1. SQ-1 Week 5--Finance
Judy Ballard

2. Chart of Accounts Income Expense Assets Liabilities Equity
The accounting system is built around a list of account names called a chart of accounts and is organized under the categories of assets, liabilities, owner's equity, income, and expenses. Your chart of accounts will be unique to your business.
Income is the money from the sale of goods and services.
Expense are the daily expenses of running a business (i.e. rent, insurance, etc.)
Assets are things of value owned by a business (i.e. cash, accounts receivable, equipment, security deposit, etc.)
Liabilities are those amounts the business owes the creditors. (i.e. accounts payable, notes, loans, etc.)
Equity OR Capital Outstanding stock sold to investors, Retained earnings (the accumulation of profits or losses from inception). Capital account is only necessary for small businesses and reflects the investment of the owner(s), Corporations issue stock – LLC’s issue units.

3. The Four Basic Financial Statements
Profit & Loss (Income Statement)
Balance Sheet
Statement of Cash Flows
Statement of Changes

4. What is a P & L? Profit & Loss (Income Statement)
Shows all revenues and expenses
Reflects a period of time
Revenues can be sales of services, goods, grant funding, interest
Expenses are costs for operating activities (other than assets of value). They may be actual cash payments (such as rent, wages, office supplies) or non cash such as the depreciation of assets or bad debts.
The income statement reflects a period of time (monthly, quarterly, annually). The gross revenue less expenses are reported as net income or earnings.

5. What is a Balance Sheet? Balance Sheet
Reflects Assets, Liabilities, Equity
Reflects a point in time
Balance Sheet equation: Assets = Liabilities + Equity; thus “balance”
Generally referred to as the most important of the financial statements, it is a “snapshot” at a point in time and represents the financial health of a business. It reflects not only what the company owns but what it owes.
Equity is the total you’d receive if everything was sold. Banks and other creditors are paid first and you only keep what is left over. If you have more liabilities than equity, it means the bulk of the business is actually owned by other people rather than owned by you.

6. Putting it together:
The income statement shows your income for the month and how you spent it
The balance sheet will show you the value of your bank accounts, assets and if you owe money
In everyday terms, the income statement would show how much your paycheck was and how you spent your money (ie. interest on your car loan or mortgage, going to the movies, groceries) and how much is left at the end of the month, but it doesn’t show you the value of what you own or how your funded the purchase of the assets. The balance sheet will show you the value of your house and car, how much money is in your bank account and how much your owe the bank for your car and house.

7. Other Financial Statements
The Statement of Cash Flows is divided into three areas
Operating activities
Investing activities
Financing activities
Statement of Retained Earnings
Reconciles changes in the retained earnings account
Details the change in owners' equity 
Statement of Cash Flows
Operating activities. Revenue-generating activities of the business, such as revenue received and expenses paid
Investing activities. Payments made to acquire long-term assets, as well as cash received from their sale.
Financing activities. Changes to equity or borrowings of a business, such as selling or repurchase of shares, and dividend payments.
Statement of retained earnings is also known as the statement of changes, retained earnings statement, the statement of shareholders' equity, the statement of owners' equity, and the equity statement.

8. Bookkeeping vs Accounting
Bookkeeping is the recording of daily transactions in a consistent way
Entering & paying bills
Invoicing & recording payments
Journal entries
Payroll
Reconciling accounts
Accounting is a higher level process that uses financial information to produce financial models
Analyze costs of operations
Tax preparation
Audit
Provide advice concerning the impact of financial decisions
Bookkeeping and accounting are both essential business functions. Bookkeeping is responsible for “day to day” recording of financial transactions. Accounting is responsible for interpreting, analyzing, and reporting financial data.

9. Do I need a Bookkeeper?
Doing your books is taking away from the time you can spend on your business or you’re not keeping up to date
You are not sure you are keeping the records correctly
Your accountant is performing bookkeeping duties
If you find yourself spending a large portion of your week paying bills, processing payroll, creating invoices, reconciling bank statements, etc. then you are not spending that time growing your business or focusing on research. As the business grows so does the paperwork.

10. Do I need an Accountant? Preparing a corporate tax return
Performing audits
Advice concerning stock issuance
Consultation concerning Licencing agreements

11. How Do I Work With A Bookkeeper?
COMMUNICATE
Keep your receipts
Share information concerning debt and equity
Send invoices and approvals in a timely fashion
If you use credit or debit cards to purchase items for your company be sure to send them so they can be attached to statements. This will not only keep the books straight but will also help to prevent fraudulent activity on your accounts. HINT: Write notes on your receipts when they are given to you
If you receive funding through notes or equity be sure to share with your bookkeeper so that they can keep interest accruals and/or equity changes up to date on the books.

12. Thank you! Judy Ballard info@right-on-site.com CIC@CET 20 S Sarah
St. Louis, MO 63108
Tell everyone what you want to do and someone will want to help you do it.
– W. Clement Stone