Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses
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Check out Yair Flicker's intro to accounting. Perfect for startups and software development companies.
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Intro to Accounting with QuickBooks for Startups, Software Development Companies, and Small Businesses
- 1. Intro to Accounting For startups and small business Yair Flicker, Betamore, 3/19/13 http://smartlogicsolutions.com
- 2. What Weâll Cover ⢠Legal decisions to makeâand related tax consequences ⢠Accrual vs. Cash ⢠Fundamental Accounting Reports ⢠Principles of Accounting ⢠Setting up a QuickBooks ďŹle
- 3. My Experience ⢠SmartLogic Solutionsâ2005 to present ⢠Maryland Nonstock LLC / s-corp ⢠Bikemoreâ2012 to present ⢠Maryland Nonstock NonproďŹt Corp ⢠TeamPasswordâ2013 to present ⢠Maryland Stock Corp / s-corp
- 4. My Experience ⢠Took Intro to Accounting 10 years ago ⢠Mostly self-taught or gleaned from my accountants ⢠NOT a tax professional
- 5. My Credentials ⢠Me with a yarmulke at the Western Wall
- 6. About the Accounting Industry ⢠Not the most progressive ⢠Doesnât change a whole lot ⢠QuickBooks is the canonical tool for small operations ⢠But accountants do know accounting really well
- 7. Whoâs in the Room? ⢠Your Name ⢠Company Name(s) ⢠Stock / Nonstock? ⢠S/C-Corp, Partnership, Sole Proprietor ⢠Payroll?
- 8. Legal Decisions and Tax Consequences
- 9. Why Incorporate? ⢠Make money for shareholders ⢠Do warm and fuzzy stuff ⢠Make money for shareholders ⢠Limit liability
- 10. Type of Maryland Corporations ⢠www.dat.state.md.us/sdatweb/ sdatforms.html ⢠Limited Liability Corporation (LLC) ⢠Stock Corporation ⢠Nonstock Corporation ⢠Some others, but who cares
- 11. S Corp vs. C Corp? ⢠Taxed once ⢠Taxed at corporate level ⢠Pass-through income ⢠Dividends get taxed again (K1) ⢠Canât easily convert to S ⢠Can convert to C Corp Corp relatively easily ⢠No practical restrictions ⢠< 100 shareholders on shareholders ⢠One class of ⢠Multiple classes of shareholders shareholders are okay
- 12. Form 2553 ⢠States donât care if youâre S corp or C corp ⢠The IRS does! File Form 2553 ASAP if youâre going S corp!
- 13. Section 83(b) ⢠Applicable to stock corporations ⢠Send to IRS ⢠Protects you from recognizing income on stock that is vesting and increasing in value ⢠Send it w/in 30 days of incorporation or you are screwed
- 14. Why Keep the Books in Order?
- 15. Make Tax Filing Easy ⢠But please donât prepare your own corporate returns
- 16. Make Informed Decisions ⢠How many more development sprints do I have? ⢠How will hiring this person affect my monthly burn?  I.e. can I hire this person. ⢠Based off my runway, how urgently do I need to do the horse and pony show?
- 17. Make Informed Decisions ⢠How will increasing marketing spend to $XXX affect my runway? ⢠How urgently and aggressively do I need to collect on debts? ⢠How much do I owe to creditors?
- 18. How to Keep the Books in Order? ⢠Simple, repeatable, deterministic processes ⢠Or pay someone
- 19. Accrual vs. Cash Basis
- 20. Two Styles of Accounting ⢠Cash basis: revenue is realized when you get a check or cash ⢠Accrual basis: income/expenses are realized when you issue/receive an invoice ⢠Go cash basis.
- 21. SAAS Companies ⢠Invoicing? Who does that any more? ⢠Youâll probably collect money right away ⢠Net effect: cash = accrual basis
- 22. Services Companies ⢠Send out large invoices ⢠Some clients pay when they want to ⢠You still owe your creditors (credit card)
- 23. My Preference: Cash ⢠I want to know how much cash I have ⢠Allows for safest decision making ⢠I still look at reports seeing how many invoices are outstanding (weâll look at these shortly)
- 24. Assets, Liabilities, Equities
- 25. Remember this Equation Assets = Liabilities + Equity
- 26. Assets Something that can be turned into cash
- 27. Current Assets ⢠Something that can quickly be turned into cash ⢠Generally: ⢠Bank Accounts ⢠Undeposited Funds ⢠Stocks
- 28. Fixed Assets ⢠Not as quickly turned into cash ⢠Generally: ⢠Inventory ⢠Furniture ⢠Computers & Equipment ⢠Note: ďŹxed assets get depreciated
- 29. Accounts Receivable ⢠Money owed to your company ⢠Only shows on the balance sheet if using accrual basis
- 30. Liabilities ⢠Obligation of an entity stemming from past transactions or events ⢠Usually results in transfer of assets or services
- 31. Remember this Equation Liabilities = Assets - Equity
- 32. Sample Liabilities ⢠Credit card ⢠Bank loan ⢠Line of credit ⢠Expenses
- 33. Accounts Payable ⢠Money you owe vendors ⢠Only shows on the balance sheet if recording on an accrual basis
- 34. Equity Alternatively called Ownersâ Equity, Stockholdersâ Equity, etc.
- 35. Equity ⢠What people (you, family,VCâs) put in to fund your company ⢠Generally: ⢠Capital Stock ⢠Dividends ⢠Retained Earnings
- 36. Remember this Equation Equity = Assets - Liabilities
- 37. The Fundamental Reports
- 38. The Balance Sheet ⢠The 50,000â view ⢠Shows the âbook valueâ for a speciďŹc moment in time ⢠Doesnât tell you much about the companyâs operations
- 39. The Balance Sheet ⢠Shows Assets, Liabilities, Equity ⢠Nothing about salaries, wages, marketing expenses, conferences, events, travel, meals, etc.
- 40. Check out a Balance Sheet
- 41. The P&L Statement ⢠AKA Income Statement, Earnings Statement, etc. ⢠Shows income vs. expense over a period of time ⢠Grouped by income and expense account
- 42. Operating Income Income/expense as a result of your normal business operations
- 43. Other Income/Expense Not a result of normal business operations (e.g. dividends from stocks, taxes to foreign governments paid on those dividends, etc.)
- 44. Common Income Account Names ⢠Service Revenue ⢠Product Revenue ⢠Write Offs ⢠Cost of Good Sold
- 45. Example Expense Accounts ⢠Advertising ⢠Insurance ⢠Marketing ⢠OfďŹce Equipment ⢠Payroll Expenses ⢠Professional Fees
- 46. Related P&L Statements ⢠P&L Detail Statement ⢠P&L Comparison Statement
- 47. Check out a P/L Statement
- 48. A/R Statement ⢠Money owed to you by your clients ⢠If recording on accrual basis A/R is an asset
- 49. A/R Questions ⢠How much is my company owed? ⢠How much credit have I extended to my clients? ⢠How good am I at collecting debts owed to me? ⢠How much money can I expect to come in soon?
- 50. A/R Questions ⢠Is this client dissatisďŹed? Theyâre late on an invoice, which is not a good sign. ⢠Did they lose my invoice? ⢠Are they incompetent? ⢠Do they jerk around their vendors?
- 51. A/R Questions ⢠Who do I need to sue (or at least threaten legal action against)? ⢠Is this client a deadbeat? ⢠Is this client running out of cash?Is my client ďŹnancially distressed? Do I need to stop doing business with this client?
- 52. A/R Statement for Services Companies ⢠Grouped by client ⢠Further grouped by job
- 53. A/R Statements for Product Companies ⢠Not sure they make much sense if youâre not issuing many invoices ⢠37signals isnât looking at A/R statements ⢠Create your own reports
- 54. Related A/R Statements ⢠A/R Aging Summary ⢠Collections Report
- 55. Check out an A/R Statement
- 56. A/P Statement ⢠Debts owed by you to vendors in exchange for goods or services rendered by the vendor to your business ⢠You record a debt to A/P when you get an invoice ⢠If recording on an accrual basis A/P is a Liability on the balance sheet
- 57. A/P Questions ⢠How much do I owe vendors? ⢠When do I need to pay the vendors? ⢠Can I cut some of these expenses? ⢠Can I negotiate different payment terms?
- 58. Check out an A/P Statement? Nah, pretty much the same as A/R
- 60. Double-Entry System ⢠All transactions are recorded in TWO accounts ⢠You increase one account ⢠You decrease another account ⢠(Money doesnât materialize out of thin air)
- 61. Double-Entry System ⢠The system that has been used for years ⢠Allows you to...account for everything!
- 62. T-Accounts ⢠Account name at the top ⢠Debits (Dr) are on the left ⢠Credits (Cr) are on the right
- 63. DEBIT DOES NOT MEAN DECREASE AND CREDIT DOES NOT MEAN INCREASE
- 64. Recall Assets = Liabilities + Equity
- 65. T-Accounts / Assets ⢠Debits INCREASE asset accounts ⢠Credits DECREASE assets accounts ⢠When cash hits your bank (an asset), add a Debit entry to an asset account ⢠When you write a check from your bank, add a Credit entry to an asset account
- 66. T-Accounts / Liabilities or Equities ⢠Debits DECREASE the value of liabilities and equities accounts ⢠Credits INCREASE the value of liabilities and equities accounts
- 67. T-Accounts / Liabilities or Equities ⢠When you run up your credit card (i.e. use your credit card to buy something), you are adding a Credit entry to a liability account ⢠When you pay down your line of credit you are adding a Debit entry to a liability account
- 68. T-Accounts / Liabilities or Equities ⢠When you put in personal money, e.g. when you formed your company, you are adding a Credit entry to an equity account ⢠When you issue a dividend to stockholders you are adding a Debit entry to an equity account
- 69. Nifty Things Happen ⢠Sum of all credits = Sum of all debits ⢠Credits - Debits = 0 ⢠Sum up everything and it equals 0!!! ⢠Corollary: if you sum up all your accounts and itâs not 0, you messed something up
- 70. Letâs do Some Examples ⢠Invest $10k into your company ⢠Invoice a client for $2,400 ⢠Collect $2,000 of that in cash ⢠Buy a fancy iPad for $500 ⢠Lawyers invoice you $300 ⢠You pay that invoice by check
- 71. Letâs do those again in Quickbooks
- 72. Tips ⢠IRS is your friend ⢠Donât run payroll ⢠Donât ďŹle your own corporate returns