2. Types of Reports
Balance Sheet or Statement of Financial Position
Income Statement or Statement of Activities
Statement of Cash Flows
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3. Accrual vs. Cash
Accrual basis
◦ Records revenues and expenses when they are incurred, regardless of when cash is exchanged.
Cash basis
◦ Records revenues when cash is received and expenses when the expense is paid.
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4. Balance Sheet
Taken at a snap shot in time – for example, As of December 31, 2018
Tells you how much money your company has (assets), how much is owed (liabilities) and what
is left over (net worth).
The total value of all assets must equal the total combined value of liabilities and equity (or net
assets).
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5. Asset Accounts
Cash – cleared and uncleared transactions
Investments
Accounts receivable
Inventory
Fixed assets
Prepaid expenses
Deposits
Current assets vs. noncurrent assets
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7. Income Statement
An income statement or profit and loss shows the company’s revenues and expenses during a
particular period. It shows how the business incurs its revenues and expenses through both
operating and non-operating activities.
Revenues – Expenses = Net Income
Revenues – COGS = Gross Profit – Expenses = Net Income
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8. Statement of Cash Flows
Statement of cash flows 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 during a specified period of time.
Operating Activities - it adjusts net income for any non-cash items (such as adding back
depreciation expenses) and adjusts for any cash that was used or provided by other operating
assets and liabilities.
Investing Activities - shows the cash flow from all investing activities, which generally include
purchases or sales of long-term assets, such as property, plant and equipment, as well as
investment securities.
Financing Activities - typical sources of cash flow include cash raised by selling stocks and bonds
or borrowing from banks (cash inflow) and paying back a bank loan (cash outflow).
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9. Activity
Introducing the accounting equation with M&M’s
Assets = Liabilities + Equity
Learning objectives:
- Ability to state the accounting equation accurately
- Understand the meaning of negative owners’ equity
- Understand the capital structure of a company and the variety of uses of debt
- Use the accounting equation to understand the business risk in companies
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13. Cash Management
Create a budget and compare actual to budget.
Collect receivables and encourage customers to pay faster by offering early pay discounts. For
example, 2/10 net 30. Customers can deduct 2% of their invoice if paid within 10 days. Discounts
are a contra revenue account.
Extend payables as long as possible.
Maintain a cash reserve
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14. Non-profits
Statement of financial position
◦ Assets
◦ Liabilities
◦ Net Assets - net assets with donor restrictions and net assets without donor restrictions.
Statement of Activities
◦ Revenues: contributions, program fees, membership fees, etc.
◦ Expenses: natural vs. functional classification
◦ Functional classification – Programs, Management and admin, Fundraising
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