1. Accountability Accounting: An Overview of Financial Performance

2. Accounting Defined The American Institute of Certified Public Accountants defines accounting as "the art of recording, classifying, and summarizing in a significant manner in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof."

3. A Business Example: The Acme Corporation supplies products and services to people world-wide. This presentation provides an overview of our financial performance. Unless marked as Company Confidential, all information has been made public. Highlights Income Revenue Balance Sheet Assets Stock Performance

4. Highlights (in millions) 19992000 Net revenues$x,xxx Net incomexxx Earnings per sharexxx Return on net revenuesxx% Cash and s/t investments$xxx Total Assetsx,xxx Stockholder’s equityxxx

5. Income Net Revenues Net Income Earnings / Share

6. Revenue by Division

7. Balance Sheet 19992000 Assets –Cash and short-term investments –Accounts receivable –Inventories –Other $x,xxx xxx $x,xxx xxx Total Assets $x,xxx Liabilities –Accounts payable –Accrued compensation –Income taxes payable –Other $x,xxx xxx $x,xxx xxx Total Liabilities $x,xxx Shareholder’s Equity $x,xxx

8. Assets

9. Stock Performance Stock Performance to Date

10. How Accountants Think There is a direct correspondence between ‘reality’ and knowledge we have of it through financial reports. –Objective is to give as accurate and ‘true’ a picture of what happened (transactions) and where we stand (financial condition) as humanly possible.

11. Accounting Records ”The Books” –Ledgers record changes in condition –Journals record, classify and summarize specific transactions. –Charts of accounts list classification scheme for recording transactions Income Expenditures

12. Basic Formula Financial condition at a given moment Changes over time All accounting systems use three fundamental terms: –Assets (What we own or hold) –Liabilities (What we owe) –Equity (Difference) – A-L = E

13. Two Other Basic Components Record changes –Income (Inflows of Assets) –Expenditures (Outflows of Assets)

14. Ledger Accounts Ledgers have five sets of accounts that all together should be in “balance” –Assets, liabilities, equities, income and expenditures. –All transactions are recorded twice (double-entry bookkeeping) –Sum of all right hand columns should equal sum of all left hand columns

15. Disaggregation Any (& usually all) of these five can be sub- divided into many more possibilities. –Asset: Cash & inventory –Liability: Current & long-term (e.g.mortgage) –Equities: Categories –Income: Revenue, Donations, Grants –Expenditures: Salaries, Fringes, Rent, etc. Sub-categories must always total to the whole.

16. Assets Debit (Left side): Additions to Assets –What we own Cash on hand Inventory Receivables (What we are owed) Credit (Right side): Reductions of Assets –What we have spent Major offsetting entries are Income, Expenditures and Equity.

17. Liabilities Debit side: Mostly adjustments and corrections Credit side: What we owe (payables) In nonprofits, often a very limited category. Major offsetting entries are in Expenditures (bought but not paid for) and Equity (reducing capital)

18. Equity In nonprofits, has one of two names: –Fund accounting: Fund balances –Net income accounting: Net income Left (debit) offsetting entries are Liability credits (right). Right (credit) offsetting entries are Asset debits (left).

19. Inflows Left: Mostly adjustments Right: –What we have received: Revenue Support –What we expect to receive Off-setting entries are in Assets

20. Expenditures Left (debits) reduce assets (paid) or increase liabilities (payables). Right (credits) are mostly corrections and adjustments.

21. Quickbooks Small nonprofits (under $250,000) with limited payroll and limited accruals* can get good service out of Quickbooks –URL: http://www.quickbooks.comhttp://www.quickbooks.com –They have a 30-day trial period you can sign up for.

22. GAAP Financial statements The purpose of keeping these records (“the books”) is to produce accurate financial statements. Nonprofit financial statements: –Financial Position (Assets, Liabilities & Equity) –Statement of Activities (Changes in Net Assets) –Cash Flows (Operations, Investments, Financing) –Functional Expenditures