5/12/2015
Financial Education
Frank Albi
Business Information Solutions
Cincinnati, Ohio
CEO @721-file.com
“Accounting 101”
•Basic Financial Statements
•Beginning Accounting
Not for CPAs and CFOs
Qualifications
•MA in sociology
•College accounting
(one semester ABA night school)
•NOT a CPA
•Never been a CFO
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5/12/2015
Qualifications
•Owned and operated BiS since 1980
•Result is my favorite brag
Topics to be covered
•Importance of basic financial
statements
•Mechanics of basic statements
•Secret of Accounting: it is ALIEN!
Topics NOT Covered
•Balance Sheet ratios
•Cost Accounting
Come Back Next Year
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5/12/2015
Basic Financial Statements
•Balance Sheet
•Income Statement
(aka Profit and Loss Statement or “P&L”)
•Cash Flow Statement
Balance Sheet
•Assets
What you OWN
•Liabilities
What you OWE
•Net Worth
What’s LEFT OVER
Balance Sheet is about
Wealth
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5/12/2015
Income Statement
•Revenue (aka “Top Line”)
What you’ve sold
•Expenses
What you’ve spent
•Net Income
What’s left over
Income Statement is about
Profit & Loss
Income Statement
•What you’ve sold
Revenue
•What you’ve spent
Expenses
•What’s left over
Net Income
What about EBITDA?
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5/12/2015
EBITDA
Earnings Before Interest, Taxes,
Depreciation, and Amortization
•M&A guys care about it
•Bankers care about it
•YOU should care about it
(more on that later)
Cash Flow Statement
•What come IN
•What goes OUT
•What’s the NET
Cash Flow Statement is about
Where It Went
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5/12/2015
Basic Financial Statements
•Balance Sheet
•Income Statement
• Cash Flow Statement
Balance Sheet
•Most “current” at the top
Assets and liabilities that are
reasonably expected to be
converted into cash within one year
in the normal course of business.
•Least current at the bottom
Balance Sheet
•Assets (What you OWN)
•Liabilities (What you OWE)
•Net Worth* (What’s LEFT OVER)
*Aka Equity
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5/12/2015
Balance Sheet
Assets - Liabilities = Net Worth
Assets = Liabilities + Net Worth
Balance Sheet
Assets = Liabilities + Net Worth
Balance Sheet
Current Assets
•Cash
•Accounts Receivable
•Pre-Paid Expense
•Deposits
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5/12/2015
Balance Sheet
Fixes (Long-Term) Assets
•Furniture
•Leasehold Improvements
•Real Estate
•Shelving
•Vehicles
Balance Sheet
Other Assets
•NRC Stock
•Goodwill
•Customer Contracts (Fat Chance!)
Balance Sheet
Assets = Liabilities + Net Worth
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5/12/2015
Balance Sheet
Current Liabilities
•“Trade” Accounts Payable
•Other Accounts Payable
•Taxes Payable (Payroll & Sales)
•Accrued Expenses
•Line of Credit
Balance Sheet
Long-Term Liabilities
•Unearned Revenue
•Notes Payable (Bank Loans)
•Capital Leases
•Stockholder Loans
Balance Sheet
Assets = Liabilities + Net Worth
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5/12/2015
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
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5/12/2015
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
Balance Sheet
Net Worth (aka Equity)
•Stock
•Paid-In Capital
•Previous Retained Earnings
•Shareholder Distributions
•Net Income Current Period (YTD)
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5/12/2015
Balance Sheet
Assets
Current Assets
+ Fixed Assets
Total Assets
Liabilities
Current Liabilities
+ Long-Term Liabilities
Total Liabilities
Equity
Total Equity
Total Liabilities & Equity
Balance Sheet
Assets = Liabilities + Net Worth
Total of Assets (at the Top)
Must Equal
Sum of Liabilities & Equity
(at the Bottom)
Balance Sheet
Assets
Current Assets
+ Fixed Assets
Total Assets
Liabilities
Current Liabilities
+ Long-Term Liabilities
Total Liabilities
Equity
Total Equity
Total Liabilities & Equity
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5/12/2015
Basic Financial Statements
•Balance Sheet
•Income Statement
• Cash Flow Statement
Income Statement
•Net Income
The “Bottom Line”
Income Statement
•Net Income
Operating Profit
+Other (Miscellaneous) Income
Net Income Before Taxes
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5/12/2015
Income Statement
•Net Income
Operating Profit
+Other (Miscellaneous) Income
Net Income Before Taxes
Income Statement
•Net Income
Operating Profit
+Other (Miscellaneous) Income
Net Income Before Taxes
Income Statement
•Net Income
Operating Profit
+Other (Miscellaneous) Income
Net Income Before Taxes
•What the Tax Guys care about
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5/12/2015
Income Statement
•Net Income
Operating Profit
+Other (Miscellaneous) Income
Net Income Before Taxes
•What the Tax Guys care about
Income Taxes
Income Statement
Income Taxes
•Federal (IRS)
•State (Ohio Department of
Taxation)
•Local (Cincinnati Income Tax
Division)
Income Statement
Revenue
-Expenses
Net Income
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5/12/2015
Income Statement
Revenue
-Expenses
Net Income
Income Statement
Operating Revenue (Sales)
1. Hardcopy (Boxes)
2. Vault (Tape)
3. Destruction (Shredding)
4. Imaging (Scanning & Hosting)
Income Statement
Non-Operating Revenue
(Other Income)
1. BAA Administrative or Notification Fees
2. Finance Charges Received
3. Fuel Surcharges
4. Out Charges
5. Recycling Income
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5/12/2015
Income Statement
Non-Operating Revenue
(Other Income)
6. Sub-Lease Income
7. Miscellaneous Other Income
Income Statement
Revenue
-Expenses
Net Income
Income Statement
Operating Expenses
1. Personnel
2. Occupancy
3. General & Administrative
(aka “Overhead”)
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5/12/2015
Income Statement
•Non-Operating Expenses
1. Allowance for Doubtful Accounts
2. Bad Debt
3. Key Associate Life Insurance Premiums
Income Statement
Revenue
-Expenses
Net Income
Income Statement
Net Income
• Is NOT Cash
• It DOES cover Interest Expense
• Does NOT cover
1. Income Tax
2. Debt Service (principal payments)
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5/12/2015
Income Statement
Taxes
•Payroll—Paid as personnel
expenses
•Licenses—Paid as G&A
•Business Activity—Paid as G&A
•Income—Paid out of Net Income
Income Statement
Income Taxes
•Federal (“Sub S” or “S Corp”)
S Corporations
S corporations are corporations that elect to pass
corporate income, losses, deductions, and credits
through to their shareholders for federal tax purposes. Shareholders of S corporations report the flowthrough of income and losses on their personal tax
returns and are assessed tax at their individual
income tax rates. This allows S corporations to avoid
double taxation on the corporate income.
S corporations are responsible for tax on certain builtin gains and passive income at the entity level.
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5/12/2015
Income Statement
Income Taxes
•Federal (“Sub S” or “S Corp”)
•State
•Local
Income Statement
Income Taxes
•Federal (“Sub S” or “S Corp”)
•State
•Local
Income Statement
Debt Service
•Interest—Paid as an expense
•Principal—Paid out of Net Income
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5/12/2015
Income Statement
Debt Service
•Interest—Paid as an expense
•Principal—Paid out of Net Income
Income Statement
Sales
Other Income & Expense
Hardcopy Sales
Miscellaneous Income
Climate Control Sales
Miscellaneous Expenses
Disposal Sales
Tot Oth Inc & Exp
Imaging Sales
Company Total Sales
EBITDA
NRC Billings
Total Sales
Interest & Depreciation
Interest
Operating Expenses
Depreciation
Total Personnel Expenses
Tot Int & Depr
Total Occupancy Expenses
Tot Gen & Admin Expenses
Income Before Taxes
Total Operating Expenses
City Income Tax
Net Income
Income Statement
Sales
Other Income & Expense
59
11
157
Disposal Sales
7
Imaging Sales
Company Total Sales 94
Tot Oth Inc & Exp
6
(1)
5
EBITDA
25
Hardcopy Sales
Miscellaneous Income
Climate Control Sales
Miscellaneous Expenses
NRC Billings
Total Sales
94
Interest & Depreciation
Interest
Operating Expenses
Total Personnel Expenses
Total Occupancy Expenses
Tot Gen & Admin Expenses
Total Operating Expenses
Depreciation
40
19
15
74
Tot Int & Depr
Income Before Taxes
City Income Tax
Net Income
4
2
6
19
2
17
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5/12/2015
Basic Financial Statements
•Balance Sheet
•Income Statement
• Cash Flow Statement
Cash Flow Statement
A cash flow statement, also known as statement of
cash flows is a financial statement that shows how
changes in balance sheet accounts and income affect
cash and cash equivalents, and breaks the analysis
down to operating, investing, and financing activities.
The cash flow statement is concerned with the flow
of cash in and out of the business. The statement
captures both the current operating results and the
accompanying changes in the balance sheet.
Cash Flow Statement
Ending Cash
- Beginning Cash
Change in Cash
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5/12/2015
Cash Flow Statement
Net Income
+ Adjustments
Operating Cash
+ Investment Cash
- Financing Cash
Change in Cash
Cash Flow Statement
Cash Flows from operating activities
Net Income
Cash Flows from Investing
$34,887.60
Adjustments to reconcile net income to
Net cash used in investing
Proceeds from Investing
Accum Depr--Computers
580.81
Used For
Accum Depr--Furn & Equipment
501.59
Key Truck Lease to June, 2019
Accum Depr--L/H Improvements
Accum Depr--Shelving
620.59
Shareholder Distributions
(15,000.00)
Net cash used in financing
(15,862.62)
Net increase <decrease> in cash
$54,492.10
440.17
Accum Depr--Site Improvements
418.30
254.57
Accounts Receivable
7,939.25
Accounts Receivable--Other
(235.22)
Prepaid Insurance
1,781.06
COLI--Cash Value
(1,979.47)
Accounts Payable
2,908.19
Accounts Payable--Other
2,523.92
Sales Tax Payable
(679.05)
Accrued Payroll Taxes--BWC
(2,575.47)
Accrued Professional Fees
0.00
(862.62)
1,046.04
Accum Depr--Trans Equipment
Accum Depr--Imaging Equipment
0.00
Cash Flows from Financing
net cash provided by operating activities
Summary
Cash Balance at End of Period
$95,174.74
Cash Balance at Beg of Period
(40,682.64)
Net Increase <Decrease> in Cash
$54,492.10
650.00
Accrued Leadership Bonuses
13,000.00
Accrued QG Real Estate Tax
2,287.48
Accrued TS Real Estate Tax
1,227.34
Accrued Payroll
5,770.73
Unearned Revenue--8Q36
(1,013.71)
Total Adjustments
35,467.12
Net Cash provided by Operations
70,354.72
Accounting is alien!
Questions
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5/12/2015
Accounting is ALIEN
Accounting is ALIEN
Assets
Accounting is ALIEN
Assets
Liabilities
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5/12/2015
Accounting is ALIEN
Assets
Liabilities
Income
Accounting is ALIEN
Assets
Liabilities
Income
Expense
Accounting is ALIEN
Assets
Liabilities
Income
Expense
Net Worth
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5/12/2015
DB + A & E
DB + A & E
Type Debit Credit
A
L
I
E
N
DB + A & E
Type Debit Credit
A
L
I
E
N
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5/12/2015
DB + A & E
Type Debit Credit
A
+
L
I
E
+
N
DB + A & E
Type Debit Credit
A
+
L
─
I
─
E
+
N
─
DB + A & E
Type Debit Credit
A
+
─
L
─
I
─
+
+
E
+
─
N
─
+
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5/12/2015
Last Chance (before my
summary)!
Questions
Summary
•Understand your statements.
•Accounting is ALIEN!
•Profit is the business of business!!
Thank You
Frank Albi
www.721-file.com
CEO@ 721-file.com
+1 513 721-3453 x401
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