Accountability

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Accountability
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• Accounting
• An Overview of Financial Performance

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Accounting Defined

• The American Institute of Certified Public
  Accountants defines accounting as "the art of
  recording, classifying, and summarizing in a
  significant manner in terms of money,
  transactions and events which are, in part at
  least, of a financial character, and interpreting
  the results thereof."

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A Business Example
The Acme Corporation supplies products and
services to people world-wide. This presentation
provides an overview of our financial
performance. Unless marked as Company
Confidential, all information has been made
public.

• Highlights
• Income
• Revenue
• Balance Sheet
• Assets
• Stock Performance

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Highlights
(in millions) 1999 2000
Net revenues x,xxx x,xxx
Net income xxx xxx
Earnings per share xxx xxx
Return on net revenues xx xx
Cash and s/t investments xxx xxx
Total Assets x,xxx x,xxx
Stockholders equity xxx xxx
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Income
NetRevenues
NetIncome
Earnings / Share
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Revenue by Division
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Balance Sheet
1999 2000
Assets Cash and short-term investments Accounts receivable Inventories Other x,xxx xxx xxx xxx x,xxx xxx xxx xxx
Total Assets x,xxx x,xxx
Liabilities Accounts payable Accrued compensation Income taxes payable Other x,xxx xxx xxx xxx x,xxx xxx xxx xxx
Total Liabilities x,xxx x,xxx
Shareholders Equity x,xxx x,xxx
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Assets
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Stock Performance
Stock Performance to Date
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How Accountants Think

• There is a direct correspondence between
  reality and knowledge we have of it through
  financial reports.
• Objective is to give as accurate and true a
  picture of what happened (transactions) and where
  we stand (financial condition) as humanly
  possible.

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Accounting Records

• The Books
• Ledgers record changes in condition
• Journals record, classify and summarize specific
  transactions.
• Charts of accounts list classification scheme for
  recording transactions
• Income
• Expenditures

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Basic Formula

• Financial condition at a given moment
• Changes over time
• All accounting systems use three fundamental
  terms
• Assets (What we own or hold)
• Liabilities (What we owe)
• Equity (Difference)
• A-L E

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Two Other Basic Components

• Record changes
• Income (Inflows of Assets)
• Expenditures (Outflows of Assets)

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Ledger Accounts

• Ledgers have five sets of accounts that all
  together should be in balance
• Assets, liabilities, equities, income and
  expenditures.
• All transactions are recorded twice (double-entry
  bookkeeping)
• Sum of all right hand columns should equal sum of
  all left hand columns

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Disaggregation

• Any ( usually all) of these five can be
  sub-divided into many more possibilities.
• Asset Cash inventory
• Liability Current long-term (e.g.mortgage)
• Equities Categories
• Income Revenue, Donations, Grants
• Expenditures Salaries, Fringes, Rent, etc.
• Sub-categories must always total to the whole.

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Assets

• Debit (Left side) Additions to Assets
• What we own
• Cash on hand
• Inventory
• Receivables (What we are owed)
• Credit (Right side) Reductions of Assets
• What we have spent
• Major offsetting entries are Income, Expenditures
  and Equity.

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Liabilities

• Debit side Mostly adjustments and corrections
• Credit side What we owe (payables)
• In nonprofits, often a very limited category.
• Major offsetting entries are in Expenditures
  (bought but not paid for) and Equity (reducing
  capital)

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Equity

• In nonprofits, has one of two names
• Fund accounting Fund balances
• Net income accounting Net income
• Left (debit) offsetting entries are Liability
  credits (right).
• Right (credit) offsetting entries are Asset
  debits (left).

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Inflows

• Left Mostly adjustments
• Right
• What we have received
• Revenue
• Support
• What we expect to receive
• Off-setting entries are in Assets

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Expenditures

• Left (debits) reduce assets (paid) or increase
  liabilities (payables).
• Right (credits) are mostly corrections and
  adjustments.

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Quickbooks

• Small nonprofits (under 250,000) with limited
  payroll and limited accruals can get good
  service out of Quickbooks
• URL http//www.quickbooks.com
• They have a 30-day trial period you can sign up
  for.

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GAAP Financial statements

• The purpose of keeping these records (the
  books) is to produce accurate financial
  statements.
• Nonprofit financial statements
• Financial Position (Assets, Liabilities Equity)
• Statement of Activities (Changes in Net Assets)
• Cash Flows (Operations, Investments, Financing)
• Functional Expenditures