Business Plan Project Sophomore Business English Majors Mr. Lee

Accounting Activity On a sheet of paper, organize the following notes from a souvenirs entrepreneur. Use only the relevant information, and, as succinctly as possible, decide if the business made money or not.

Accounting activity At 8 a.m. I met with Mr. Holden to discuss selling teddy bears at his store. I spent $8.00 on coffee. He agreed, and wrote me a check for $3,000 for merchandise. At 9 a.m., I arrived at the factory, and to my dismay, the printing press was broken. I had a repairman come to the factory to replace the press, and the parts and labor cost $1,200. Mr. Holden wants the bears by tomorrow, so I put in a rush shipment for 500 bears, costing us $1000. I pay my two employees $10/hour, and they worked for 5 hours on this printing project, and then went home. Just then, Ms. Jones called me to apologize for her late payment. She sent us $2000 through Paypal for brand consulting from last month. Mr. Delgado, our landlord, came to pick up the rent. I paid $2000 for April’s rent. When I went back to the factory, I decided that we needed a faster computer. So, I ordered a computer for $1200.

Accounting Overview Accounting: The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information. Simplified definition: tracking all of the incoming and outgoing money

Sample Income Statement Profit = revenue – expenses Revenue: The total amount of money that your company receives for your product or service Expenses: The total amount of money that your company spends Profit: Whatever is left over Also known as the profit margin Net vs. gross Gross means the total Net means the remainder

Income statement

Sample Income Statement

Accounting Overview Why is it important to have accounting standards, specific terms, etc.? In other words, why is accounting so detail oriented? When you need to compare different businesses, you need to have a common business language It will save time when you have a standard method for a procedure

Accounting Basics A = L + OE Assets What your company OWNS Liabilities What your company OWES Owner’s Equity Investments in your company Money that belongs to investors and owners

Accounting Basics Balance Sheets Balance sheets are complex, we will only go over the basics You will have multiple balance sheets, one for each type of account, e.g. Office equipment Cash Inventory of products Accounts receivable Accounts payable

Accounting Basics Accounts receivable: Money owed to the business (customers, the government, refunds, etc.) Think about it as the accountants “receiving” the money Accounts payable: Money that the business owes to other people Think about it as the accountants “paying” the money to other people

Credits and Debits Your formula (A = L + OE) must always match The T-Chart Debit: Value that your company owns Debits always go on the left of the chart Credit: Value that your company owes Credits always go on the right of the chart

Debits and Credits IncreaseDecrease AssetDebitCredit LiabilityCreditDebit Income/RevenueCreditDebit ExpenseDebitCredit Equity/CapitalCreditDebit

Balance sheet example

Finance Definition: The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities In short, deciding what to do with the money for a business Deal with appreciation and depreciation Appreciation: Something gains value E.g. real estate, investments Depreciation: Something loses value E.g. Computers, equipment

Finance Overview Finance is broad, and can be split into many categories We will talk about corporate finance Different from personal finance

Finance and Accounting Compare: Both fields deal with money (quantitative) Both are essential for the functioning of a business Both require detail oriented thinking Contrast: Accounting is focused on the present, while finance is focused on the future Finance, more often than accounting, involves estimations Finance deals with how to acquire and disburse funds while accounting just tracks them Bottom line: Finance starts where accounting ends

Financial Plan Create an income statement What kind of expenses will you have? How much revenue will you receive? What will be your profit? What will be your profit margin per unit? How long will it take for your company to reach profitability? How much investment do you need?