of a credit so as to create balance

13. Debits & Credits
Every account has a Debit (left) side and a Credit (right) side
Debits: All expenses and losses, all assets, “the receiver”
Credits: All income and gains, all liabilities, “the giver”
Whether an account is debited or credited depends on the nature of a transaction

14. Debits & Credits
When cash (like a donation) is received, the “Cash” account is debited and a corresponding account, like “Pledges” is credited
When an asset (like a building) is donated, the “Building” account is debited and the “In-Kind Income / Gift-in-Kind” account will be credited

15. Debits & Credits
Example: An affiliate borrows $10,000 from its bank as a zero-interest loan to do with as it needs. This loan is a liability and will go into the “Notes Payable” account as a credit. It is also an asset, so it will go into the “Cash” account as a debit.
Cash
Debit
Credit
$10,000
Notes Payable
Debit
Credit
$10,000

16. Debits & Credits
Example: The affiliate pays $5,000 towards the $10,000 loan it receive the month before. This decreases their “Cash” by $5,000 as a credit and decreases “Notes Payable” by $5,000 as a debit.
Cash
Debit
Credit
$5,000
Notes Payable
Debit
Credit
$5,000

17. Debits & Credits Debits Credits Increase an asset Decrease an asset
Decrease a liability
Increase a liability
Receives money
Pays money

18. Reporting
There are several basic reports every affiliate should have and review, at least, monthly at Board meetings:
Balance Sheet
Profit & Loss Statement (P&L)
Cash Flow Report

19. Balance Sheet
Shows the financial position of the affiliate at a single point in time
Detailed presentation of the affiliate’s assets, liabilities, and equity.
Shows how: assets = liabilities + capital

20. Profit & Loss Statement (P&L)
Summary of revenue and expenses incurred during a specific period of time
Shows whether the affiliate generated a profit or a loss
Provides information on how to increase revenue and decrease expenses

21. Cash Flow Report
Shows how changes on the “Balance Sheet” affect cash and cash equivalents
Provides a breakdown of expenditures
“How much money did we actually receive and how did we spend it?”

22. Conclusion
Educate yourself and your Board members on basic financial principles
Maintain clean accounting records and ask for help, if necessary
Provide regular reports to make sure everyone understands the financial situation at the affiliate