Mark Schnoor, MBA

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Financial Planning

• Mark Schnoor, MBA
• January 24, 2008
• LEAD

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Accounting
Core Competency
Decision Making

• Accounting is a system that measures, processes,
  and communicates financial informationit is not
  your business
• All organizations engage in 3 primary accounting
  activities financing, operating, and investing

Accounting
Communication
Measurement
Processing
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The Accounting Equation

• Assets Liabilities Owners Equity
• Assets are economic resources owned by a business
  that are expected to benefit future operations
• Liabilities are present obligations of a business
  to pay cash, transfer assets, or provide services
  to other entities in the future
• Owners equity represents the claims by the
  owners of a business to the assets of the business

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Revenues, Expenses, and Profit

• Revenues and expenses are the increases and
  decreases in owners equity that result from
  operating a business
• When revenues exceed expenses, the difference is
  called net income when expenses exceed revenues,
  the difference is called net loss.
• What about IMSAAre we making money here folks?!
• IMSA is a non-profit organization
• Over 30 of the US economy is generated by
  not-for-profit organizations

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Communication through financial statements

• The income statement summarizes the revenues and
  expenses incurred by a business over a period of
  time
• The balance sheet shows the financial position of
  a business on a certain date
• The statement of retained earnings shows the
  changes in retained earnings over a period of
  time
• The statement of cash flows explains the change
  in cash in terms of operating, investing, and
  financing activities over a period

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Income Statement
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Wow! That looks complicated and not very
practicalHow do I get started?
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Real Examples
Revenues
Expenses

• Leasing Space
• Salary

• Grants
• Donations
• Volunteer Labor
• Sales

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Recognition, Valuation, and Classification

• Business transactions are economic events
  that affect the financial position of a business
  entity. To measure a business transaction, the
  accountant must decide when the transaction
  occurred, what value to place on the transaction,
  and the components of the transaction should be
  categorized

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Recognition

• Consider buying an office desk...
• When do you recognize the purchase?

• 1. An employee sends a requisition to the
  purchasing department
• 2. The purchasing department sends a purchase
  order to the supplier
• 3. The supplier ships the desk
• 4. The company receives the desk
• 5. The company receives the bill
• 6. The company pays the bill

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Valuation

• Valuing is assigning monetary value to a business
  transaction
• GAAP state that the original cost or historical
  cost is appropriate in most cases but it is often
  not the most accurate measure of value

Consider buying a building
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Classification

• Consider the purchase of tools
• A repair expense or an asset?

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The Double-Entry System

• The double-entry system, the backbone of
  accounting, evolved during the Renaissance
• The first systematic description of double-entry
  bookkeeping appeared in 1494, two years after
  Columbus discovered America, in a mathematics
  textbook by Fra Luca Pacioli
• The system is based on the principle of duality,
  which means that every economic event has two
  aspectseffort and reward, sacrifice and benefit,
  source and usethat balance or offset each other