Developing an Accounting System for your VE firm

Developing an Accounting System for your VE firm Tuesday, July 11, 11: 00 AM Presented by: Teri Jones & Chi Zhang

Agenda • Accounting Journals (Reference Files, Accounting Journals) • Cash Budget (Task 1 & 2) • Making Projections Income Statement • Financing the Business Balance Sheet • Cash vs. Accrual Basis • Beginning of the Year Financing

Journals WHY? To keep more accurate records WHAT? A system with checks and balances to help avoid mistakes • Cash Receipts and Payments Journal • Sales Journal • Purchases Journal • Inventory Record • Payroll Register • Loan Payment Table Found on the Portal / Accounting & Finance / Reference Files

Cash Journal

Cash WHY? To determine if cash balance is sufficient for operations. WHAT? Basic Sections of Financial Statement are: Beginning Balance, cash in, cash out, ending balance Task: Cash Receipts and Payments • Prepare a record of all money coming in and going out of the bank account • Itemized by type (See “Cash Budget”)

Cash Budget Description Cash balance at beginning of period: Receipts of cash: Sales Receipts of accounts receivable Loan proceeds Other Total receipts Beginning balance + cash receipts Payments: Cost of merchandise Salaries Accounts payable Rent Advertising/ promotion Payroll tax Insurance Accounting and legal fees Utilities Loan Payment Pension, 401(k) Freight out Sales tax Other or miscellaneous Corporate tax Total payments Cash balance at end of period Net increase or decrease in cash FY 2016 -2017 TOTALS 0 0 (wholesale marketplace) (net pay on payroll register) (regional office) (other VEI firms) (from payroll register & 941 form) (other VEI firms or regional office) (loan payment table) (from payroll register + emp. cont. ) (have you researched shipping fees? ) VEI Sales Tax is 7% of sales (Nationally) (paid at the end of the year) 0 0 0

Projections WHY? To estimate profit, cash needs WHAT? A realistic, researched, educated guess • Budget/Expenses • Monthly Expenses – Rent/Payroll/Utilities • One-time expenses – Furniture/Equipment/Initial Inventory • Sales Projections • (Sales & Marketing/Reference Files) • Break-Even Analysis • COGS • Profit/Loss (Income Statement)

Income Statement For the period May 1, 2016 – April 30, 2017 - Revenue Cost of Goods Sold Gross Profit Total Operating Expenses • Provide details - Income from Operations Corporate Tax Net Income After tax “Statement of Earnings” • What is your projected revenue? • Projected operating expenses? • How much profit or loss does your firm project to have this year? GROSS MARGIN %: Gross Profit/ Revenue = Gross Margin • The % of revenue that you keep after COGS. PROFIT MARGIN %: Net Income/Revenue = Profit Margin • The % of revenue that you keep after all expenses and taxes.

Income Statements “Fiscal Year by Month” = Year End & Projections

Use P&L Projections to assist with Pro-forma Cash Flow

Financing the Enterprise WHY? To assure enough cash is on hand for successful operations WHAT? Borrowing money or increasing owner’s equity (or out-of-network sales for VE) • Debt vs. Equity Financing • Non-VE Sales • The Balance Sheet COMPLETE THE BUSINESS REGISTRATION FORM TO APPLY FOR STARTUP FUNDING VE PORTAL / SUBMITTAL FORMS

Finance Beginning of the Year üBusiness Registration Form üStartup Budget Worksheet Monthly expenses & One-time expenses üSeed Money All new firms receive $20, 000 in seed funding from the VE National Office in exchange for 2, 000 shares of company stock ($10 par value per share). üCreate Initial Balance Sheet üAdditional Cash to Support Operations üUse Capital Needs Flowchart & Fulfill requirements and Submit request As the Year Continues: üUpdate Balance Sheet üManage the Bank Account üMonitor and Record Cash Received üMake and Record Cash Payments

Balance Sheet WHY? To Show Owner’s Equity WHAT? Uses the Accounting Equation: Assets = Liabilities + Shareholders’ Equity LIABILITIES ASSETS = + SHAREHOLDER’S EQUITY http: //prezi. com/4 b 0 mpbgw-ccx/the-balance-sheet/? utm_campaign=share&utm_medium=copy

How Does Equity Grow (or shrink)? What will happen to your assets (cash, inventory, equipment) over the course of the year? How to show changes in equity? Retained Earnings Assets = Liabilities + (Shareholders’ Equity + Retained Earnings) Retained Earnings = Assets - Liabilities - Shareholders’ Equity

Balance Sheet: Accounting & Finance/Reference Files/Financial Statement Templates with Explanations

Cash vs. Accrual Accounting WHAT? Using accounting that will either log records according to when the cash is spent or received (CASH BASIS) or According to when the expense/income was incurred (ACCRUAL BASIS). WHY? 1. One is easier (Cash) and one more accurate for the time period (Accrual) 2. Once a company chooses either Cash or Accrual system, there is no changing.

Cash vs. Accrual – Income Statement Cash – Cash Budget When the money is received or paid Month 1 2 3 2, 000 2, 00 0 Revenues Receipts Cash Receipts When the transaction takes place or when a service is used 1, 500 0 3, 500 Internet Sales Expenses Payments Insurance 1, 000 0 0 Insurance 1, 000/12 … Utilities 4, 750/8 … Utilities 4, 750/12 … 4, 750/12 Utilities= $4, 750 for 12 months of use, payable in 8 monthly installments • For another explanation, visit the Khan Academy: https: //www. khanacademy. org/economics-finance-domain/core-finance/accounting-andfinancial-stateme

Review: General accounting practices in VE • Prepare a budget • Keep records of all transactions o Using the accounting journals • Oversight & Internal Controls • Using the Webinars • Using the journals to prepare & Update financial statements o Cash Budget o Income Statement o Balance Sheet • Year-end reporting in the Annual Report

ACTIVITY: Using the Accounting Journals • Go to: • portal. veinternational. org 1. Accounting & Finance/task 1 & 2 2. Reference Files/Payroll Register (or with instructions) 3. Videos/Basics of the Accounting Journals/Reference Files/Payroll #1

Engage Various Company Departments: Cash Payments and Receipts Journal (Finance Dept. ) Payroll Register (w/ HR Dept. ) Sales Journal (w/ Sales & Marketing) Keep Good Records: Purchases Journal Inventory Log Asset Log Loan Payment Table

Go to veinternational. org to join the transformation.

Financial Statements • Cash Flow Statement • Income Statement • Balance Sheet • Break-Even Analysis (for Business Plan)