Building Business Acumen Series: Making Dollars and Sense of Financial Statements

Building Business Acumen Series: Making Dollars and Sense of Financial Statements

Presented by :

The Dean Consulting Group™

Diane D. DeanPrincipal

December 4, 2007


Outcomes At the end of today’s session, you will:

Be financially literate. Acquire a better understanding of key financial

terminology. Reviewed the tools necessary to get a handle on

your business finances. Be familiar with the functions of the basic financial

statements: balance sheet, income and cash flow statements.

Know how to speak the language of and analyze numbers.


Accounting methods

Cash Accounting Accrual Accounting

Definition: Expenses and revenue recorded when cash is actually paid or received.

Definition: Expenses and revenue are recorded when transaction has been completed or incurred.

Expenses and revenues are not carefully matched.

Expenses are carefully matched.

Best method for tracking actual cash available.

Best for knowing how much is spent and profit made each month.

Method most often used by sole proprietor and unincorporated small business.

Method required for use by incorporated entities including nonprofits.


Components of the Annual Report Auditor’s Report

Balance Sheet/Statement of Financial Position

Income Statement/Statement of Activities

Statement of Cash Flow

Notes to the Financial Statements

Manager’s Discussion and Analysis


Auditor’s Report

Introductory Paragraph - denotes timeframe of the audit and who is responsible for the financial statements. This is where the auditor attempts to limit their responsibility for possible inaccuracies.


Auditor’s Report

Scope Paragraph – Explains how auditors carried out the audit and they met the generally accepted audit standards (GAAS).


Auditor’s Report

Opinion Paragraph – Where the auditors state their opinion about the financial statements. If there are no problems, they will state "In conformity with generally accepted accounting principles" (GAAP).


Balance Sheet

2,150.00$ 21,435.00$ 3,750.00$ 6,250.00$

13,280.00$ 3,000.00$ Supplies 1,200.00$ 4,510.00$

1,250.00$ 35,195.00$

21,630.00$

35,000.00$ Building 40,465.00$ 15,000.00$ Equipment 51,525.00$ Trucks 12,200.00$ 50,000.00$ Less Accumulated Depreciation (9,000.00)$

95,190.00$ 85,195.00$

Net WorthOwner's Equity 31,625.00$

Total Assets 116,820.00$ Total Liabilities 116,820.00$

One of Kind, Inc.

Balance Sheet1-Dec-07

Accounts Payable

Current LiabilitiesCurrent Assets

Cash and Equivalents

Total Fixed Assets

Prepaid Expenses

Total Current Assets

InventoryAccounts Receivable

Total Liabilities

Total LT Liabilities

LT Debt (other than leases)Fixed Assets

Other Accrued LiabilitiesAccrued Liabilities

Lease ContractsLT Liabilities

Total Current Liabilities

Current Portion LT Debt


Income StatementNet Sales 650,000.00$ Cost of Sales 475,000.00$

Gross Margin/Profit 175,000.00$

Operating Expenses Engineering 25,000.00$ Sales & Marketing 76,000.00$ General & Administrative 37,000.00$ 138,000.00$ Operating Income 37,000.00$

(5,000.00)$

32,000.00$

Taxes 12,800.00$

19,200.00$

Income Statement

Net Income/Profit

Total Expenses

Other Expenses


Statement of Cash FlowOperations

19,200.00$ Net IncomeAdjustments

7500 Increase in accounts receivable-more sold than colected (125,600.00)$ Decrease in prepaid expenses-amortized but no cash paid 1500 Decrease in inventory-cash raised by lowering stock on hand 10,600.00 Increase in accounts payable-cash borrowed from creditors 28500 (77,500.00)$

(58,300.00)$

Operations(45,000.00)$

24000(21,000.00)$

Financing7500

Net reductions in long-term debt-payments made on long term loans (1,000.00)$ (5,000.00)$

1,500.00$

(77,800.00)$ 42,500.00$

(35,300.00)$

Statement of Cash Flow

Increase in bank debt-new short-term borrowing from bank

Dividends paid to stockholders-cash paid out to owners Cash flow provided by (used for) Financing

Net Cash Flow (Drain) Add balance of cash-beginning period Balance of cash-end of period

Add back depreciation-no cash paid for this

Capital expenditures-cash invested in new equipmentShort-term investments sold-net proceeds from sale Cash flow provided by (used for) investments

Cash flow provided by (used for) operations


Notes to the Financial Statements

Very important notes listed on various pages after the financial statements.

It includes: The accounting methods used Red flags about the company’s finances Any legal entanglements that may

threaten organization's future.


Manager’s Discussion and Analysis (MD&A)

You find in this section key discussions about what went well and did not.


Manager’s Discussion and Analysis (MD&A)

Three key areas:Company operationsCapital resourcesLiquidity


Channeling Your Inner CSI: Analysis


Channeling Your Inner CSI: Analysis

MD&AFinancial StatementsWorking capital/fund balance (NFP) Current RatioGross MarginTrend Analysis


Q & A

Documents

Building Business Acumen Series: Making Dollars and Sense of Financial Statements