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

Cash Journal

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

Projections Budget/Expenses Sales Projections Break-Even Analysis 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 Business Registration Form Startup Budget Worksheet Monthly expenses & One-time expenses Seed 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). Create Initial Balance Sheet Additional Cash to Support Operations Use Capital Needs Flowchart & Fulfill requirements and Submit request As the Year Continues: Update Balance Sheet Manage the Bank Account Monitor and Record Cash Received Make and Record Cash Payments

+ = ASSETS Balance Sheet LIABILITIES SHAREHOLDER’S EQUITY WHY? To Show Owner’s Equity WHAT? Uses the Accounting Equation: Assets = Liabilities + Shareholders’ Equity LIABILITIES + = ASSETS SHAREHOLDER’S EQUITY http://prezi.com/4b0mpbgw-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? One is easier (Cash) and one more accurate for the time period (Accrual) Once a company chooses either Cash or Accrual system, there is no changing.

Accrual – Income Statement Cash vs. Accrual Accrual – Income Statement Cash – Cash Budget When the transaction takes place or when a service is used When the money is received or paid Month 1 2 3 Receipts Cash Receipts 1,500 3,500 Payments Insurance 1,000 Utilities 4,750/8 … Month 1 2 3 Revenues Internet Sales 2,000 Expenses Insurance 1,000/12 … Utilities 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-and-financial-stateme

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

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