Creating an Accounting System for your VEI Firm Presented by: Nick Chapman, National Program Director Summer 2015

An Overview of the VEI Program veinternational.org General accounting practices in the Virtual Enterprise Prepare a budget Keep records of all transactions o Using the accounting journals Oversight & Internal Controls Using the Webinars Using the journals to prepare financial statements o Cash Budget o Income Statement o Balance Sheet Year-end reporting using the Firm Financial Data Form

An Overview of the VEI Program veinternational.org Financing the Enterprise Debt vs. Equity Financing Non-VE Sales The Balance Sheet sheet/?utm_campaign=share&utm_medium=copy COMPLETE THE BUSINESS REGISTRATION FORM TO APPLY FOR STARTUP FUNDING VEI PORTAL / SUBMITTAL FORMS

An Overview of the VEI Program veinternational.org The Balance Sheet Assets Cash Accounts Receivable Fixed Assets Computers/Equipment/Furniture ______________________________________ Liabilities Accounts Payable Loan Payable Shareholders’ Equity Common Stock Retained Earnings

An Overview of the VEI Program veinternational.org Financial Statements Cash Budget – a record of when money comes in and out of the account (Cash basis of accounting) Income Statement – a statement of earnings that books when revenues or expenses occur (Accrual basis of accounting) Balance Sheet – what your financial position looks like on a given day in time (Statement of financial position)

An Overview of the VEI Program veinternational.org DescriptionFY TOTALS Cash balance at beginning of period: Receipts of cash: Sales Receipts of accounts receivable Loan proceeds Other Total receipts0 Beginning balance + cash receipts0 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 (other VEI firms or regional office) Utilities (other VEI firms or regional office) 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 payments0 Cash balance at end of period0 Net increase or decrease in cash0 Cash Budget

Cash vs. Accrual Cash – Cash Budget Month 123 Receipts Cash Receipts 1,50003,500 Payments Insurance 1,00000 Utilities 4,750/8 … Accrual – Income Statement Month 123 Revenues Internet Sales 2,000 Expenses Insurance 1,000/12 … Utilities 4,750/12 … For another explanation, visit the Khan Academy: stateme When the money is received or paid When the transaction takes place or when a service is used Utilities= $4,750 for 12 months of use, payable in 8 monthly installments

An Overview of the VEI Program veinternational.org Income Statement For the period May 1, 2014 – April 30, 2015 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.

An Overview of the VEI Program veinternational.org OCT NOVDECJANFEBMARAPR TOTAL Sales revenues Source of Sales (ex. Online) 0 Source of Sales (ex. Trade Show) 0 Source of Sales (ex. Non-VE Sales) 0 Total sales revenues Cost of goods sold or services provided What is your firm’s Gross Margin? Apply the gross margin to your sales to determine COGS 0 Gross profit Operating expenses Salaries“Gross Pay” from Payroll Register 0 RentFrom your lease 0 DepreciationTaken from the Asset Log 0 Payroll tax 7.65% of Gross Pay (this is the firm’s contribution to Social Security & Medicare) 0 Advertising 0 Promotion 0 InsuranceTotal amount of the insurance policy divided by 12 months (ACCRUAL)0 Pension or 401(k)Taken from the Payroll Register 0 InterestThis is only the interest portion of your loan payment (Found on the Amortization Table)0 Supplies 0 Utilities8 monthly payments based on 12 months of use 0 Other 0 Total operating expenses Income from operations Other revenues/gains and expenses/losses Net income before taxes Corporate income taxONLY OWED IF NET INCOME IS POSITIVE!!! Net income after taxes Income Statement Taken from Sales Journal

An Overview of the VEI Program veinternational.org Balance Sheet ASSETS LIABILITIES SHAREHOLDER’S EQUITY = +

An Overview of the VEI Program veinternational.org The Balance Sheet Assets Current Assets Cash From Bank Account Investments in stocks Accounts receivable From Sales Journal/Acc Rec. Merchandise inventory From Inventory Log Supplies Estimate Total Current Assets - Fixed Assets Computers Original Value Less: accumulated depreciation How much value has it lost over its life? Furniture and fixtures Original Value Less: accumulated depreciation Office equipment Original Value Less: accumulated depreciation Total Fixed Assets0 Total Assets0 Liabilities and Stockholders' Equity Current Liabilities Accounts payable Who do you owe? Sales tax payable Sales Tax Reporting Salaries payable April Salaries? Payroll tax payable April Payroll Tax 401(k) payable Other payable Corporate tax payable Did you make a profit? Total Current Liabilities0 Long Term Liabilities Loan payable Loan Payment table Total Liabilities Stockholders' Equity Paid-in capital Common stock, $10 par value, * # shares issued Seed money Additional paid-in-capital In excess of par value Was your firm certified? Retained earnings ”Plug” number Total Stockholders' Equity0 Total Liabilities and Stockholders' Equity =

An Overview of the VEI Program veinternational.org Session Debrief / Q & A

An Overview of the VEI Program veinternational.org General accounting practices in the Virtual Enterprise Prepare a budget Keep records of all transactions o Using the accounting journals Oversight & Internal Controls Using the Webinars Using the journals to prepare financial statements o Cash Budget o Income Statement o Balance Sheet Year-end reporting using the Firm Financial Data Form

An Overview of the VEI Program veinternational.org ACTIVITY: Using the Accounting Journals Go to: portal.veinternational.org  Accounting & Finance  “Webinars”  “Basics of the Accounting Journals”